The Central Bank of Nigeria (CBN) has unveiled a new scheme tagged, ‘Naira 4 Dollar’ to woe more Diaspora remittances.
Under this scheme, starting from Monday, the apex bank will offer a N5 reward for every $1US sent from overseas and received by Nigerians within the next 60 days.
According to a circular dated March 5, 2021 and directed to all Deposit Money Banks (DMBs), International Money Transfer Operators (IMTOs) and members of the public, the apex bank said the new scheme was an effort to sustain the encouraging increase in inflows of Diaspora remittances into Nigeria.
The circular, issued by the Trade and Exchange Department of the CBN, stated that the scheme was an incentive for senders and recipients of international money transfers.
Accordingly, all recipients of Diaspora remittances through the CBN licenced IMOs, shall henceforth be paid N5 for every $1 received as remittance inflow.
“In light of this, the CBN shall, through commercial banks, pay to remittance recipients the incentive of N5 for every $1US remitted by the sender and collected by a designated beneficiary.
“This incentive is to be paid to recipients, whether they choose to collect the dollar as cash across the counter in a banker or transfer same into their domiciliary account.
“In effect, a typical recipient of Diaspora remittances will, at the point of collection, receive not only the USD sent from abroad but also the additional N5 per USD received.
“Please note that having discussed with banks and IMTOs, the scheme takes effect from Monday, March 8 and ends on Saturday, May 8, 2021,” the circular stated.
Nigerians in Diaspora remitting $30m weekly – CBN
On December 2020, the apex bank had directed commercial banks to begin the Diaspora remittance policy, enabling bank customers to cash out money sent to them from abroad in dollars through MoneyGram, Western Union Money Transfer, among other international money transfer platforms.
The latest move is to further promote Diaspora remittances started in January 2021.
According to the CBN, the weekly Diaspora remittances figure to Nigeria is over $30 million.
This is said to be about a 500 per cent increase from the $5million before the Diaspora remittances scheme was introduced.
Why we’re pushing for remittances – Emefiele
Commenting on the move in a Diaspora webinar series, CBN Governor Godwin Emefiele stated, “We need to amplify the essence of the policy to reduce the cost burden of remitting funds to Nigeria by Nigerians in the Diaspora.
“First of all, for example, the average cost of sending $200 worth remittances to Nigeria from the US is roughly 4.7 per cent. Studies have shown that even a 1 per cent decrease in the cost of sending remittance can result in a significant boost in inflows.”
He noted that countries in South Asia, such as Pakistan and Bangladesh were aware of this impact and they introduced reimbursement schemes to support inflows.
In Pakistan, the scheme is known as Free Send and has enabled a record amount of inflows of over $2billion monthly, even during the COVID-19 pandemic.
Bangladesh started its scheme in June 2019, which is a 2 per cent rebate on remittance inflows, and has seen a 20 per cent boost in remittance inflows, Emefiele explained.
While allaying fears of round-tripping, a situation where beneficiaries could cycle remittances to benefit more, the CB governor said, “There is a maximum amount that you can remit through an IMTO. You can’t send $100,000 through an IMTO.”
Policy will encourage formal remittances- Economists
Economists have said that Central Bank of Nigeria’s ‘Naira for Dollar Scheme’ may have been conceived to encourage more formal remittances into Nigerian economy.
An economist, who chairs Daily Trust Board of Economists, Prof. Nazifi Abdullahi Darma, told Daily Trust that the policy was an incentive to ramp up dollar remittances into the country.
Professor Darma, a senior lecturer with the University of Abuja, said the policy may have also been designed to discourage direct cash transfers.
“The incentives are likely to encourage more formal remittances as opposed to direct cash transfer, hence incorporating more of the remittances into the formal banking system,” he said.
The professor said the policy would strengthen the country foreign reserves.
“Perhaps, the main objective of this incentive is to increase Dollars inflow into the Nigerian economy as a means of strengthening our exchange rate through improvement in our foreign reserves,” he said.
An economist and also a member of Daily Trust Board of Economist, Dr. Rislanudeen Muhammad, said of recent, there has been a lot of pressure in the foreign exchange market leading to wide disparity between official and BDC rates.
“This new policy will help in further incentivizing more diaspora remittances thereby boosting our reserves and enhancing the capacity of CBN to meet up with legitimate obligations timeously,” he said.
Dr Muhammad said beyond that, CBNs need to work towards harmonizing and merging the different rates across the market to discourage speculative demand as well as incidences of round tripping and arbitrage.
‘More needed to be done’
Economic experts have said the effort does not equate those of India and other countries practising the scheme as their rewards are pegged in percentage.
One of the analysts who spoke to our reporter, Mr Taiwo Jacobs, a financial analyst in Abuja said, “If you are copying a model you ought to copy it well. What is the value of N5 to a dollar that exchanges for nearly N400? The CBN has taken a step, but they needed to do better than this.”
However, Emefiele has admitted that CBN’s action does not go far enough in offering total reimbursements, but that it was a step in the right direction in reducing the burden of cost for Nigerians in the Diaspora remitting funds to the country.