By Ndubuisi Ekekwe
New business models evolved after the Naira floating policy last year. Some of the things the Central Bank of Nigeria is doing will take time to work as some of our lending products are cross-border in nature now with masked USD component. Every major bank in Nigeria has these products. I have identified ten new models and will share one today.
Model #1:
- CompanyA has raised $100,000 from InvestorA which is based in New York.
- InvestorA wires the funds to USBankA in California.
- CompanyA operates in Lagos, Nigeria, and needs and uses Naira for its operations.
- CompanyA approaches a Nigerian bank (NGBankB) for a loan of N50 million, using a portion of the $100k as a collateral. NGBankB asks CompanyA to wire $50k from USBankA to another bank in New Jersey (USBankC) to an account it controls. That is used as a collateral to secure the N50 million.
- Upon that wire, NGBankB releases N50m to CompanyA in Nigeria (fully collateralized with US dollars).
Note: no USD fund has been imported into Nigeria. And the US dollar which shows in the balance sheet of the local Nigeria bank is a collateral on a loan issued in Naira.
Does the Central Bank of Nigeria (CBN) understand how to handle the Naira and the USD components of this transaction? I just explained one of many financial trajectories which are turning the Naira on its heads. Stay tuned for model #2. These are new business models which are reshaping banking, FX and the broad capital market in Nigeria. Yet, we can fix these issues if we get to work. The floating of Naira made Naira vulnerable and that was why I called it “One of the worst economic policies in Nigeria since 1999” tekedia.com/mr-cbn-governo…