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BDC Operators See Highest Increase In 16 Years

According to data from the Central Bank of Nigeria (CBN), the number of Bureau de Change (BDC) operators in Nigeria increased more than 75 times in 16 years, from 74 in 2005 to 5,689 in 2021.

Under the present government, the number of BDCs has increased from 2,839 six years ago to a level that is over 100% more than that of 2015.

According to BusinessDay’s findings, the enormous growth in the number of BDCs was brought on by alluring exchange rate premiums.

As of July 12, 2022, the difference in exchange rates between the official and BDC rates is N188, or 44.02 percent. The BDC rate closed at N615 on July 12, 2022, whereas the Investors and Exporters forex window rate was at N427.75 per dollar as of July 8, 2022.

The magnitude of premium between the official and parallel market rates is the reason there are so many of them. Being in that industry is more desirable the bigger the premium. According to Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, the larger the premium, the more people view it as favoritism.

He claims that despite some people having multiple licenses, registration numbers increase as the rate difference increases.

He claimed that people who engage in round-tripping are nearly outweighing those that carry out the primary intent of the business.

According to him, the expansion of BDCs is due to market distortion, as many of them exist only for round-trip transactions.

According to the CBN, a BDC is any business that has been granted a license to operate a small-scale foreign exchange business in Nigeria and whose primary purpose is to conduct such activity on an independent basis.

The BDC industry has been an essential part of the Nigerian financial market for many years, contributing significantly to the stability of the local currency and the generation of jobs. The BDCs have backed Nigeria’s expansion plans, as well as the CBN’s dedication to maintaining exchange rate stability and industry regulation.

According to the industry’s zero-tolerance policy for regulatory misuse, several negligent BDC operators have received sanctions from the CBN and the Association of Bureaux De Change Operators of Nigeria.

A CBN director described how BDCs might be utilized to carry out money laundering in 2019. He claimed that the operators could be used to send or receive money, buy or sell foreign exchange using fronts or third parties in violation of regulatory restrictions, buy or sell foreign exchange in bulk, and fund BDCs’ weekly foreign exchange purchases through the apex bank window with third parties.

According to the director, other possibilities include massive, unexplained transfers of money into BDCs’ naira or domestic accounts, multiple BDC ownership schemes to scoop up foreign currency, sizable foreign exchange purchases made with naira cash, and foreign exchange purchases made in exchange for jewelry or real estate, among others.

The banking sector regulator halted dollar sales to the BDCs in January 2016 because they had turned into a conduit for illegal trade and money flows.

“We have noted with extreme concern that Bureau de Change operators have abandoned the basic goal of their formation, which was to serve retail end users who need $5,000 or less,” CBN Governor Godwin Emefiele stated. Instead, they now make millions of dollars per transaction as wholesale foreign currency brokers.

Then, they submit weekly returns to the CBN using fictitious identification, such as passport numbers, BVNs, boarding permits, and flight tickets.

“While the bank has continued to sell US dollars to these operators at a rate of roughly N197 per dollar, the operators have grown avaricious in their sales to regular Nigerians, charging up to N250 per dollar. Given this rent-seeking behavior, it is not unexpected that the number of operators has increased from just 74 in 2005 to 2,786 BDCs today since the CBN started selling foreign exchange to BDCs. Additionally, the CBN gets nearly 150 new BDC license applications each month.

Emefiele said that the financial strain being placed on the central bank and its finite foreign exchange was more alarming.

“To mitigate this reserve depletion, we have lowered the weekly sales amount to $10,000 per BDC, which equates to a $28.4 million weekly loss of foreign reserves and an annual loss of $1.476 billion. This is a significant drain on our meager foreign exchange reserves that cannot go on, especially in light of our worry that BDCs have turned into a conduit for illegal trade and financial activities.

In 2017, the apex bank started selling foreign exchange to the BDCs after a year of interruption.

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According to data from the Central Bank of Nigeria (CBN), the number of Bureau de Change (BDC) operators in Nigeria increased more than 75 times in 16 years, from 74 in 2005 to 5,689 in 2021.

Under the present government, the number of BDCs has increased from 2,839 six years ago to a level that is over 100% more than that of 2015.

According to BusinessDay’s findings, the enormous growth in the number of BDCs was brought on by alluring exchange rate premiums.

As of July 12, 2022, the difference in exchange rates between the official and BDC rates is N188, or 44.02 percent. The BDC rate closed at N615 on July 12, 2022, whereas the Investors and Exporters forex window rate was at N427.75 per dollar as of July 8, 2022.

The magnitude of premium between the official and parallel market rates is the reason there are so many of them. Being in that industry is more desirable the bigger the premium. According to Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, the larger the premium, the more people view it as favoritism.

He claims that despite some people having multiple licenses, registration numbers increase as the rate difference increases.

He claimed that people who engage in round-tripping are nearly outweighing those that carry out the primary intent of the business.

According to him, the expansion of BDCs is due to market distortion, as many of them exist only for round-trip transactions.

According to the CBN, a BDC is any business that has been granted a license to operate a small-scale foreign exchange business in Nigeria and whose primary purpose is to conduct such activity on an independent basis.

The BDC industry has been an essential part of the Nigerian financial market for many years, contributing significantly to the stability of the local currency and the generation of jobs. The BDCs have backed Nigeria’s expansion plans, as well as the CBN’s dedication to maintaining exchange rate stability and industry regulation.

According to the industry’s zero-tolerance policy for regulatory misuse, several negligent BDC operators have received sanctions from the CBN and the Association of Bureaux De Change Operators of Nigeria.

A CBN director described how BDCs might be utilized to carry out money laundering in 2019. He claimed that the operators could be used to send or receive money, buy or sell foreign exchange using fronts or third parties in violation of regulatory restrictions, buy or sell foreign exchange in bulk, and fund BDCs’ weekly foreign exchange purchases through the apex bank window with third parties.

According to the director, other possibilities include massive, unexplained transfers of money into BDCs’ naira or domestic accounts, multiple BDC ownership schemes to scoop up foreign currency, sizable foreign exchange purchases made with naira cash, and foreign exchange purchases made in exchange for jewelry or real estate, among others.

The banking sector regulator halted dollar sales to the BDCs in January 2016 because they had turned into a conduit for illegal trade and money flows.

“We have noted with extreme concern that Bureau de Change operators have abandoned the basic goal of their formation, which was to serve retail end users who need $5,000 or less,” CBN Governor Godwin Emefiele stated. Instead, they now make millions of dollars per transaction as wholesale foreign currency brokers.

Then, they submit weekly returns to the CBN using fictitious identification, such as passport numbers, BVNs, boarding permits, and flight tickets.

“While the bank has continued to sell US dollars to these operators at a rate of roughly N197 per dollar, the operators have grown avaricious in their sales to regular Nigerians, charging up to N250 per dollar. Given this rent-seeking behavior, it is not unexpected that the number of operators has increased from just 74 in 2005 to 2,786 BDCs today since the CBN started selling foreign exchange to BDCs. Additionally, the CBN gets nearly 150 new BDC license applications each month.

Emefiele said that the financial strain being placed on the central bank and its finite foreign exchange was more alarming.

“To mitigate this reserve depletion, we have lowered the weekly sales amount to $10,000 per BDC, which equates to a $28.4 million weekly loss of foreign reserves and an annual loss of $1.476 billion. This is a significant drain on our meager foreign exchange reserves that cannot go on, especially in light of our worry that BDCs have turned into a conduit for illegal trade and financial activities.

In 2017, the apex bank started selling foreign exchange to the BDCs after a year of interruption.

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