The Central Bank of Nigeria’s strategic initiatives to attract diaspora remittances and facilitate financial inclusion for Nigerians abroad are timely and innovative moves to boost Nigeria’s foreign exchange reserves and stimulate economic growth.
Led by Governor Olayemi Cardoso, the Central Bank of Nigeria has said it aims to increase remittance inflows from the diaspora, targeting $1 billion and launching a non-resident Bank Verification Number (BVN) platform by December 2024.
As of 2022, a World Bank report stated that Nigeria received $20.1 billion in remittances, ranking 6th globally. This accounted for approximately 4% of our GDP, with the top remittance-sending countries being the United States of America, the United Kingdom, Canada, Germany, and Italy. Conversely, Foreign Direct Investments (FDI) in the same year totalled $468.1 million, according to data from the Nigerian Economic Summit Group.
In the same year reference, India ranked first, receiving over $111 billion, while Mexico ranked second with over $50 billion.
Remittances have been a game changer for the economies of India and Mexico. In the latter, for instance, remittances have become one of the largest sources of financial flows, rivalling Foreign Direct Investment flows. These funds have helped alleviate poverty and support day-to-day expenses, essentially subsidising household consumption. In fact, research shows that municipalities in Mexico receiving remittances have higher economic growth and development compared to those that don’t.
In Nigeria, diaspora remittances play a similar vital role in our economy, serving as a significant source of foreign exchange and supporting household consumption, investment, and national reserves. It goes without saying therefore that the Central Bank of Nigeria’s efforts to improve the economy can benefit from a more intentional approach to increasing remittances, especially through formal channels.
Recent fluctuations due to global economic uncertainties, FX management issues, and informal remittance channels have highlighted the need for a more robust remittance framework.
This is not new, though. To increase diaspora remittances and further harness its contributions to the Nigerian economy, the Central Bank of Nigeria has in the recent past explored various other initiatives. Some of these include the ‘Naira 4 Dollar Scheme, which was introduced in 2021, offering recipients of diaspora remittances N5 for every $1 received through licensed International Money Transfer Operators (IMTOs). The scheme showed promising results but has been rested following the unification of exchange rates.
The Central Bank of Nigeria also directed banks to begin to offer diaspora-friendly banking services. These are basically specialised banking services for Nigerians living abroad, including diaspora-friendly accounts and investment products. Alongside this was a reduction in remittance charges at 2% of transaction value to make formal channels more attractive. The reduction in charges led to a moderate increase in formal remittances, with some reports suggesting a 10-15% rise.
These initiatives demonstrate the CBN’s commitment to increasing diaspora remittances and promoting financial inclusion for Nigerians abroad.
For greater success, though, industry leaders have emphasised the importance of collaboration between banks, fintech, and regulators to make remittances more efficient and affordable.
Thus, this new Central Bank of Nigeria campaign to strengthen ties with the Nigerian diaspora, launched in partnership with the Nigeria Inter-Bank Settlement System, major Nigerian banks, and International Money Transfer Operators, is a step in the right direction.
The Non-Resident BVN platform initiative is aimed at promoting formal remittance channels, simplifying access to Nigerian banking services for Nigerians abroad, and enabling them to open accounts, invest in Nigeria, and participate in national financial schemes.
This initiative reflects ongoing digital transformation efforts in the financial sector and will ensure better tracking of remittance inflows, enhancing transparency and data security.
So, what will the $1 billion remittance target succeed in doing? The CBN projects that achieving the target will boost Nigeria’s FX reserves, ease currency pressures, and support exchange rate stability.
These remittance funds can be directed towards education, healthcare, and small businesses, contributing to household welfare and local economic development. A competitive naira also offers attractive investment prospects for Nigerians abroad, potentially leading to increased investments in local assets and businesses.
However, several challenges may hinder the success of this initiative. Sustained competition from informal remittance channels, implementation delays, global economic uncertainties, trust and adoption concerns, and FX policy risks may all impact the platform’s effectiveness.
To overcome these challenges, the CBN must keep a firm grip on ensuring regulatory compliance, driving user adoption through awareness campaigns and education, and maintaining trust and transparency by eliminating policy inconsistency.
In conclusion, the CBN’s initiatives to attract diaspora remittances and facilitate financial inclusion have the potential to significantly boost Nigeria’s economy. By addressing the challenges and implementing recommendations, the CBN can harness the economic potential of diaspora remittances and promote sustainable growth and development. As noted by the CBN Deputy Governor for Economic Policy, Mohammed Sani Abdullahi, “Our strategy emphasises leveraging remittances to support sustainable economic growth and deepen financial inclusion.”
