CBN mandates Naira-only diaspora remittances from May 1

By: Amarachi Okonkwo 

Nigeria’s diaspora remittance ecosystem is set for a major transformation following a new directive by the Central Bank of Nigeria (CBN) mandating that all international money transfers be paid to beneficiaries in naira.

The policy, which takes effect from May 1, marks a decisive shift from the long-standing practice of dollar-denominated payouts and is expected to have far-reaching implications for foreign exchange flows, market liquidity, and household incomes.

Under the new framework, all International Money Transfer Operators (IMTOs) must open naira settlement accounts with authorised dealer banks and route all remittance inflows through these accounts. Beneficiaries will no longer have the option of receiving funds in foreign currency.

The apex bank said the move is designed to improve transparency, enhance traceability of inflows, and strengthen regulatory oversight in Nigeria’s foreign exchange market.

For years, diaspora remittances have served as a critical source of foreign exchange, supporting household consumption and contributing to external reserves. However, policymakers have expressed concerns that a significant portion of these inflows quickly exits the domestic financial system, limiting their broader economic impact.

By enforcing local currency settlement, the CBN aims to retain more value within the economy and deepen participation in the formal foreign exchange market.

Director of the Trade and Exchange Department at the CBN, Musa Nakorji, stressed the mandatory nature of the directive, noting that all IMTO transactions must be processed strictly through designated naira settlement accounts.

“These accounts are restricted to remittance inflows and proceeds from foreign exchange conversions conducted through authorised participants,” the bank said.

IMTOs are also required to notify the regulator of all designated accounts and provide updates whenever changes occur, a move aimed at strengthening monitoring and compliance.

The policy also introduces new operational dynamics in the foreign exchange market.

Authorised dealer banks are permitted to transfer foreign currency from IMTO settlement accounts to other approved participants, including bureau de change operators. Analysts say this could improve liquidity and efficiency within the formal FX market.

In addition, the CBN has directed IMTOs to align their pricing with real-time market rates available on Bloomberg’s BMatch platform. This benchmark mechanism is expected to enhance price discovery, reduce arbitrage opportunities, and discourage transactions in informal channels.

The directive reinforces Nigeria’s commitment to global financial standards, particularly in anti-money laundering (AML) and counter-terrorism financing (CFT).

Operators are required to maintain comprehensive transaction records to support audits and regulatory reviews, in line with guidelines from the Financial Action Task Force (FATF).

Nigeria’s recent removal from the FATF grey list has further strengthened confidence in the country’s financial system. The development signals improved compliance with international standards and is expected to enhance investor perception and reduce the cost of capital.

CBN Governor Olayemi Cardoso described the milestone as validation of ongoing reforms aimed at improving financial system integrity.

The remittance reform is part of a broader strategy to modernise Nigeria’s cross-border payment infrastructure and promote financial inclusion.

Speaking at the G-24 Technical Group Meetings in Abuja, Cardoso highlighted persistent challenges in global remittance systems, including high transaction costs, settlement delays, and fragmented payment networks.

He noted that remittance costs still average above six per cent globally, with transactions often taking several days to complete factors that limit access to financial services, particularly for small businesses and low-income households.

To address these issues, the CBN is leveraging digital innovation, strengthening regulatory frameworks, and supporting fintech development through initiatives such as its regulatory sandbox.

The bank has also simplified Know Your Customer (KYC) requirements for low-value cross-border transactions to encourage participation in regional payment systems like the Pan-African Payment and Settlement System (PAPSS).

Nigeria’s rapidly expanding fintech ecosystem is expected to play a critical role in supporting the new remittance framework.

Over the past decade, the country has emerged as one of Africa’s leading fintech hubs, attracting significant investment and driving innovation across payments, lending, and digital banking.

In 2024 alone, Nigerian startups attracted over $520 million in funding, underscoring investor confidence in the sector’s growth potential.

Cardoso emphasised that fintech innovation remains central to the CBN’s strategy for inclusive economic development, particularly in extending financial services to underserved populations.

Analysts say the shift to naira-based remittance payouts represents a fundamental restructuring of Nigeria’s foreign exchange architecture.

While the policy is expected to improve transparency and strengthen monetary policy effectiveness, its success will depend on implementation, market acceptance, and the ability of stakeholders to adapt.

For millions of Nigerians who rely on diaspora inflows, the transition signals both a significant change and a potential opportunity for deeper integration into the formal financial system.

As reforms continue to unfold, the CBN’s approach reflects a broader effort to balance innovation with stability while positioning Nigeria’s financial system for long-term resilience.