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The Central Bank of Nigeria (CBN) has approved two new types of financial accounts that aim to tap into remittance flows and help stimulate the local economy.
In a circular published this week, the CBN informed commercial banks of its approval of the new account types and the potential benefits they offer to account holders.
The two new account types are the Non-Resident Nigerian Ordinary Account (NRNOA) and the Non-Resident Nigerian Investment Account (NRNIA).
The ordinary account allows non-resident Nigerians to repatriate their foreign earnings and manage funds in both foreign and local currencies, while the investment account allows them to invest in Nigeria using either foreign or local currency.
Deposits into the non-resident accounts must originate from external sources and must arrive through approved channels.
For example, non-resident Nigerians can deposit foreign salary payments, dividends and rental income into the accounts, where they can be easily converted into local currency.
Deposits from local sources of income are prohibited, except for traceable proceeds from approved local investments linked to prior foreign currency inflows and settlement of foreign exchange transactions.
Further removing red tape for Nigerians abroad, no electronic Certificates of Capital Importation (eCCIs) are required for remitting funds into or out of the new account types.
Williams Kanya, director of the Trade and Exchange Department at the CBN, said the new account types will help non-residents to access the Nigerian economy and to capitalise on investment opportunities.
“Non-resident Nigerians can use the investment account to participate in Nigeria’s diaspora bond and other locally-issued debt instruments, specifically targeted at the Nigerian diaspora,” said Kanya.
“The account will also serve as a conduit for non-resident Nigerians to manage their funds directly in a safe and secure environment, and reduce reliance on third parties in meeting local commitments and obligations.”
Effective as of January 1, 2025, financial institutions may offer the new account types to non-residents, in compliance with the criteria outlined in the circular.
Additional know your customer (KYC) requirements will be applied to the opening of these accounts, and these requirements will be further clarified in a subsequent FAQs document.
CBN continues to tweak remittances framework
The creation of the non-resident account types follows several years of CBN interventions in Nigeria’s remittance market, which accounts for more than a third of all remittances to Sub-Saharan Africa.
According to World Bank data, incoming remittances from Nigerians overseas reached $20bn in 2023.
This was slightly lower than the $21bn in remittances inflows recorded in 2022, but over the next two years, the total is projected to increase to $26bn.
Since 2020, the CBN has repeatedly intervened in the country’s remittance market, in an effort to backstop the exchange rate of the naira and to promote the use of licensed operators.
In November 2020, the CBN banned Nigerian banks and licensed international money transfer operators (IMTOs) from paying out remittances in naira.
The move was intended to stabilise the naira, whose official exchange rate was drifting further from the “parallel” or black market exchange rate, and to discourage Nigerians from using unlicensed IMTOs.
Ultimately, the ban had the opposite effect, as Nigerians who wanted to receive payouts in naira had no option but to turn to unofficial channels.
In 2021, the CBN tried to tempt remittance customers through the “Naira 4 Dollar Scheme”, which offered a bonus of NGN5 for every $1 received via remittances through licensed IMTOs.
Originally intended to be a temporary scheme, the CBN extended its enforcement indefinitely after just three months.
However, the central bank continued to be disappointed by its efforts to raise dollars and restrict naira.
In December 2022, it issued a circular on “illegal activities”, accusing banks of working with unlicensed IMTOs to continue paying out remittances in naira.
This was the CBN’s last serious attempt to enforce the naira ban, which was revoked seven months later, in July 2023.
By this point, however, the value of the naira had already dropped by more than 50 percent against the dollar since the ban was implemented in 2020.
In addition, although Nigerians could once again receive remittances in naira, licensed IMTOs were told that their exchange rates must not deviate more than 2.5 percent from the CBN’s official exchange rate.
Remittance operators offered central bank liquidity
The move appears to have persuaded the CBN that it is better to cooperate with licensed IMTOs than to restrict them or compete with them.
In June 2024, the CBN issued a circular on measures to enhance local currency liquidity for settlement of diaspora remittances.
Under the new policy, which is still in effect, eligible IMTOs may access naira liquidity directly through the CBN or through authorised dealer banks (ADBs).
The pricing for transactions executed with the CBN is based on the Nigerian Autonomous Foreign Exchange Market (NAFEM) rate, also known as the Investors & Exporters (I&E) Window.
In contrast to the central bank’s official exchange rate, the NAFEM rate is determined by supply and demand.
The NAFEM rate tends to be more flexible than the official rate, and generally reflects the dynamics of the market more closely.
It is worth pointing out, however, that by the time the CBN unlocked this direct source of naira liquidity for licensed IMTOs, the naira’s exchange rate had, once again, dropped another 50 percent against the dollar since 2023.
