Episode Transcript
[00:00:00] Speaker A: Hello everyone. Welcome to the Techpoint Africa podcast. Today we'll be discussing the different plans that CBN has for different industries that affect the economy. We'll start with CBN's intention for crypto websites in Nigeria. Then we move from there to the new CBN guidelines for bureau the change operators in Nigeria. And then we end with updates from the the monetary policy committee meeting that happened on Tuesday and the CBN governor's comments on how we want to revive our economy.
Thank you for joining us. I am the studio with me today. Yes, I'm Bolo and as usual, we have a guest with us, virtually with us in the studio today who will be joining us in all these conversations and especially the new guidelines that CBN has for BDC operators. With us today is Malik Bolakale is the CEO and co founder of a fintech startup. Start boating, Malik. Thanks for joining us today.
[00:01:15] Speaker B: Thank you. Nifami.
[00:01:16] Speaker A: Yes, thank you. And I think we should just move quickly into the story because there are a lot of things to talk about. And whether we talk about it here in the studio or they talk about it in the marketplaces or in the shops in the store, they are talking about Nigeria economy everywhere. So today, let's start with CBN's plans for crypto websites in Nigeria. Bolu, what's the update? What's up?
[00:01:40] Speaker C: I'm sure everyone already knows that CBN had plans to block. Okay, let's not say CBN, but there were people from telcos that told us that they got instructions to block some crypto websites.
[00:01:59] Speaker A: I love how you started.
[00:02:00] Speaker C: Right.
[00:02:01] Speaker A: That is the way we read this in Nigeria.
[00:02:03] Speaker C: Yes. So they got those instructions to block crypto websites. And some of the reasons given were because these websites have a role to play in the devaluation of Dinera that we've seen for some months now. And blocking these websites might help reduce that devaluation of Dinera. So as of now, websites like Binance.
[00:02:33] Speaker D: Right.
[00:02:34] Speaker C: If you go on Binance, whether you're using MTN or LTL, I'm not sure about globe. But for those two mobile networks, if you visit those websites, they will not be available. So same with Coinbase. And just recently, even local crypto exchanges like Quidax, Dax is working. Luno as well, no longer working. So that is what is going on with crypto websites now.
[00:03:02] Speaker A: Okay, so if I know people that are affected, truly, truly affected, knows what it means to be blocked from using an app from a country.
[00:03:12] Speaker C: Just to be clear, the apps are still working. It's just the websites that are not available.
[00:03:16] Speaker A: Okay. The websites are not available. Yes, but it was just like what happened when Nigerians couldn't use Twitter. Like detail codes that are your network providers and any other platform or fiber that you use to browse. You can't access some particular URLs or website through those. So that is what is going on with this crypto website.
So the CBN governor made a comment on.
Made the. When he made the comment, I was okay, okay, is this our problem? So one, you're going to tell us the comments he made because a journalist that was at that meeting asked the question that what is the CBN's plan for this crypto website? And the governor made a comment about how much money, volume of money is being moved through these platforms, particularly binance, and why they have to do what they have to do. So tell us the comment, what the comment is and whether.
[00:04:25] Speaker C: All right, so very interesting comment. The CBN governor, Yemi Cardozo. I'll not say his nickname, but.
All right, so the comments, he said that $26 billion was moved through finance in 2023. So that's a significant amount of money.
Although finance has not confirmed.
I don't know which other way to confirm. But people who have worked at crypto exchanges, for example, someone used to work at FTX said that the volumes that Nigerians do on crypto platforms are not as much as we think they are. Right? I mean, compared to a country like South Africa, they are not that much. Right. So the problem now is we don't know exactly how much those countries are doing and compared to what the CBN governor has said. But if we are to go by what the CBN governor has said, that is a very huge amount of money. Right? Just p to p. Yes.
It's probably going to be p to p. Going to be regular trades that people do on the platform. Right.
But then if you look at it through the lens of the information we already have. So we already know that Nigerians do.
We already know that about almost $68 billion came into Nigeria through crypto, right. Between June 2022 and June 2023. So within that year, almost $68 billion. Right. So we might say because finance is one of the largest crypto platforms in the country. So if 26 billion was possible, that 26 billion was done on that one platform. Right. So in saying that, I think because another thing he said was that this amount of money is being moved, but we don't know who is moving it.
So basically saying they don't have control over the money. So for example, with imtos, they are able to easily regulate imtos. They know how much they are bringing in money transfer, money transfer operators. So there's a revenue they can end on those remittances that are coming in. But with crypto, it's difficult. Right?
[00:06:58] Speaker A: That's the plan, yes.
[00:07:01] Speaker C: That's the old idea. Right. And then after that, we now also had people saying, oh, they want to know the users on this platform, nigerian users on these platforms. What now makes things very interesting and at the same time now makes it scary again. So on one hand, it makes sense that so much money is probably leaving Nigeria or entering Nigeria and our CBN.
[00:07:32] Speaker D: Yes.
[00:07:33] Speaker C: And is unaccounted for.
It really shouldn't be that way. But on the other hand, based on what has happened with these exchanges already, which is trying to block them, that does not really solve the problem.
Because the thing with crypto is even if you block these central exchanges, you are now going to make it very difficult because binance asks KYC.
So it's easy for you to regulate them because they are central exchange. Right now. We now have other platforms that are called decentralized exchanges. People will move to these places and then probably when you still leave VPN, there are things that the government cannot touch.
And these decentralized exchanges are one of them. If they even block those websites, you can use VPN for them. Right. But then you can't owe anyone, the people that have created these platforms, like you can say, oh, this is the CEO.
So people will move to these places. People do peer to peer by themselves. I mean, there are telegram platforms where people are. And I know people that are doing two, 3 million, $10 million in transactions daily. Right. So I think the CBN might not be going about looking for a way to regulate those platforms. I don't think they are going about it.
[00:09:03] Speaker A: So something I'm curious about, right. The reason why Cardoso made that comment was how he is suggesting that moving that kind of money behind CBN is one of the problems affecting the naira or the economy.
The look on your face is looking like you want to call somebody's bluff. But I'm just saying, is it possible that would be one of the problems that Nigeria's economy is facing?
[00:09:33] Speaker E: Sorry, Malik, do you want to answer that question?
[00:09:38] Speaker B: I wanted to just chime in briefly, right. I don't think that's the challenge or that's not the big elephant in the room.
[00:09:45] Speaker D: Right.
[00:09:45] Speaker B: I mean, I agree to a large extent with Bolu.
[00:09:50] Speaker D: Right.
[00:09:50] Speaker B: I feel like CBN's primary challenge is monitoring, supervision and lack of visibility on that front, which is they don't know how much is being moved and by whom. And I mean, they feel that that will be to a large extent causing some kind of speculation within the ecosystem. And that's like what is driving the price of the naira. But the truth is, above all of that, that's happening on either p two p crypto platforms. There's also the bdcs that are the ones determining the rates. And when I say bdcs, I don't mean the bdcs that even have the license because that's another thing, right?
[00:10:32] Speaker A: I mean the one that will block you on your way in, Alan.
[00:10:35] Speaker B: Exactly.
In Yaba or in Keja or wherever. Or we'll say to zone four in Abuja. Those are the guys, right? Ultimately. And you'd find that the ones that are even legitimate amongst them are like behind the speculation to a large extent.
[00:10:55] Speaker D: Right.
[00:10:56] Speaker B: So what they do mean then when CBN was, and we'll talk about that. One of my biggest worry with them going back to the status quo to say, okay, no, once they start giving money to bdcs again, because without fixing the underlying problem, I don't think they should do that. It would cost more harm than good, right? So people would basically get like 1015 BDC licenses, one person, and basically get $20,000 allocation weekly for each license, right? So one person can potentially get $200,000 per week and then sell with 100 naira margin on top of it. And then because some of them do have this money, they can finish selling the 200 or not even sell the 200 and say, money has finished, dollar is now scarce, nobody has dollars. So they want to increase the price. And there's really nothing you do because you go to the banks that you want to pay your child school fees and the bank asks you to wait on queues for like two, three weeks. So definitely if you're very desperate to send money to your child, and I'm giving that as an example because that's another sector that a lot of people are not looking at, like schools, people traveling, a lot of people are jackpying out of Nigeria and looking for dollars every day for proof of funds and everything, right? So there's like all of those challenges everywhere. So I feel like CBN's problem when it comes to crypto is not necessarily the speculation because speculation is actually happening from the market. That's why sometimes even on crypto platforms, people would typically wait for trade till like 09:00 a.m. In the morning or ten, which is when the black market or the parallel market would open to get a sense of what the rate is at the black market and then use that to peg whatever they're selling on the exchanges.
[00:12:48] Speaker D: Right?
[00:12:49] Speaker B: So I don't think it's so much of finance speculation as it is of street trading speculation or black market speculations that has really driven everything crazy.
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We will come back to the BDC conversation and it's like the CVN is just throwing some things at the wall looking for what sticks because we know the problem, the economy is a lot of trouble and it's just like, let me do this, let me do that. Let's try this, let's try that. Apart from what some of the things we will discuss later, which are like some proven, let's say, measures that have been taken by different countries during times like this, but coming after crypto websites and all, there was even something that we had yesterday about, we don't know whether CBN is behind or something, but we had that. Something is going on with some.
[00:15:10] Speaker C: Yeah, so, yeah, we had yesterday that two binance executives are currently detained by the Office of the country's national Security advisor and their passports have been seized.
A personal source told me that they were detained because they basically want binance to take down its narrative to dollar pairing feature on the platform. And I think Binance has you dead because as of last night, you can't do peer to peer trading again. Right?
I mean, thank God I had to do one yesterday. I did it early in the morning and checked again last night.
Let them try it.
All right.
I don't see anywhere where peer to peer trading is legal.
Please do.
Okay, so peer to peer wasn't working again. No one was listing USDT for sale. No one was listing USDT to buy. And it's just so surprising and we've now seen that a lot of local crypto folks have also followed suit on board, said they are stopping USDT, USDC trade for now. Luno has done the same thing. So right now, yes, the arrest has happened, but a lot of platforms are basically on old because you need those things to like now you want to buy a particular cryptocurrency on Quidax, for example, you need to buy USDT first and then convert.
[00:17:13] Speaker D: Right.
[00:17:14] Speaker C: So I don't know, the crypto market is in a mess.
[00:17:18] Speaker A: I think before we move on from that story to the next thing, you are a player in that piece as it's where please don't let them arrest.
No, not a player like a consumer.
[00:17:32] Speaker C: Like a user of those platform.
[00:17:34] Speaker A: Yes, a user of that platform. So if you as it's right now, for somebody that's some people's livelihood, they trade. Yes, they do p to p as livelihood.
[00:17:45] Speaker D: Yes.
[00:17:45] Speaker A: If you want to talk about alternatives, what do they do at this point? Do they just put their lives on old?
What are the possibilities? What do they do?
[00:17:57] Speaker C: Business must go on. So what they would do is, well, finance is no longer there. What they now do is interact to people directly. If you want to sell, if you have USDT, you need to sell for.
[00:18:10] Speaker A: Naira, maybe return customers.
[00:18:12] Speaker C: Yes. You have to reach out to that person directly. There are telegram groups where you can go on list ads and stuff like that. Telegram is, I think I recently just found out that there are some really interesting tools where telegram boards, telegram platforms can almost serve as a crypto exchange on its own. So they will use things like that in the meantime. But the downside to this is those platforms actually help they make things safer for you. So right now, the government is pushing Nigerians into a territory where they could get scamped. Because if I'm interacting with someone directly, where the finance escrow feature is no longer there, where the customer care that could be like intermediary between the both of us is no longer there. The person might say, oh, send me your 250k, I'll send you the USDT equivalent. And till tomorrow, I'm still waiting for him.
[00:19:12] Speaker A: There's nobody to hold responsible.
[00:19:13] Speaker C: Nobody hold responsible.
[00:19:16] Speaker A: The waters are mocky. Stay safe, continue your businesses and hope everything gets back to normal. Hopefully. So we move from there to CBN's new guidelines for bureau the change operators in Nigeria. So Malik, just give us the dumbed down version of what those guidelines are before we start talking about their implications.
[00:19:37] Speaker B: Yeah, absolutely. So CBN is aiming to sort of revise the guideline for licensing and operations of bdcs in Nigeria.
Basically it's aimed to sanitize the industry to a large extent. Now mandating bdcs to be very well capitalized, probably using that to eliminate some street tradings. And I mean, the key points in the guideline is the very key one is first the capital requirements and then the tiering of bdcs. So now you have like two tiers of bdcs, tier one and tier two. Tier one can operate across Nigeria. And the capital requirement for that is essentially 2 billion, which is a lot compared to what it was before. Generally, I think it was just 35 million. So increasing it from 35 million to 2 billion is quite significant.
[00:20:38] Speaker D: Right.
[00:20:38] Speaker B: And then there's the tier two one that can operate within a state with three branches and that's essentially 500 million. Even tier two is more than how many percent now the previous one.
[00:20:52] Speaker D: Right.
[00:20:53] Speaker B: And it's very baffling for a lot of people in the ecosystem. And the other major I highlight is the digitization of the bdcs. Now, like I mentioned earlier, one of the problems is like CBN fields, they don't have visibility into what is happening, like the trades, like everything.
So digitization, they believe would help with that, give the level of visibility into how trades are being executed by bdcs. So they can essentially track every cobol that they give out. Just like with banks, right, when banks keep money in votes and take money from the CBM, they're essentially able to track how much is in the vote, do physical audits, and do a whole lot of that. So it's a similar scrutiny that they're now extending to bdcs, mandating them to connect to CBN's reporting platforms, mandating them to carry out KYC by connecting directly to various databases for verification. So they're connecting to NIMC's database, connecting to FRS for taxes as well.
And I mean, we feel that those changes would really help sanitize and probably create opportunities for some fintechs as well. Now another bit is the card issuing one, which is quite interesting, right? So just like the way banks would do with btas and ptas when they don't want to give you cash, I think GT bank is notorious for that. If you go there asking for BT or PTA, they would usually put the money in a card and then give you that card for your travel.
Again, back to the whole essence of being able to track and have visibility. They've also reduced the amount that you can actually get from a BDC to $500 anything above $500 has to be in an account or in a card, right? So for foreigners, if you're coming to Nigeria, a local bank account, you'll be issued a card. You can use that naira card to do your transactions locally. And whatever is left in the card, you can convert back to USD when you're traveling. I mean, it's expected, as a foreigner, you're not even bringing anything more than $10,000 into the country in cash.
But if you bring $10,000 and you happen to want to chain $10,000, that has to be reported. Source of funds has to be reported as well to cater to issues around money laundering. Another very interesting part about the new regime is the fact that they've now halted shareholders from holding more than one license.
It used to be in the past where you apply for multiple licenses so that you can get more location, right. That no longer be possible. But it also begs like one question that rings in my head is whether CBN, I mean, now they've allowed BDC to have access to their weekly $20,000 now, right? But I can't imagine having capital of about $2 million thereabout. Or let's just say like 2 billion error. And then you will be giving me $20,000 to do business every week. I mean, when am I going to be able to make find that $2 billion is not going to be locked up somewhere? Of course it's going to be locked for the duration of the application, but it's going to be given to you to carry on your business subsequently. But I mean, what can 20,000, why would I want to lock up $2 billion applying for a license for about six months thereabouts, and then when the thing comes out, I cannot do more than like 10,000.
I'm hoping that that limit would get increased probably by the time the draft law gets issued finally. But that's like one area that would definitely require some clarification. Then, of course, like banks and other financial institutions, telcos, a couple of existing institutions that might be able to commingle funds are no longer allowed to hold BDC licenses, which is also very helpful.
So what it means, or what the implication of this is that if you're a know and you want to start doing international trade or fintech, you want to start doing exchange, that may not work for you, right. It has to be like by a totally different entity. And that's like one big elephant in the room for a lot of the fintechs, but it's like other ways they can of course play right now. There's like other opportunities that law has also opened which we might discuss subsequently.
[00:25:48] Speaker D: Right.
[00:25:48] Speaker B: And then of course there's a limit to what they can sell now.
[00:25:53] Speaker D: Right.
[00:25:54] Speaker B: So PTA is now like to individuals is 4000 and then to businesses like 5000 within any six month period. So as an individual you're only entitled to 4000 within six months.
[00:26:07] Speaker D: Right.
[00:26:07] Speaker B: Which is another limitation.
[00:26:09] Speaker A: Yes. Thank you for that elaborate explanation. And at different times you've mentioned fintechs and Chimgo did an article based on the guidelines. We are projecting that many of these disease would have no choice but to go digital because of the different connections they have to bring on if they are going to survive with these new guidelines. So just give us a rundown of what that would mean.
[00:26:44] Speaker E: Okay. So first we have about 6000 bdcs in the country and CBN is saying if you're going to do business with us, you have to hook up to certain systems. So nibs, for example, I'm guessing that's to track every transaction that happens. They would also have to hook up to FRS probably for reporting revenue. I don't know if that word hook.
[00:27:07] Speaker A: Up I was going to.
[00:27:11] Speaker E: Plug in. Yeah, they have to plug into FRS. They have to plug into, I think there's one more, I can't remember but they have to plug into at least three different digital verification portal.
Yeah, I think that will happen through CBN. I'm not very sure, but they have to do all of that. And for people whose the bulk of their operations are manual, that's a lot to ask for right now. First of all, you need to hire people to do this.
Well, yes, you need to hire people to do this. That's extra money for them already. There's the challenge of the new capital requirements, which is more than the new capital requirements is about 20 times what it used to be. It went from 35 million to 2 billion. So that's like more than 20 x increase if my math is correct. So first they have to battle that and then they now have to figure out how to hire and pay the right technical talent. So that's the first problem. And now I think about it, I just wonder how bad BDC operations would get over the next couple of months once that guideline is passed. Yes, the CBN says they are currently just a guideline. The idea is that they release it, they get feedback from the public and then they make amendments where necessary. And stakeholders are also saying, okay, we are going to look at it. First of all, they are complaining about the capital requirements, which is kind of necessary, which is expected. They are complaining about that, but they are also saying, okay, we've had you, we are going to do some meetings. I don't know if they've had their meetings, but you are supposed to have zonal meetings this week or so and then they would report their findings. But yeah, those are some of the problems you are going to face. Having to digitize their operations, on one hand is good.
On the other hand, it becomes really problematic. So why do I think it's.
Guys, your CBN has been pushing for a, sorry, I keep on disavowing Nigeria, but yes, your CBN has been pushing for digitization of our financial services for a very long time. This is one more way to do that because if you go around certain parts of the country, you'll be besieged by these humans who are asking you to come trade one. So there's more visibility. Probably the CBN can now know if BDCs are their problem or no. This is now more than a sprint. But yeah, for any avoidance of doubt, they would know whether their problem is BDCs or not.
Why do I now think it's going to be a problem? First is if you've never done anything in technology in your life, there's like an adaptation period. And right now the rules are still very sketchy about the people who are not BDCs who can apply for this license. So first of all, banks cannot, both commercial banks and non interest deposit banks can't get into this business. So banks are ruled out. Can fintechs do that? Is unclear. I've seen some people saying fintechs should get in, but the guidelines don't even make that very clear because one, most fintechs are not commercial. In fact, I don't know any fintech that is a commercial bank. Malik, you can correct me if I'm missing anybody.
There's almost no one.
Probably microfinance bank, if I'm not mistaken. So there's almost no fintech. That is a clear commercial bank. That's one problem. So which fintech takes advantage of that. Now you're supposed to issue cards in conjunction with commercial banks. If you're not a commercial bank, you cannot do that. So is there really a space for fintechs to play right now? I think that's a question that we should ask, Malik. Is there really any opportunity for fintechs right now?
[00:31:18] Speaker B: Yes, there are a couple actually.
Number one, if you look at the integrations that they're asking the BDCs to do, right I mean, whilst the law is like integrate to this, it didn't say you must integrate directly, right? And there's like fintech that have built as part of their solution verification solutions that have integrated with NIbs for BVM verification. They've integrated with NIMC for id verification.
They've also integrated several solutions. For example, even start button has integrations with, right. For example for tax computation.
So a fintech like start button for example to start with would definitely be able to, BDC would definitely be able to leverage our APIs for tax verification and computation, which would be very helpful for their business. So that's like one opportunity, one clear opportunity, right. On the PSSP side, now that the law is saying that all transactions should happen electronically, it's good for them because now they can power transfers into transfers to load the cards, transfers to unload the cards.
Mobile money operators may be able to provide wallet services backing those cards ultimately, and then on the card issuance bit as well. The law is that only deposit taking financial institutions will be able to issue cards. However, pretty much anybody can leverage their solutions to brand the card and build technology on top of existing card solutions, right? And in the industry there's something we call bin sponsorship, right? So you can work with a bank to get a bin sponsorship relationship in place to be able to issue cards even without being a bank. The only thing is that the card brand has to be there and the bank has to be there as the sponsor ultimately. So that can actually happen. And we have a number of fintechs currently doing that today, right. I mean, with card issuing solutions and definitely those fintechs will be able to of course benefit from this new regime. So on that side as well, you see fintechs also playing, right. The only bit that I'm not sure of now is the cross border leg of it, right. So I came thinking about if I'm a foreigner, I come into Nigeria, I didn't come with cash, but I want to bring in money to Nigeria and then exchange with a BDC. Doesn't mean I have to do that only through imtos. And I cannot just bring the money in, right, and then exchange with a BDC, get a card and use and go.
It's left for us to see how that would play out. But I think fintechs might be able to play in that area as well. But I'm not particularly sure how that would work just yet. But that's like another very important area that I see fintechs playing. So the opportunities are there to be honest. And then there's still the opportunity of actually just building the whole thing and serving as a technical partner for the BDC. So we have some fintechs that they are fintechs, but they are more of like software providers ultimately. So like core banking apps for mfbs and banks. And they've built probably like apps to manage financial services.
They've built fintech as a service which I mean they can just like these BTCs can plug and play ultimately, right?
Multilayers is like ankle doing awesome stuff in the bus space as well as like fintech as a service space as block. There's like a number of solutions already that the BDCs can just plug into and get started, to be fair. So let's see how this plays out.
[00:35:33] Speaker D: Right.
[00:35:33] Speaker B: It's just left for people to see the opportunities. But yes, the opportunities are actually there.
[00:35:39] Speaker D: Right.
[00:35:40] Speaker B: There will be a lot of partnerships as well.
[00:35:42] Speaker D: Right.
[00:35:43] Speaker B: So you bring license, I'll bring technology and let's work together. That would also.
[00:35:48] Speaker A: So thank you for that, Malik. So it's not all gloom. So I think while these conversations are still going on with CBN, I think this would be a good time for the well established BDC operators to start having conversations with fintech. Right? So we understand that more BDC operators will collude to get the license because of how expensive it is. So when they come together, they should be having the conversations already about these people. They already have the understanding and the frustrator to help them instead of trying to start from the scratch.
[00:36:27] Speaker E: Actually make the move since there's a whole lot for them to gain.
Mean, if you're a fintech, you should probably be making any move right now.
[00:36:38] Speaker A: Yeah. So while the conversation is still going on with the bank, with CBN, this fintech should also be having conversations about these partnerships already doing approaching each other. And I think yes, as Malik mentioned, there are opportunities here and it is left to the ecosystem to tap into it. And finally let's just move on.
[00:36:58] Speaker B: I have a question again. Right, so now with that like a general question, my problem is now that the pricing is also determined, right? So as BDC, when you get your allocation, you can only mark up or mark down with 1% and nothing more.
[00:37:20] Speaker D: Right.
[00:37:21] Speaker B: Whilst 1% looks like a lot ultimately. As if you're doing like a lot of transactions.
[00:37:28] Speaker D: Yeah.
[00:37:28] Speaker B: By the time it splits between all of these things like AWS costs and a number of things, man, I feel like yeah, it would be a very hard sell, but let's see how it works ultimately.
[00:37:43] Speaker E: But I just thought, I think we should share that with the BDC guys so that they would consider that in their negotiations with the CBN.
[00:37:52] Speaker B: I think they should, yes.
[00:37:54] Speaker A: Because eventually you have to look at the cost too. Because if they say they want to start building the infrastructure from scratch.
[00:38:01] Speaker E: Yeah, that's extra cost.
[00:38:03] Speaker A: Extra cost on the bdcs. Say fintech wants to tap into this new regime too. They might want to have to. Even if they can't get the license, they will look for a way to do magging or acquisition or anything. So I think it's just to look at the cost. I'm not in this space, but these are the things that should come up during the conversations. And I'm hoping this sounds like good news. Like there will be a time where these foot soldiers, we come together with the online keyboard warriors and online warriors. I didn't see that coming, but.
Okay, so maybe in another three months. Well, with the speed with which CBN implemented, I said is to crack down. They don't usually put, I mean, these.
[00:39:00] Speaker E: Ones are also moving fast. They plan to have a meeting this week. The meeting is done guessing is now a meeting with the.
It probably shouldn't take a lot of time.
[00:39:13] Speaker A: Okay, so yes, still on the CBN. Still on the CBN. It's all CBN today because everybody's talking about the economy.
[00:39:21] Speaker E: He has to pay us for doing pr work for him.
[00:39:23] Speaker A: CBN, he doesn't need you for PR. Actually the comments he made on Tuesday are enough pr. So then there was something that stood out during the conversation that on Tuesday at the NPC meeting and the one that actually probably shook fintechs too, and everybody was increasing the monetary policy rate. NPR. Now Chukoji are going to help us understand it. Consign me the NPR and how does this flow? When does it get me as the final consumer? When does it get to the fintech? How does it affect the banks? So just help us to understand that.
[00:40:16] Speaker E: Okay. First one, how soon will it get to you? Just give it like two weeks.
But maybe you start with a definition of MPR for some people. Basically it's like a policy tool that CBN or central banks can use to determine interest rates in a country. So you increase it. It means that interest rates are going up.
Banks and any lender has to now operate within certain parameters.
Yeah, banks and lenders now have to operate within certain parameters. Usually nobody is going to be lending to you below the rate set by the CBN. Nobody's going to be doing that.
But how does it now concern you?
So you may not know but it still affects you. It affects the businesses that you patronize and then as a result it affects you. Let's start with the ones that are closest to us, fintechs. So first is that the digital lenders now have to up their interest rates. So first of all, it's going to be more expensive for you to borrow money from any lender. If you want to borrow money, you may have likes of Fairmoney carbon. Yes, it's going to get money point.
[00:41:40] Speaker A: Also, as a lending service, I don't think businesses.
[00:41:44] Speaker E: Yeah, and I'm not even sure they are emphasizing it a lot right now. It's going to get more expensive.
If you wanted to get a loan, I don't know if it's too late, you should have gotten a loan yesterday.
It's going to get more expensive for businesses, individuals to get loans.
It's also going to get more expensive for the lenders themselves to get the money that they are lending to you. So the reason is most of them are not lending with their money. So a bank has the luxury of lending with deposits. Most digital lenders have to borrow from banks and then unlend to their customers. So now as a bank, I'm not going to give you money at a loss simply because you want to do business. I'm going to give you money at increased rates. And then that means you now have to pass that cost on to your customers so it's not recalled down in so many ways. One is that less people are probably going to, or fewer people are going to borrow money from anybody. In fact, your banks are most likely not going to give you money.
That's why a lot of people are.
[00:42:57] Speaker A: Expecting, sorry to cut you short. At some point in Nigeria, the government was trying to force banks to give loans.
[00:43:05] Speaker E: Yes. Okay, so maybe I should have pointed out that the increasing interest rates is like a move that central banks use to stem inflation, basically to reduce the supply of money in an economy.
[00:43:17] Speaker A: But wait, is there money in this economy?
[00:43:21] Speaker E: Yes, that's a good question.
I believe there's someone that should be answering that question.
The idea of increasing the interest rate is to stem the flow of money, reduce it, and then basically kind of, I mean, right now you can say there's no money yet, but that's actually the tricky.
Okay, yes, it's tricky because people, one of the biggest drivers for inflation is food inflation, and that is because we have rising insecurity. And I think Cardozo mentioned it during the MPC meeting that one of the major drivers of inflation, right now is insecurity in certain parts of the country where food is produced. If you don't cop that, you can't really say that. And that's also something to point out that if you don't cop food inflation, the general inflation you're experiencing is not going to come down. But moving on to fintech, something that's going to happen is on one hand, the revenues of our lenders could go up.
[00:44:30] Speaker A: I think maybe it will cancel out.
[00:44:33] Speaker E: Because the thing is small people. Okay, so let's have 10,000 users.
[00:44:38] Speaker A: So I want to clear something before you go on. So this NPR that was increased by 4% to 22.75% is the rate at which CBN is giving banks. So when banks want to give our lenders, there will be something on it also, of course. So that means it's not meeting us. The end users are 22.75%. It's going to increase. Go on.
[00:45:07] Speaker E: Yes, so beyond, okay, now let's say I have 10,000 users and like 10,000 active users and out of the 10,000, let's say 3000 say they're no longer borrowing money.
I'm left with 7000. Now I can actually make money with less people. Make more money with less people. It's very possible because I'm increasing my.
[00:45:32] Speaker C: Interest rate so those people have good credit score.
[00:45:37] Speaker E: I'm still coming to that, but with a smaller group of people I can actually make more money by increasing my rates. The problem now becomes can the people I'm lending to or which is where npos are probably going to come because.
[00:45:54] Speaker A: Default rate is high already.
[00:45:56] Speaker E: Yes, we can expect that a lot of digital lenders are going to see really serious default rates. Because sometimes, yes, you can say that Nigerians don't like repaying loans. But in some cases it's also a case of I take a loan, something unexpected happens in next month and I'm unable to repay.
I lose a job or I don't know, maybe lose a loved one and I have to use the money for something else and I'm now unable to repay. So I think we are going to see npos go high whether they tell us.
So basically the loans that, what do you call it? The loans that the financial, sorry. That customers are unable to pay.
Whether you pay it, I think this guy Chijuki doesn't mention it last week. Whether you pay the loan back in three months or in four months, they will take a heat. So yes, that's one problem. We are going to see whether the lenders decide to tell us that they have collected hand or not. Different case. But something that could also happen is that if you use certain savings app, who I will not mention, you could get higher interest rates on your savings. There's a possibility that that happens because.
[00:47:19] Speaker A: The money you save that they are using to lending other people too.
[00:47:24] Speaker E: So you may get higher interest rates in the next few weeks. Like I mentioned, if you're a business, you probably should have gotten messages from your bank already telling you about the NPR and how it affect your loan for customers. It may take a while, especially if you borrow five k. It's probably going to take a while. But yes, those are some of the ways that we can expect it to affect fintechs and their customers.
[00:47:55] Speaker A: So there was one thing that you touched. I think Malik should be able to speak to this about if you're saving with these banks, with these fintechs, MPR was not the only thing that was increased cost. Cash reserve ratio was also increased to 45%. I don't know if that will have an implication on how much the banks will have access to even if they want to give out loans.
[00:48:23] Speaker B: Yeah, so I was going to mention that after Chigozuri, which is like another problem, is would I want to fix more money now that I know that people are no longer borrowing.
[00:48:36] Speaker D: Right.
[00:48:36] Speaker B: Because the essence of increasing MPR is to discourage money, like in circulation and reduce purchasing power to a large extent. So when that is done, it means people would not have the incentive to borrow more money.
[00:48:51] Speaker D: Right.
[00:48:52] Speaker B: And if people are not borrowing more money, then I, as an investor.
[00:48:58] Speaker D: I.
[00:48:59] Speaker B: Won'T be able to make as much returns.
[00:49:01] Speaker D: Right.
[00:49:02] Speaker B: But I feel like if people, because there's no money either ways. So I think people will still borrow money regardless. But that's some on my side.
[00:49:12] Speaker A: You're returning that we can't tell.
[00:49:13] Speaker B: Exactly. So yeah, of course, like repayments, there will be a lot of defaults.
[00:49:17] Speaker D: Right.
[00:49:18] Speaker B: Which we're not able to speak to. But in terms of the reserves, I feel that would it affect fintechs?
I'm not sure.
[00:49:29] Speaker D: Why?
[00:49:29] Speaker B: Because it's not all fintechs that are directly regulated by the CBN, except you're talking about maybe microfinance banks or those ones who have microfinance bank license. Yes, for those, it would affect them to a large extent because then they will still have loan to deposit ratio that they need to keep regardless. So they are mandated to borrow money regardless. And they have a ratio of loan to deposits, which is the amount of depositors funds that you can actually lend on a good day. So those ones would be impacted. But a lot of the other folks that are using cooperative license and all of those things, I don't think it would impact them as much.
[00:50:12] Speaker D: Right.
[00:50:12] Speaker B: So that's like my take on this.
[00:50:15] Speaker A: Yeah. So we are moving into a period where it's not new, having a lot of regulatory measures put in place, and it's becoming more aggressive.
I'm thinking of the survival rate of fintechs because one of the predictions that Adelaide Jolow made at the beginning of the year was more fintechs closing shops. Is this one of the things that we killed them? Apart from the money, apart from the venture VC market, is this one of the things that we kill fintechs?
[00:50:59] Speaker E: So Caroza said we are moving into an aggressive regulatory environment. And he's been saying that since last year, not with those words, but he's been hinting that regulation is going to.
[00:51:11] Speaker A: Get more was actually stern.
[00:51:14] Speaker E: Yeah, since last year. I mean, last year it was payment fintechs that we were talking about, or he was talking about who were probably carrying out activities outside the license that they were issued. And I think there was a period where there was a secular that was put out, and even the people who were supposed to be recipients of the secular were confused as to whether it affected them or not. And everybody was rushing to issue statements to customers saying, no concern. Also, just chill. So will it kill? I don't know.
Exactly. I'm not. So. I don't know. Yes, regulations can kill fintechs, but except your crypto here, if regulations kill you under Kadozo, I don't know what we should say about you. Maybe it's more of an.
Yeah, yeah, exactly. You probably shouldn't be playing in this space if Kadozo's regulation kills you, because what he's trying to do is to restrict what you can do and confine you to the original license you got. So if his regulations kill you, I don't know what that says about you.
So regulations are supposed to. Sorry, Malik, you want to say something?
[00:52:38] Speaker D: Yeah.
[00:52:38] Speaker B: I mean, I just wanted to add to what you said.
[00:52:40] Speaker D: Right.
[00:52:41] Speaker B: So the thing is this fintech has evolved over the years. When the old thing started, everybody was shouting, disruption, disruption.
[00:52:53] Speaker D: Right.
[00:52:54] Speaker B: And that was the theme of everything.
[00:52:56] Speaker D: So.
[00:52:56] Speaker E: Which means regulation one disrupted.
[00:53:02] Speaker B: Maybe it's the other way around now. Yeah, but the thing is, a lot of people built off being able to provide what existing financial institutions could not provide or could not do. Now, what a lot of people did not also understand is that those financial instruments could not do it because the law does not permit.
[00:53:23] Speaker D: Right.
[00:53:24] Speaker B: So when they start, they start with the ideology of why is the bank not doing this? Why is this? We can do this, we build this, we connected this to this and it's working.
[00:53:36] Speaker D: Right.
[00:53:36] Speaker B: And then you keep building, for example, outbound remittances, right.
If you look at the trajectory like the way things have been for some years now, let's even forget about the new Intu guideline from last month or so. Yeah, January.
I don't think CBN has issued an outbound license in a long time.
[00:54:01] Speaker D: Right.
[00:54:01] Speaker B: So a lot of imtos have not been able to do outbound right. Now as a fintech, you come out and say, my own business is doing outbound remittance for people in Nigeria.
What even the banks cannot do. Then your investors or anybody asks you what licenses would you need to get? You say imtu.
[00:54:24] Speaker D: Right?
[00:54:24] Speaker B: It makes sense because if you look at the law, but the practicality of it, Siben had already issued secular that okay, for now, no outbound.
[00:54:34] Speaker D: Right.
[00:54:35] Speaker B: But it's not in the have, you are not privy to it. A lot of people don't consult. They don't ask questions. They just start.
[00:54:42] Speaker D: Right.
[00:54:42] Speaker B: Then you start, you start doing outbound. Then you find out that when you apply for a license, you raise money, you now apply for license, then you are stuck because they will issue you an inbound license. Then you now come back and say, a regulation has killed me. The question to you would be, did you look at the regulation?
Exactly the same thing happened with, like, I mean, the ride, healing the bike, healing businesses at some point. The law has always been there.
The law has always been there before they started the whole thing. And some of them knew, but they felt like they'll be able to reform the law. So that also happens a whole lot.
[00:55:23] Speaker D: Right.
[00:55:23] Speaker B: And as I find that a lot of people relying on outbound were doing crypto. So use crypto to move the money, move the money back and forth, right. But now that they are cracking down on crypto, it will become a problem. So if you're going to look at it right very clearly whilst regulation is trying to just balance interest, that's like, if you look at regulation, it's just balancing interest. But the interest ultimately may not be in your favor.
That is the only problem. But the law always constantly balances the interest between the public and the business and the customers, basically.
[00:56:04] Speaker C: And the people using it and the.
[00:56:06] Speaker B: People and the citizens.
[00:56:07] Speaker D: Exactly.
[00:56:08] Speaker B: So if you look at it from that perspective, if they make a law, they need to favor the majority, which is the people. Of course, it will not favor some businesses.
[00:56:17] Speaker D: Right.
[00:56:17] Speaker B: And of course die in the process. So it is not like regulation would directly kill those businesses, but those businesses either have to evolve or maybe shut.
[00:56:28] Speaker C: Down, sadly die, by the way.
[00:56:33] Speaker B: Sorry.
[00:56:33] Speaker A: No.
[00:56:37] Speaker B: Exactly. They can pivot to something else. I mean, yeah, we have people that are pivoted to very, not even like verticals now where you say, okay, you pivot from selling food.
[00:56:53] Speaker D: Yeah.
[00:56:54] Speaker B: So we've had that. And I mean, it's not also a bad thing, right. Provided you keep the business going, you keep the lifeline running. I think it's fine.
[00:57:03] Speaker A: Yeah. So interesting times in the startup ecosystem, and we're hoping all this would push.
[00:57:13] Speaker B: I have a very funny question to ask on this.
[00:57:17] Speaker D: Right.
[00:57:19] Speaker B: Personally, January, I was very excited.
I was excited because of the VaSc regulation, right. When CBN said, oh, you know what, banks, you might be able to deal with VAsp services under these terms. I was excited because I feel like if you structure it properly, get a Vasp license, even though you're not doing crypto, because people need to understand the difference.
[00:57:45] Speaker D: Right.
[00:57:46] Speaker B: Crypto is different from virtual assets, virtual assets in general name. So crypto is just one that, it was like a signal that a lot of people banked on, including investors.
And I'm wondering what the state will be right now. Because the moment CBN issued that guideline, everybody that has hung their boots went back to dost it to start business. And then this happens.
[00:58:16] Speaker D: Right.
[00:58:17] Speaker B: I think it will be good to check what the impact of some of these things are. I mean, is it that SEC will now hold issuing licenses as well? What exactly is going to happen from here? Yeah, I would really like to hear people's thoughts on that too.
[00:58:34] Speaker E: Okay.
I don't know, really.
Like you mentioned, a lot of you are banking on a specific set of regulations and now they can't really bank on that anymore.
For investors, they're probably going to be the ones that suffer the most.
I don't know if you've noticed, but nigerian startups are suffering a lot. They're not raising as much as they used to. This month alone, I've been trying to count and I can't count a lot. So people are probably going to be less likely to invest in startups. For those who maybe got into this space with intention of taking advantage of some of the previous changes, and now maybe some things are being walked back again, they may just have to go to a less regulated industry or a less volatile regulatory environment.
But really, I guess it's still difficult. But yeah, good question. We should probably go ask people on the streets who are directly affected how it has influenced their planning for 2024.
[00:59:47] Speaker A: So apart from that to business, nigerian businesses find a way to adapt.
[00:59:53] Speaker E: You don't have a choice now.
[00:59:54] Speaker D: Yes.
[00:59:54] Speaker A: So they find a way to adapt. Yes, they count their losses and they just move on from there. But yes, it will be something we should try to do to get the stories of how they were able to survive through that period. And as I mentioned, like sprints to them. Let's give it one month and then.
[01:00:14] Speaker E: We move on to that running business model as sprint. Now, how many sprints you want when.
[01:00:19] Speaker A: Your regulator is doing it? What do you want to do?
Just this year alone, you know how many sprints we've run.
So let's hope that CBN finds one of all these things they are doing that actually works and probably be held accountable for them for all these things that they are doing.
Wishful thinking, apologies for that. But yes. Thank you guys. Thank you Malik for contributing to these conversations.
Bulu and Shimkojim, thank you for how you been able to contribute to it. And if you're listening to this conversation and you have something to add, you can always tweet at us.
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If you're listening to us and you want to tell other people to listen to Techmont Africa podcasts, I mean audio bolu, can you tell them where they can be referred to?
[01:02:43] Speaker C: Okay, to get the full version of this podcast, you can find us on our audio podcast platforms such as Google Podcasts, Apple Podcasts, Spotify, HiatRadio or anywhere us to get your podcast.
[01:02:55] Speaker A: Yes, just search for Techpoint Africa podcast and you will find us on all these platforms. Thanks for joining us every week and that will be all from us for now. Bye. Thank you, Malik, for joining. Bye.
