Central Bank of Nigeria
|Central Bank of Nigeria|
|Central bank of||Nigeria|
|ISO 4217 Code||566|
The major regulatory objectives of the bank as stated in the CBN act of 1958 is to: maintain the external reserves of the country, promote monetary stability and a sound financial environment, and to act as a banker of last resort and financial adviser to the federal government. The central bank's role as lender of last resort and adviser to the federal government has sometimes pushed it into murky regulatory waters. After the end of imperial rule the desire of the government to become pro-active in the development of the economy became visible especially after the end of the Nigerian civil war, the bank followed the government's desire and took a determined effort to supplement any short falls in credit allocations to the real sector. The bank soon became involved in lending directly to consumers, contravening its original intention to work through commercial banks in activities involving consumer lending. However, the policy was an offspring of the indigenisation policy at the time. Nevertheless, the government through the central bank has been actively involved in building the nation's money and equity centers, forming securities regulatory board and introducing treasury instruments into the capital market.
- 1 History of the CBN
- 2 Today
- 3 Advance Fees Fraud (419)
- 4 Currency Restructuring (Naira)
- 5 Currency Issue System(Naira)
- 6 MPC Mandate
- 7 International Operations of the Nigerian Central Bank
- 8 Further Liberalization & Development Of The Foreign Exchange Market
- 9 Achievements recorded since the introduction of WDAS included
- 10 Private BDCs
- 11 Authorized Dealer BDCs
- 12 Export Trade
- 13 Import Trade Transactions in Nigeria
- 14 Payment Systems
- 15 Introduction
- 16 National Payments System (NPS) Objectives
- 17 Overview Of The Payment Systems
- 18 General Legal Framework
- 19 Institutional and Organizational Framework
- 20 The major Financial Institutions
- 21 Supervision
- 22 The supervisory function of CBN is structured into three departments
- 23 See also
- 24 Notes
- 25 References
- 26 External links
History of the CBN
In 1948, an inquiry under the leadership of G.D Paton was established by the colonial administration to investigate banking practices in Nigeria. Prior to the inquiry, the banking industry was largely uncontrolled. The G.D Paton report, an offshoot of the inquiry became the cornerstone of the first banking legislation in the country: the banking ordinance of 1952. The ordinance was designed to prevent non viable banks from mushrooming, and to ensure orderly commercial banking. The banking ordinance triggered a rapid growth in the industry, with growth also came disappointment. By 1958, a few number of banks had failed. To curtail further failures and to prepare for indigenous control, in 1958, a bill for the establishment of Central Bank of Nigeria was presented to the House of Representatives of Nigeria. The Act was fully implemented on July 1, 1959, when the Central Bank of Nigeria came into full operation. In April 1960, the Bank issued its first treasury bills. In May 1961 the Bank launched the Lagos Bankers Clearing House, which provided licensed banks a framework in which to exchange and clear checks rapidly. By July 1, 1961 the Bank had completed issuing all denominations of new Nigerian notes and coins and redeemed all of the West African Currency Board's previous money.
Policy implementation and criticism
The CBN's early functions were mainly to act as the government's agency for the control and supervision of the banking sector, to monitor the balance of payments according to the demands of the federal government and to tailor monetary policy along the demands of the federal budget. The central bank's initial lack of financial competence over the finance ministry led to deferment of major economic decisions to the finance ministry. A key instrument of the bank was to initiate credit limit legislation for bank lending. The initiative was geared to make credit available to neglected national areas such as agriculture and manufacturing. By the end of 1979, most of the banks did not adhere to their credit limits and favored a loose interpretation of CBN's guidelines. The central bank did not effectively curtail the prevalence of short term loan maturities. Most loans given out by commercial banks were usually set within a year. The major policy to balance this distortion in the credit market was to create a new Bank of Commerce and industry, a universal bank. However, the new bank did not fulfill its mission. Another policy of the bank in concert with the intentions of the government was direct involvement in the affairs of the three major expatriate commercial banks in order to forestall any bias against indigenous borrowers and consumers. By 1976, the federal government had acquired 40% of equity in the three largest commercial banks. The bank's slow reaction to curtail inflation by financing huge deficits of the federal government has been one of the sore points in the history of the central bank. Coupled with its failure to control the burgeoning trade arrears in 1983, the country was left with huge trade debts totaling $6 billion.
Governors of the Central Bank since independence:
|Governor||Previous position||Term start||Term end|
|Roy Pentelow Fenton||24 July 1958||24 July 1963|
|Aliyu Mai-Bornu||Deputy Governor, CBN||25 July 1963||22 June 1967|
|Clement Nyong Isong||Advisor International Monetary Fund||15 August 1967||22 September 1975|
|Adamu Ciroma||24 September 1975||28 June 1977|
|Ola Vincent||Deputy Governor, CBN||28 June 1977||28 June 1982|
|Abdulkadir Ahmed||Deputy Governor, CBN||28 June 1982||30 September 1993|
|Paul Agbai Ogwuma||CEO, Union Bank of Nigeria||1 October 1993||29 May 1999|
|Joseph Oladele Sanusi||CEO First Bank of Nigeria||29 May 1999||29 May 2004|
|Charles Chukwuma Soludo||Chief Executive, National Planning Commission||29 May 2004||29 May 2009|
|Sanusi Lamido Aminu Sanusi||CEO, First Bank of Nigeria||3 June 2009|
Currently, under the leadership of Lamido Sanusi, the bank's recent success is partially due to the rise in crude oil prices. The bank's use of capitalization has given more strength to the banking sector against an earlier failure by the central bank to control the fall of many merchant banks and commercial banks in the early 1990s. By 1990, the liberalizing agenda of an adopted Structural Adjustment Programme led to unprecedented growth in the banking sector.
The central bank was instrumental in the growth and financial credibility of Nigerian commercial banks by making sure that all the financial banks operating in the country has a capital base(required reserves). This help to make sure that bank customers just don't bare the loss alone, in the event of bank failures. However, this policy led to some Nigerian commercial banks to fail; some bank could not meet up with the capital base which was 25,000,000,000.00 Naira at the time. These banks that could not meet up had to fold up, while some that could not come up with the money on their own, had to merge with other banks in order to raise the money. This policy helped solidify the commercial banks of Nigeria, and made it impossible for individuals or organization without financial stability to operate a bank in the country. Today Nigeria has one of the most advanced financial sector in Africa, with most of its commercial banks having branches in other countries.
The Bank is active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion. It is also one of the original 17 regulatory institutions to make specific national commitments to financial inclusion under the Maya Declaration during the 2011 Global Policy Forum held in Mexico. The CBN has ensured all Banks in Nigeria to have a uniform year end. The various commercial bank includes Access Bank Plc, Citibank Nigeria Plc, Diamond Bank Plc, First Bank of Nigeria Plc, Guaranty Trust Bank Plc, Zenith Bank plc etc.
Advance Fees Fraud (419)
The name of the Central Bank of Nigeria has been used in a series of so-called 'Nigerian 419 Scams'. The fraudster sends an e-mail that appears to come from a Central Bank employee to millions of people saying the Bank has found an excess of money, or a debt owing to, a person or persons who have since died, and they wish to export it. The victim submits his own bank account so that the money may be placed therein, however this information is only used to add credibility to the scam, in order to lure the victim in further. Bank details and other personal information is used to create fake certificate or document that are allegedly from the Bank. Contrary to popular belief, the victim's bank account cannot be emptied in this fashion. And, if money was taken from an account, it could be reimbursed as it can be traced Instead, the fraudster will ask the victim to send money via wire transfer services such as Western Union or MoneyGram. A wire transfer sent abroad is untraceable and not reversible. The bank is in no way associated with such scams.
Currency Restructuring (Naira)
Under Section 19(1) of the Central Bank of Nigeria (CBN) Act 2007, the Central Bank of Nigeria has the power to restructure the Nigerian currency(Naira) through direct approval from the Nigerian President. The Provision states:
a. In such denominations of the Naira or fractions thereof as shall be approved by the President on the recommendation of the Board; and b. Of such forms and designs and bear such devices as shall be approved by the President on the recommendation of the Board. In line with the above provisions and for the purposes of more efficient payments and currency management systems, the CBN proposed and obtained the approval of the President of the Federal Republic of Nigeria, Dr. Goodluck Ebele Jonathan, GCFR,to embark on the currency restructuring exercise, codenamed ‘Project CURE’ on December 19, 2011.The CBN hereby informs the general public that the President, on Thursday, September 20, 2012, directed that further action on the approved restructuring exercise be stopped.In full compliance with the provisions of the law, the CBN hereby announces that further action on the said restructuring exercise 2 has been stopped, until such a time Mr. President may direct otherwise.It is important to stress that till date, no contract whatsoever,has been awarded by the CBN in connection with the printing and minting of the new currency notes and coins. Consequently, no currency note or coin has been printed or minted under the proposed exercise.In line with its mandate, the CBN remains committed to the pursuit of policies and programmes aimed at promoting the growth and development of the Nigerian economy.
Currency Issue System(Naira)
Naira notes and coins are printed/minted by the Nigerian Security Printing and Minting Plc (NSPM) Plc and other overseas printing/minting companies and issued by the Central Bank of Nigeria (CBN). At the currency printing works of the NSPM Plc, quality is meticulously controlled throughout every process of currency production. This guarantees that every note issued meets the required standard. The CBN maintains an office called Mint Inspectorate in the premises of the NSPM Plc to maintain security and quality of Naira notes and coins.
Currency is issued to deposit money banks through the branches of the CBN, and old notes retrieved through the same channel. Currency deposited in the CBN by the banks are processed and sorted to fit and unfit notes in line with the clean note policy. The clean notes are re-issued while the dirty notes are destroyed.
Currency In Circulation.
N 1368236 - in 8/31/2012 N 1362604 - in 7/31/2012 N 1838980 - in 6/30/2012 N 1398955 - in 5/31/2012 N 1422438 - in 4/30/2012 N 1432834 - in 3/30/2012 N 1438073 - in 2/29/2012 N 1475525 - in 1/31/2012 N 1565499 - in 12/30/2011 N 1390700 - in 11/30/2011 N 1359581 - in 10/31/2011 N 1342971 - in 9/30/2011
Note.: The above figures the last 12 captured months figures and are in millions of Naira.
The legal backing for monetary policy by the Bank derives from the various statutes of the bank such as the Central Bank of Nigeria Act of 1958 as amended in CBN Decree No. 24 of 1991, CBN Decree 1993 (Amendment), CBN Decree No. 3 of 1997 (Amendment), CBN Decree No. 4 of 1997 (Amendment), CBN Decree No. 37 of 1998 (Amendment), CBN Decree No. 38 of 1998 (Amendment), CBN Decree 1999 (Amendment) and CBN Act of 2007 (Amended) which is shown below.
Section 12 Sub-Sections (1) To (5), CBN Act Of 2007 (Amended) In order to facilitate the attainment of price stability and to support the economic policy of the Federal Government, there shall be a Committee of the Bank known as the Monetary Policy Committee (in this Act referred to as “the MPC”) The MPC shall consist of - the Governor of the Bank who shall be the Chairman the four Deputy Governors of the Bank two members of the Board of Directors of the Bank three members appointed by the President; and two members appointed by the Governor The MPC shall have responsibility within the Bank for formulating monetary and credit policy The appointment of a member of the MPC pursuant to sub-section 2 (d) and (e) of this section, the remuneration, filling of temporary vacancies, qualification, tenure of office and disqualification shall be subject to the same terms as are stipulated for a Director under sections 10 and 11 of this Act. The provisions of the Second Schedule to this Act shall have effect with respect to the proceedings of the MPC Note: Please be informed that the Bank is yet to constitute a new MPC in line with section 12 sub-sections (1) to (5) of the CBN Act 2007 as revealed above. The conduct of Monetary Policy in Nigeria and all activities of the Central Bank of Nigeria relate with the core mandate of the bank and therefore are best understood from this perspective. Consequently, in pursuance of its functions in compliance with the core mandate, the CBN undertakes monetary policy in order to:
Maintain Nigeria’s external reserves to safeguard the international value of the legal currency. Promote and maintenance of monetary stability and a sound and efficient financial system in Nigeria. Act as banker and financial adviser to the Federal Government; and Act as lender of last resort to banks.
International Operations of the Nigerian Central Bank
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Further Liberalization & Development Of The Foreign Exchange Market
Since the introduction of Whole Sale Dutch Auction System (WDAS) on February 20, 2006, the liberalized Foreign Exchange Market witnessed unprecedented stability most of which include the following:
Unification of exchange rates between the Official and Inter-bank Markets and resolution of the multiple currency problems. Facilitation of greater market determination of exchange rates for the Naira vis-à-vis other currencies
Achievements recorded since the introduction of WDAS included
Parallel market appreciation first time in 20 years. Convergence of official and inter-bank rates, thus unifying the two. Revision of the Foreign Exchange Manual Sale of Foreign Exchange to Bureaux-de-Change operators in an effort to increase access of foreign exchange to small end-users, bridge the supply gap and develop the local Bureaux-de-Change (BDCs) The Process of Selling Foreign Exchange to Bureaux-de-Change Operators:
The liberalization opened the market for the operations of private BDCs and Authorised Dealer BDCs. The operations of these BDCs with CBN window is basically cash operation.
The following explains the process:
Each licensed BDC was required, to open a Naira Current Account with an Authorized Dealer of its choice, for the purpose of buying forex. A Bureau-de-Change is allowed to purchase forex from the CBN through a presentation of the CBN cheque issued by their banks twice a week (Tuesdays and Thursdays). The Bureau-de-Change purchase equivalent amount of forex from the CBN up to a maximum limit of US$200,000.00 twice a week.
Authorized Dealer BDCs
The Authorized Dealer applies to CBN through the WDAS window on Mondays and Wednesdays for a maximum of US$2.0 million. The forex purchased by the Authorized Dealers is disbursed in cash and the BDCs in turn sell to end-users for eligible transactions only, such eligible transactions include: BTA at $5,000 per quarter and $20,000 per annum; PTA at $4,000 per quarter and $16,000 per annum; and others include: Mortgage monthly payment; School fees abroad; Medical fees abroad; Credit Card payment; Utility bills; and Life Assurance premium payment. On the Trade Transactions, there was further liberalization of export proceeds in the ordinary domiciliary account. The account holder has unfettered access to the repatriated funds.
In an effort to ensure that liberalization get to the small end-users, in April 2006; the CBN operates sales of forex (cash) to BDCs in all the 37 branches across the country.
The Trade & Exchange Department captures non-oil exports statistics in the form of shipments and proceeds repatriated into the export proceeds domiciliary accounts of the exporters, maintained with the deposit money banks.
The liberalization of the proceeds of export in the domiciliary account has afforded exporters unfettered access to the funds.
In October 2004, there was the reintroduction of pre-shipment inspection of exports which was suspended in March, 1999.
The re-introduction of the scheme was part of the Federal Government economic reform programme aimed at diversifying the export base of the country and a measure to ensure that only goods with acceptable quality were exported from Nigeria.
Consequently, the Federal Government of Nigeria appointed Messrs Cobalt International Services Limited as the Pre-Shipment Inspection Agent for non-oil exports in October 2004. In January 2007, the Government enlarged the scope of the exports pre-shipment inspection scheme to include crude oil and gas. Since the scheme came into operation on October 2004, the company charged with the responsibility for exports Pre-shipment inspection has opened a number of offices across the country.
From January – December 2006, a total of 7,720.00 Clean Certificates of Inspection with corresponding FOB value of US$957,305,374 were issued by the Inspection Agent, compared to the 7,642 CCIs with the corresponding FOB value of US$749,472,220.00 issued in 2005, respectively. During January to October, 2007, a total of Clean Certificate of Inspection CCIs issued was 8,133 valued US$1,145,109,938.13.
Following the completion of the banking sector consolidation exercise in January 2006, 13 banks were designated to collect NESS fees were reduced to 12. However, 2 more banks, Ecobank and Spring Bank were appointed on the 26/1/2007 by the Government, bringing the total to 14 banks. The current list of the banks designated for the collection of NESS fees includes the following:
Afribank Nigeria Plc Diamond Bank Plc Fidelity Bank Plc First Bank Nigeria Plc First Inland Bank Plc Guaranty Trust Bank Plc Oceanic Bank Plc Skye Bank Plc United Bank for Africa Plc Union Bank Nigeria Plc Wema Bank Plc Zenith Bank Plc Spring Bank Plc EcoBank Plc Under the Nigerian Export Supervision Scheme (NESS), all exports from Nigeria are subject to inspection by the Inspection Agents prior to their shipment; with the exception of the following:
Personal effects Used motor vehicles Day old poultry Human parts for transplant purpose Human remains Vaccines Yeast Periodicals / magazines - Non-commercial exports, such as gifts, trade samples/printed business matter, machinery and equipment for repairs abroad and return to Nigeria, machinery and equipment for replacement, return of machinery and equipment after execution of a specific contract, re-exports and trans- shipments. Supplies to diplomatic consular missions and international organizations for their own use. In order to avoid multiple examinations and minimise delays during inspections, all the relevant agencies (e.g. Nigeria Customs Service, National Agency for Food and Drugs Administration and Control, Standards Organisation of Nigeria, Nigerian Drug Law Enforcement Agency, Department of Petroleum Resources, Weights and Measures Department of Federal Ministry of Commerce, etc.) are encouraged to simultaneously work with the Inspection Agent in order to ensure that the quantity, quality and prices of Nigerian exports conform to the International standard.
Import Trade Transactions in Nigeria
Inspection of Goods:
After several years of Pre-shipment Three (3) Service Providers were appointed with one service provider on the interface of the DI and ouster data. Inspection spanning over two decades, Government re-introduced Destination Inspection (DI) Scheme with effect from January 2006. The Destination Inspection Scheme is anchored on a 7-year Build-Own-Operate and Transfer ( BOOT ) arrangement involving three Scanning and Risk Service Providers (SRSP); while a fourth company provides an interface between the service providers and the Customs, based on the United Nations Conference on Trade and Development(UNCTAD) software, known as Automated System of Customs Data Analysis (ASYCUDA) ++.
The Scanning and Risk Service Providers (SRSP) are listed below:
Cotecna Destination Inspection Services Ltd Societele Generale De Surveillance(SGS) Ltd Globascan Nig. Ltd Webb Fontaine Nig. Ltd(providing an interface between the Customs and the DI Service Providers)
Allocation of Sea Ports to the DI Service Providers:
The ports were allocated to the DI Agents in the following order:
Cotecna Destination Inspection Services Ltd
Societe Generale De Surveillance(SGS) Ltd
Port Harcourt Airport
Global Scansystem Ltd
Murtala Muhammed Int.l Airport Cargo
Grimaldi Concession Terminal was added to lot three with effect from December 2006.
Risk Assessment Reports (RAR) is issued on the basis of inspections carried out on imports.
Update on ASYCUDA Implementation
The Customs processes in some major Nigerian ports have been automated by the deployment of the ASYCUDA software e.g. Apapa, Tin-Can and Murtala Mohammed International Airport, Lagos .
Import procedures have been simplified to facilitate trade. Any person intending to import physical goods into the country shall in the first instance process Form ‘M' through an Authorised Dealer Bank irrespective of the value and whether or not payment is involved.
The Form M for general merchandise has an initial validity period of six months for all imports except plants and machinery which has a validity of one year. Initial revalidation of the Form M shall be handled by the Authorized Dealer Bank without recourse to the Central Bank.
Appropriate import duties are paid in respect of imports to the Bank that established the Form ‘M'.
Further details on documentation for importation into Nigeria shall be obtained from the Authorised Dealer Banks.
Structure Of Nigeria's Foreign Exchange Market We have witnessed a remarkable improvement in the exchange rate of Naira over other exchangeable foreign currencies of the world. Since 1986 following the introduction of Structural Adjustment Programme (SAP) to date, the exchange rate has moved from regulated, guided deregulation and deregulation. This is because the world has globalised where best practices are being adhered to.
Before the reintroduction of Dutch Auction System (DAS) on July 19, 2002, the objective of which includes:
the determination of the exchange rate of the Naira through interplay of demand and supply; conserve external reserve position; reduce to the barest minimum the premium between official rate and that of the parallel market and or the bureaux de change (BDCs); iv. ensure stability of the naira exchange rate. A review of DAS performance from July 19, 2002 to February 17, 2006 as it relates to the objectives, showed that it has achieved substantial aspect of the objectives as follows:
Premium between the CBN rate and that of bureaux de change (BDCs) and the parallel market was N16.8199/$1 and N16.3505/$1 respectively in early 2002. The situation improved to N7.3471/$1 and N6.8741/$1 by December, 2004. From a reserve position of US$8.0 billion in 2002, the country has as at end January, 2006 the sum of US$30.0 billion in the reserve- over 300% increase and about 30months of import level. The exchange rate has been stable since the commencement of DAS particularly in the year 2004. Year 2004 opened with a rate of N137.00/$1 and closed with an exchange rate of N132.85/$1, indicating an appreciation of N4.15 (or 3.03%). There was further improvement in 2005 as the naira appreciated by 2% from N132.00/$1 to N129/$1 as at end December, 2005. The Dutch Auction System (DAS) has succeeded in checking and reversing the pressure on the external reserve position since genuine demands were met. DAS succeeded in encouraging professionalism and transparency in foreign exchange transactions. This is because there is discipline among the end-users as they pay according to their bids. They are more careful and realistic in their bids, thereby encouraging stability and discourage speculation in the market. The achievements recorded under DAS regime could be attributed to the following improvement in the external reserves position of about US$20.0 billion as at December, 2004 which has increased to US$30.0 billion at the end of January, 2006. Greater autonomy of the CBN and its increased discretion in deployment of instruments of monetary control to support DAS. emergence of an inter-bank market for foreign exchange which stabilized supply gaps between auctions. Reduction in inflationary pressures, for instance, as at the end of December, 2004, inflation rate was about 9.5% as against 23.8% recorded at end period 2003. Disciplined fiscal operation particularly in year 2004. During the year 2005, there were special auctions offered in the market.
The special auctions were done to fast track the implementation of Wholesale Dutch Auction in which the offers were sold to the Authorized dealers on their accounts. The special auctions which started during August 2005 succeeded in revaluing the Naira exchange rate.
Wholesale Dutch Auction System (WDAS) was introduced on the February 20, 2006 replacing the retail DAS. The difference between the retail DAS and WDAS are as follows:
under the retail DAS, end-users were allowed to bid through their banks. under the WDAS, Authorised Dealer banks, bid on their accounts and the successful banks would then sell to their customers. As a result of successful consolidation of bank, the number of banks have reduced from 89 to 25 banks. That means only successful banks among the 25 banks would buy up the foreign exchange offered to the market. The exchange rate under the new WDAS has stabilised and continued to improve the operations of the foreign exchange market. As at Monday March 20, 2006 the exchange was N128/$1.
Export Trade The department ensures that non oil exports are encouraged. The value of export proceeds repatriation is captured. The repatriation and its utilization in the domiciliary account has been liberalized with reference to Circular on Modification of Export Domiciliary Account Operations and Transport Mode for Exports dated January 19, 2006, empowers Account holders to appropriate in any way he/she deems fit. This arrangement is to enhance foreign exchange supply to small-end users This is in line with government economic reforms.
Import Trade Transactions Another development is the newly introduced Destination Inspection Scheme which is to replace the old arrangement of Pre-shipment Inspection Scheme (PIS). With effect from January 1, 2006, the Federal Government introduced Destination Inspection to replace the Pre-shipment Inspection which had been in operation for over 25 years.
Under the Pre-shipment Inspection (PI), Pre-shipment Inspection Agents (PIAs) under take the inspection of goods imported into the country. The designated inspection agents were:
SGS Swede Control Intertek and Cotecna. The Pre-shipment Inspection Agents were contracted by the Federal Government of Nigeria to examine the quality, quantity and value of goods imported into the country.
The economic reform embarked upon by the Federal Government informed the new transition to Destination Inspection Scheme (DI).
Under the Destination Inspection Scheme (DI) Scanning Companies (SC) have been appointed to replace the Pre-shipment Inspection Agents (PIAs). The three (3) companies are:
Cotecna SGS; and Globascan. The Scanning Companies generate Risk Assessment Report (RAR), which evaluates the level of risk involved vis-à-vis the importer, exporter, types of goods, country of supply etc. and then determines the level of inspection required. The RAR is an input document to the actual inspection process.
Nigeria Customs Service (NCS) analyses the RAR and takes a final decision on level of inspection required - (a) inspection is then carried out where required and the Assessment Notice (AN) is printed; (b) importer collects a copy of the (AN), which is used to pay for import duty and other taxes.
The functions of the Department is dynamic, as most of the operations impact on the economy at large.
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The payments system plays a very crucial role in any economy, being the channel through which financial resources flow from one segment of the economy to the other. It, therefore, represents the major foundation of the modern market economy. Essentially, there are three pivotal roles for the payments system namely; the Monetary Policy role, the financial stability role and the overall economic role.
Given the important role that well functioning payment systems has on monetary policy, financial stability and overall economic activity, the Central Bank of Nigeria has put in place a set of national payment systems policy objectives as a broad guideline and framework for all payment systems initiatives. In setting out the objectives of the National Payment Systems (NPS), the goal is to ensure that the system is available without interruption, meet as far as possible all users' needs, and operate at minimum risk and reasonable cost.
During the course of the past ten years the Central Bank of Nigeria (CBN), in collaboration with the Bankers Committee, launched the first major initiative to modernize the payments system. The starting point was to automate the cheque clearing system and making it a veritable platform for development of electronic payment channels. Hitherto cheques processing and computations of the net settlement position of banks were done manually. The implementation of the new procedures and rules based on MICR technology revolutionized the cheque clearing system. Consequently, a Centralized Automated Clearing process was established in Lagos clearing zone, whereby with MICR Reader Sorters, necessary information on cheques are captured, built into clearing files and electronically transmitted to the clearing house, from where the net settlement position of participating banks are automatically computed and also electronically transmitted to the Central bank for final settlement. The clearing cycle was subsequently reduced from 5 days to 3 days for local instruments and from 9 days to six days in respect of up-country instruments.
National Payments System (NPS) Objectives
Following the CBN re-engineering and re-structuring processes in 1999, the second phase of payments system reforms were embarked upon with national payments system objectives clearly spelt out to include:
Promote efficiency. To be efficient and effective the framework for the payments system should Be transparent, flexible and reliable Ensure integration/interoperability of the sub-systems Speed up exchange and settlement of funds and securities Promote safety: Protecting systemic risks by: Containing credit, legal, liquidity and operational risks. Compliance with international standards and recommendations ( e.g. the ten core principles for Systemically important Payment Systems) Compliance with national standards and recommendations (e.g. Cheque and electronic banking standards). Migration to cash-less modes of payment, such as electronic debit/credit instruments, credit/debit cards, ATM-sharing and Electronic Fund Transfer at Point Of Sales and Real-Time Gross Settlement System (RTGS). Transparency: To run the NPS in a transparent manner as one of the factors militating against widespread usage of the formal payment systems is the concern of market participants about transparency. Consequently, NPS would spearhead procedures and technology that perform end-to-end audit-ability, full transaction reporting to regulatory and reporting authorities. In addition, the NPS would publicly disclose criteria for participation, in any payments solution, and permit fair and open access to all interested and qualified parties. Public Acceptance and Confidence. The NPS would initiate channels for effective information dissemination, customer convenience orientation and total quality delivery. In particular, the NPS would work towards widespread use of payment solutions for government payments, in many areas. The NPS would ensure that the legal and institutional arrangement is favorable to the achievement of its goals, and where such is not the case, appropriate regulations and review of guidelines would be undertaken from time to time in response to developments as the payment systems evolve. Integration with the financial infrastructure: In order to achieve the full benefit of well functioning payment systems, financial value should be able to flow from one market to the other in a seamless manner. Therefore, the NPS would be a major driver of changes in the financial markets, and would encourage collaboration and cooperation. As Nigeria moves towards a common monetary zone with five other West African countries, the reform of the existing payments process for compatibility, standardization and cross-border settlement becomes an imperative.
Overview Of The Payment Systems
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General Legal Framework
There is no law that explicitly and exclusively deals with Payment systems in Nigeria. Rather, the CBN Act, as amended in 1999 gives the Bank the implicit powers to oversee and regulate the payments system. Section 41 of the CBN Act provides that "it shall be the duty of the CBN to facilitate the clearing of cheques and credit instruments for banks carrying on business in Nigeria and for this purpose, the bank shall at any appropriate time and in conjunction with other banks establish clearing houses in premises provided by the Bank in such places as the Bank may consider necessary". Section 17 provides that "the Bank shall have the sole right of issuing currency notes and coins throughout Nigeria--". Also, the Nigeria Deposit Insurance Corporation (NDIC) in exercising its responsibilities as provided by NDIC Act of 1988 complements the supervisory function of the CBN in the nation's payment system. The extent of this responsibility is the insuring of all deposit liabilities of banks in order to protect depositors against bank failure and instill public confidence in the system. Also the Nigerian Stock Exchange plays a dominant role in the Nigerian Payments and Settlement landscape as the trading in equities is conducted via the floor of the exchange based on encompassing laws and regulations.
Institutional and Organizational Framework
The CBN is the main institution that regulates the payments system. Banks, discount houses, Nigeria Inter-Bank Settlement System (NIBSS), Nigeria Stock Exchange card and switching companies remain the key players in the Nigerian payments system. The CBN, complemented by Nigerian Deposit Insurance Corporation (NDIC) provide the necessary oversight function to ensure the efficiency and effectiveness of the payments system.
The major Financial Institutions
There are over 1000 registered institutions that provide payments/financial services in Nigeria. They include 25 consolidated deposit money banks (as at 31 December 2005) with x branches, 5 discount houses, 759 community banks, 293 bureau- de- change, 111 finance companies, 90 primary mortgage institutions and 6 development finance institutions.
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The supervisory function of CBN is structured into three departments
1. Financial Policy and Regulation
2. Banking Supervision Department
3. Other Financial Institutions Supervision Department
Financial Policy and Regulation department develops and implements policies & regulations aimed at ensuring financial system stability. It also licenses & grants approvals for banks and other financial institutions. Banking Supervision Department carries out the supervision of Deposit money banks and Discount houses while Other Financial Institutions Supervision Department supervises other financial institutions. The other financial institutions include Micro-finance Banks (MFBs), Finance Companies (FCs), Bureaux-de-change (BDCs), Primary Mortgage Institutions (PMIs) and Development Finance Institutions (DFI's). The supervisory process of both departments involves both on-site and off-site arrangements. Read more on the supervisory framework
- Central banks and currencies of Africa
- Nigerian naira
- Payment system
- Real-time gross settlement
- CBN Act 2007 from the National Assembly of Nigeria Website
- Read the CBN Act (Decree No 41 of 1991)
- Read the Banks & Other Financial Institutions Act (BOFIA)
- See Frequently Asked Questions on Supervision
- History of CBN, retrieved 8 September 2006 from http://www.cenbank.org/AboutCBN
- Nigeria Year Book 1962. Daily Times of Nigeria. 1962. p. 107.
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