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Fintech firms attract $500m investment

Financial technology (Fintech) firms owned by Nigerians have attracted $500 million investments in five years.

Central Bank of Nigeria CBN) Governor Mr. Godwin Emefiele attributed these investments in Fintech between 2015 and last year to the confidence the investing community has in the robust payment system.

Emefiele said: “Our robust payment system has continued to evolve towards meeting the needs of households and businesses in Nigeria. The high level of confidence in our payment system, between 2015 and 2020, has attracted the investment of about $500 million in firms run by Nigerian founders.”

He also said after missing the launch date of October 1, this year, Nigeria’s digital currency, the eNaira, would be unveiled in a few days.

Emefiele, who was represented by Mr. Edward Lamekek Adamu Deputy Governor, Corporate Services Directorate, spoke in Enugu at the 31st Seminar for Finance Correspondents and Business Editors.

Emefiele lamented that “about 36 per cent of adult Nigerians still do not have access to financial services”.

As the world recovers from COVID-19, Emefiele assured that “FinTech will play a more important role towards resilient and sustainable recovery”.

According to him, “a country with one of the largest millennial population in the world- (an estimated 62 per cent of the Nigerian population below 25 years), fast Smartphone growth driven by increasing affordability, increasing mobile penetration and fast transition to 5G technology, Nigeria remains primed to be an active playground for digital transformation and cannot afford to ignore the Fintech challenge”.

He noted: “Improving access to finance for individuals and businesses through digital channels can help to improve financial inclusion, lower the cost of transactions, and increase the flow of credit to businesses.”

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The CBN governor stated that “digital revolution will be a focus for Financial Institutions in the months ahead therefore making Fintechs a major driver of the industry”.

Emefiele said the advent of digital financial services “has created faster, more efficient, and typically cheaper transactions compared to traditional financial services’’.

Speaking on the unveiling of the eNaira in a few days time, Emefiele said “in a couple of days from now, the Central Bank of Nigeria will be unveiling its Central Bank Digital Currency (CBDC), the eNaira, making Nigeria one of the first countries in Africa, and indeed the globe, to adopt the digitization of its national currency”.

The CBN, he said, “decided to introduce a central bank digital currency, the eNaira, which would help in attaining our goals of fostering greater inclusion using digital channels”.

Other reasons for introducing the eNaira he added is to “support cross border payments for businesses and firms as well as providing a reliable channel for remittances inflows into the country”.

With the deployment of the eNaira, Emefiele said Nigerians in remote areas can conduct financial activities using their digital as well as features on phone devices.

Partnering with stakeholders in the financial industry, Emefiele believes that more Nigerians would be financially included.

Speaking on the effects of COVID-19, Emefiele said “the pandemic tested the operational resilience and business continuity strategies of our banks. Operational risk increased due to the increased reliance on technology and third-party service providers during the period”.

“Also, the risk of money laundering and cybercrimes have increased. There is also the elevated risk of unauthorized access to banks’ networks and data security breaches,” he lamented.

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Despite the headwinds associated with the pandemic, the banking industry has however, remained relatively resilient he said.

In his presentation at the seminar, Dr. Hassan Mahmud Director, Monetary Policy Department of the CBN highlighted the reason the CBN is paying serious attention to digital money.

One of the reasons he said is “the potential of digital money to replace currency as the predominant means of making retail payments; ability of digital currency to flow freely across international boundaries.

Other reasons are fears that the emergence of digital money could distort money supply, alter foreign exchange rates, causing central banks to lose control over monetary aggregates”.

However, he was optimistic that there was “the belief that the digital money ecosystem could improve the efficiency of monetary policy implementation”.

Mahmud outlined the steps the CBN had taken so far towards the launch of the eNaira.

According to him, the CBN digital currency will offer parity of value and will operate as a non-interest-bearing asset.

The apex bank, he said, has made presentations to banks about the design and operational module of the eNaira project. This has paved the way for “Nigeria’s digital currency to function under a tiered Anti-Money Laundering and Know Your Customer (AML/KYC) structure with different transaction limits”.

The AML/KYC pyramid he explained “will reportedly encompass unbanked citizens to provide their national identity-linked phone numbers for verification and users in this category will be limited to a daily transaction limit of N50,000 (about $120)”.

Also, the CBN has made provision of collateralised e-Naira credit to International Money Transfer Operator (IMTO) via their banking partners.

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In addition, the CBN Mahmud pointed out is “pre-funding IMTO accounts, but this method might carry significant exchange fluctuation risks”.

Mahmud highlighted the implications of a digital currency on Monetary Policy noting that “Cash Reserve Requirements, Discount Window Operations, Liquidity Ratio, Short-Term Interest rates and Electronic money may not have effect on Monetary Policy.

According to him, “there is no creation of new money in the present fractional reserve system. Digital money does not affect Reserve Money (Deposit Money Banks DMB’s reserves plus Cash-in- circulation CIC) moreover, there is no Cash Reserve Requirement (CRR) yet for electronic money’’.

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