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Finance

WHAT YOU SHOULD KNOW ABOUT THE APPROPRIATION ACT, 2023

PARAMETERS AND KEY ASSUMPTIONS

The 2023 “Budget of Fiscal Consolidation and Transition’’ was signed into law on the 3rd of January 2023; at its core, it focuses on maintaining fiscal viability and ensuring a smooth transition for the incoming administration, come May 29, 2023.

President Muhammadu Buhari in his speech at the joint session of the National Assembly on the 7th of October 2022, noted that beyond ensuring fiscal sustainability, his administration will in the new year focus on improving the country’s business enabling environment, accelerate revenue-based fiscal consolidation efforts and strengthen expenditure and debt management.

The 2023 budget proposal was primarily influenced by the Federal Government’s medium-term fiscal outlook which takes into cognizance current fiscal and economic realities such as the continuing global and domestic challenges sparked by recurring COVID-19 spikes, climate change and the impact of Russia-Ukraine War on global economies.  It is therefore anticipated that Nigerian State will grapple the headwinds of low revenue, high inflation, exchange rate depreciation and insecurity.

Key Elements of The Budget: Expenditure Summary

The expenditure policy of the Federal Government for 2023 is designed to achieve the strategic objectives of the National Development Plan (2021 – 2025), which include macroeconomic stability; human development; food security; improved business environment; energy sufficiency; improving transport infrastructure; and promoting industrialization through Small and Medium Scale Enterprises.

The aggregate expenditure (inclusive of GOEs and project-tied Loans) is projected to be NGN 21.83trillion – which is 20% higher than the total expenditure for 2022 (including supplemental appropriations).

  1. Recurrent (non-debt) spending is estimated at NGN8.33trillion, (including NGN200 Billion to fund the Federal Governments social investment programme). Total Recurrent (non-debt) spending therefore amounts to 38.2 % of total expenditure;
  2. Aggregate Capital Expenditure stands at NGN6.46trillion amounting to 30% of total expenditure which is 10% higher than the total Capital Expenditure spend for 2022;
  3. Total Debt Service spend stands at NGN6.31trillion amounting to 29% of total expenditure. This is 71. % higher than 2022 as it includes total interest payment of NGN1.2 trillion on Ways & Means Advances from the Central Bank.

Key Elements of The Budget: Revenue Summary

Total revenue available to fund the 2023 FGN Budget is estimated at NGN11.1 trillion. In aggregate, about 20% of projected revenue will come from oil-related sources, while circa 80% will come from non-oil sources primarily taxes and Government collections.  The Federal Government has therefore developed a robust strategy to enhance collections and widen the tax revenue pool. This includes:

  1. Improving non-oil revenue receipts, tax administration and sustain the effort to expand the non-oil revenue base;
  2. Strengthening tax systems by improving collection efficiency, enhancing compliance, and reorganizing the business practices of revenue agencies by deploying appropriate technology;
  3. Widening the tax net to include businesses in the informal sector;
  4. Introduction of frameworks for recovering duties, taxes and appropriate fees from custom related transactions conducted over electronic networks;
  5. Enhancing port efficiency, strengthen anti-smuggling measures, review of tariffs and waivers and issue of licenses for the development of modern terminals in existing ports, especially outside Lagos:
  6. Enforcing extant laws limiting cost-to-revenue ratio of GOEs to a maximum of 50 percent;
  7. Deploy Technology and ICT solutions needed to enhance revenue collections and compliance;
  8. Improve the performance of GOEs through the effective implementation of the approved Performance Management Framework.

Key Elements of The Budget: Deficit and Deficit Financing

Overall budget deficit stands at NGN10.78trillion (circa 4.78% of GDP) which is to be finance financed mainly through government borrowings from local and foreign sources including multilateral/bilateral loan draw downs and privatization proceeds. Once more this exceeds the threshold set by the Fiscal Responsibility Act however considering the existential security and economic challenges plaguing the Federal Government is compelled to increase its overall fiscal expenditure.

SUMMARY OF THE FINANCE BILL 2022

The Nigerian Finance Bill 2023 has been passed by both legislative houses but is yet to be assented to by the President. At the presentation of the budget by the Minister of Finance on 4th of January 2023, the Honourable Minister stated that the delay in the passage of the bill was as a result of the ongoing vetting and approval process from key stakeholders. it is anticipated that the bill which has now completed its legislative approval cycle will get executive assent any time now.

The Finance Bill amongst other things amends the: Capital Gains Tax Act (CGTA), Companies Income Tax Act (CITA), Customs, Excise Tariff, Etc. (Consolidation) Act, Personal Income Tax Act (PITA), Petroleum Profits Tax Act (PPTA), Stamp Duties Act (SDA), Value Added Tax Act (VATA), Corrupt Practices and Other Related Offences Act and Public Procurement Act.

The table below details the key changes in law effected via the Bill.

 

Conclusion

As is typical of this administration, the Federal Government kept to its commitment to pass and commence implementation of the Appropriation Act in a timely fashion even though the complementary Finance Bill suffered a delay snag. Generally due to the change of administration anticipated at around mid-year 2023, it is expected that supplementary appropriation laws will be passed to align the Appropriation Act with the Economic and Fiscal Policy of the incoming administration.  Furthermore, gleaning from the posture of the Federal Government and the spirit and letter of the budget it is expected (at least for the first half of the year) that:

  1. More incentives and tax holidays for players in the renewable energy sector will be implemented in line with the Federal Government’s intention to encourage domestic and industrial adoption of renewable energy alternatives.
  2. More repeals and cancellation of tax benefits and incentives;
  3. More effort to promote, incentivize and adopt technology and innovation;
  4. Fiscal instability, slow growth, food crisis, and high interest rates are likely to continue into 2023 as the underlying causes such as Russia-Ukraine war and the Covid-19 crises are yet to abate;
  5. Likely removal of fuel subsidy after the expiration of the extension will potentially increase the cost of living and doing business in Nigeria;
  6. Federal Government will drive revenue generation and tax collection aggressively;
  7. Increased government borrowing may provide short-term relief but lead to negative impacts such as higher interest rates, inflation, and shrinking disposable income in the long term;
  8. Federal Government will pass and effect the enforcement of the Finance Bill.

HOW TO GET STARTED

Do you need to know more about the Appropriation Act? Our Finance team is available to support you.

You may contact our team on: Email: info@dealhqpartners.com Telephone: +234 1 4536427 or +234 9087107575

Click here to download PDF

Season 2 Episode 1- The Appropriation Act 2023: Key Implication for Nigerian Businesses

Simply is a sponsored podcast of DealHQ Partners, where we engage thought leaders on trending issues around law and business in the most simplistic manner.

 

On the first episode of Season 2, Our Tosin Ajose leads Mr. Opeyemi Agbaje, the Founder and CEO of RTC Advisory Services Ltd – a leading strategy and business advisory firm, in a conversation on the recently enacted 2023 Appropriation Act. The conversation bothers on the key elements of the expenditure and revenue summary, Nigeria’s ballooning public debt profile, and the potential impact of the 2022 finance bill on Nigerian businesses.

Listen here:   linktr.ee/DealHQ

 

 

Season 1 Episode 11 – Financial Technology – Bridging Africa’s Financial Exclusion Gender Gap through Social Innovation

Simply is a sponsored podcast of DealHQ Partners, where we engage thought leaders on trending issues around law and business in the most simplistic manner.

On Episode 11, our final episode in Season 1, our Orinari Horsfall is joined by Solape Akinpelu, a Certified Financial Education Instructor and Co-founder of HerVest, Nigerian based fintech company pioneering inclusive finance for African women, in a conversation on gender based financial exclusion in Africa. Specifically, the conversation discusses the effect of highlights the impact of gender based exclusion on Africa’s development and economic prosperity and the role that HerVest and other social innovators in Africa are playing in tackling issues around access to finance for African Women.

 

Listen here:   linktr.ee/DealHQ

 

 

OVERVIEW OF THE EXPOSURE GUIDELINES FOR CONTACTLESS PAYMENT IN NIGERIA, 2022

The Covid-19 pandemic and the resultant lockdown triggered significant changes in the payment industry. Specifically, it amplified the need for contactless payment and ushered in a wave of unprecedented innovation and product development in the payment industry globally.

Given the record traction in the Nigerian payment market; the Central Bank of Nigeria (CBN), recognizing the need for a tailored regulatory framework to support the burgeoning sector growth, in January 2021, issued the Framework for Quick Response (QR) Code Payment; and more recently, in October 2022, released the Exposure Draft of the CBN Guidelines for Contactless Payment in Nigeria.

The Guideline defines contactless payment as: “the consummation of financial transaction without physical contact between payer and the acquiring device(s)”. This means that secure payments can be made with tags, debit/credit cards, smart cards, mobile and other devices that use Near-Field Communication (NFC), Radio Frequency or QR Codes.

In a bid to preserve the integrity, safety and stability of the Nigerian financial system and to facilitate the safe and secure use of Contactless payment, the Guideline amongst other things provides for:
i. the roles and responsibilities of various stakeholders within the contactless payment eco- system;
ii. the minimum standard/specification for all contactless payment terminals, applications, and processing systems;
iii. guidelines for the provision of Value-Added Services; and
iv. the power of the CBN to prescribe and enforce sanctions and penalties for breach of the Guideline.

KEY STAKEHOLDERS IN THE CONTACTLESS PAYMENT ECOSYSTEM

The Guideline clearly articulates the role and responsibilities of the various stakeholders in the contactless payment eco-system, prescribing standards and specification for all forms of market technology and systems whilst also prescribing processes and principles that will govern their relationship with each other.

A.  Acquirers
An Acquirer is a CBN-licensed institution that facilitates the acceptance of payments from customers to merchants through contactless payment devices such as Point of Sale Terminals (POS), Mobile Applications, and QR Codes amongst others. An Acquirer will typically be the account bank of a merchant who is utilizing the contactless payment system for fee collection from its customers.
The guideline requires all Acquirers to:
i. ensure that all deployed contactless payment devices deployed are certified by CBN and meet prescribed specifications/standards.
ii. operate an agnostic acceptance policy such that all cards, capable of contactless payment, issued in Nigeria shall be accepted irrespective of the issuer.
iii. conduct customer KYC (Know Your Customer) and train Customers compliance with applicable Regulations.
iv. take measures to prevent the use of their networks and devices in violation of Anti-Money Laundering Laws.
v. execute a Contactless Payment Agreement with all Customers prior to granting access to the Acquirer’s contactless payment platform.

In a bid to protect unwary or naive customers from the perpetuation of fraud, the guideline restricts Acquirers from admitting or profiling agent banking terminals operators to its Platform or facilitating contactless transactions on their behalf.

B. Issuers
Like the Acquirers, only CBN-licensed institutions are permitted to act as Issuers for contactless payments. An Issuer is responsible for issuing contactless payment enabled cards, tags, or mobile applications to consumers (consumers being people who procure cards, tags, tokens or contactless payment enabled mobile apps to facilitate payments to merchants or other service providers. Examples of CBN-licenced institutions in Nigeria that already issue contactless payment enabled cards and devices include the First Bank of Nigeria, United Bank for Africa, and Providus bank. These cards have embedded Radio Frequency Identification (RFID) technology which communicates with card readers to enable payment transfers. Issuers are required to ensure, that all tokens and devices issued by them for payment by Customers meet prescribed standards and specifications. Furthermore, Issuers are required to obtain and properly document Customer’s consent prior to enabling Customer’s device for contactless payment. Specifically, the guideline prohibits unsolicited activation of contactless payment service on any payment enabled device owned by any Customer. Relatedly, prior to activating contactless payment service for any Customer, an Issuer is required to verify and identify such Customers by his/her Bank Verification Number (BVN).

C. Payment System and Card System Administrators
Payment/Card System Administrators are operators of card and payment systems (such as Mastercard, Visa, Remita, and Flutterwave). Whilst Issuers are responsible for issuing cards and other enabled devices to Customers, the Payment/Card System Administrators oversees the administration and use of issued cards for payment. Payment System and Card System Administrators are required to comply with the Guideline generally and act in accordance with prescribed processing specifications whilst ensuring that their systems and schemes are interoperable.

D. Switching Companies
Switching Companies are CBN-licensed institutions that oversee the routing of transaction data, interbank payment clearing and settlement, payment authentication and authorisation and risk management. The Nigeria Interbank Settlement System (NIBSS) is the Central Switch for the Nigerian Financial Market. Other than the NIBSS; Interswitch, eTranzact, and Flutterwave are some of the other licensed Switching Companies. The Guideline mandates Switching Companies to ensure that contactless transactions via approved payment instruments issued in Nigeria are successfully switched and to undertake periodic risk assessment to mitigate against money laundering and financing terrorism within the system.

E. Payment Terminal Services Providers
Payment Terminal Service Providers are CBN-licenced institutions that deploy contactless payment enabled Payment Terminals (Point of Sale Terminals) for use within the financial ecosystem. Payment Terminal Services Providers are by the Guideline, required to assure the quality and functionality of all contactless payment enabled terminals issued by them through optimal maintenance, availability of a 24/7 support infrastructure. It is recommended that response time for repair or replacement should not exceed 48 hours from the time of escalation.

F. Payment Terminal Service Aggregator
A Payment Terminal Service Aggregator (“PTSA”) oversees the interconnectivity of all payment terminals deployed with the Nigerian Payment Ecosystem. The Nigeria Interbank Settlement Scheme is the sole PTSA in Nigeria. It ensures that all terminals used in the e-payment ecosystem and all devices deployed in Nigeria are brand-agnostic and would accept all cards issued by any bank or other licensed card schemes without discrimination. NIBSS ensures the standardization of technical and operational specifications of all devices deployed within the Nigerian financial system. The Guideline requires the PTSA to certify that all Point-of-Sale terminals used for contactless payment meet required standard for the payment industry. It is also required to implement a documented risk management process to identify threats before, during and after all payment transactions.

G. Merchants
These include businesses (large institutions or SMEs), that employ contactless payment devices as a means of receiving payment from customers. Merchants are by the Guideline, required to ensure that devices deployed for contactless payments are of the required specification, they are also required to exercise due diligence in effecting all payment transactions as they remain liable for any fraud resulting from negligence or connivance during a contactless payment transaction.

The Guideline further, requires all merchants who accept contactless payments to display the contactless payment symbol visibly in their location. They are also required to undertake second level authentication for transactions of a value which is higher than the stipulated limit per day via the customer’s Personal Identification Number (PIN) OR token code.

H. Customers
A customer is anyone making payment through a Contactless payment method. The Guideline requires Customers to exercise due diligence during contactless payment transactions whilst leaving them in full control to opt-in or out of any contactless payment service.

BENEFITS AND CHALLENGES
Prior to the release of the Draft Guideline, the only existing regulation in the contactless payment ecosystem was the Framework for Quick Response (QR) Code Payment in Nigeria, January 2021 (“Framework”). The Exposure Guideline is therefore a solid improvement on the hitherto QR Code Framework as it specifically sets out market requirements for the use and operation of all forms of contactless payment technology.

Apart from the wider scope of the Guideline, the general adoption of contactless payment will have an overall far-reaching effect on the economy as it will create a smarter, faster, more efficient and easy-to-use mode of payment which requires less manpower. It will also promote health and safety and reduce potential disease transmission at points of sale.

It is also necessary to mention that the posture of the Guideline is generally User-Centric, as the CBN mandates that use of contactless payment service must be elective whilst holding all participants within the value chain to regulatory service levels.

Without doubt, the benefit of the Guideline is enormous, yet a big impediment remains the introduction of transaction limit for contactless transactions, the Exposure Draft specifically provides for a NGN5000 (five thousand naira) transaction limit for a single transaction and a cumulative daily transaction limit of NGN30,000 (thirty thousand naira) per User. Transactions that fall outside this limit require an additional layer of authentication. Whilst the intention of the limit is noble and driven by the need to protect Users from significant impact should fraud, theft, impersonation, funds misappropriation occur; the threshold seems too low considering commercial realities in present day Nigeria. To guarantee that the contactless payment system remains a viable alternative for users therefore, it is imperative for the CBN to consider an upward review of the prescribed limit.

Finally, the Guideline envisages growth and innovation in the contactless payment ecosystem and therefore provides a protocol for innovative use cases. Where any stakeholder intends to offer novel or value-added service falling within the contactless payment niche, it is required to procure and obtain the prior approval of the CBN.

CONCLUSION

Contactless payment is fast becoming a preferred mode of payment across the Globe. UK Finance magazine reports that contactless payments accounted for over a quarter of all payment transactions in the United Kingdom in 2021. It is therefore expected that the introduction and implementation of the Guideline, shall in days to come foster public trust, deepen the contactless payment eco-system and consequently accelerate the speed of its adoption in Nigeria.

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Season 1 Episode 10 – Anniversary Special: DealHQ Partners 4 years of enabling Businesses in Africa

Simply is a sponsored podcast of DealHQ Partners, where we engage thought leaders on trending issues around law and business in the most simplistic manner.

On Episode 10, we are joined by our Lead Advisor and founding partner – Tosin Ajose who takes us on a journey down memory lane. She shares insights on the Firms values, foundational goals, the challenges of starting up and building a sustainable legal enterprise, and the Firm’s unique winning culture.

 

Listen here:   linktr.ee/DealHQ

 

 

PAN AFRICAN PAYMENTS SETTLEMENT SYSTEM (PAPSS)

PAN AFRICAN PAYMENTS SETTLEMENT SYSTEM (PAPSS): DELIVERING A FINANCIALLY INTEGRATED REGIONAL MARKET.

PAPSS is a cross-border payment and settlement market infrastructure established by– the African Export-Import Bank (“Afreximbank”) in collaboration with the West African Monetary Institute (WAMI) and African Continental Free Trade Area (“AFCFTA”) secretariat. The PAPSS platform was launched on the 13th of January 2022 in Accra, Ghana after a successful testing phase in the West African Zone which comprises Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone.

Heavy reliance on exchange currencies such as the US dollars, Euros and Pounds (“FX”) for payments processing, clearing and settlement on cross-border transactions has been a major impediment to regional trade. The PAPSS platform now seeks to enable easy and seamless payment processing, clearing and settlement for cross-border transactions in local currencies and in real-time, cutting out the need for FX and international settlement counterparties.

With the establishment of PAPSS, the need for international banks and conversion of local currencies to FX has been eliminated as funds can now be transferred directly between trade counterparties in their local currency. The system automatically validates fund transfers (checks for compliance and legality between trade countries) at near-instant speed thereby allowing for real-time settlement between initiator bank and recipient bank in any applicable currency.

PAPPS is an inclusive platform that integrates all payment service providers outside of the traditional banking systems including payment service providers, card schemes, and other intermediaries. Outside of business transactions, the platform also enables efficient and secured money flow within the retail end of the market by facilitating  salary payments, money transfers, shopping, or investment payment exchanges. This will bolster regional mobility and e-commerce, giving Africa the chance to truly morph into a single borderless market.

The PAPPS Infrastructure is driven by synergies between the Central Banks of the AFCFTA member countries with these reserve banks acting as secondary clearing agents for their respective countries whilst the AFREXIM Bank remains the primary clearing agent and will also be responsible for providing settlement guarantees and overdraft facilities required to preserve the integrity of the Marketplace. Interbank Settlement will be facilitated in USD with a multilateral netting arrangement between the Central Banks at 11:00 UTC daily.

In a bid to align and consolidate financial/trade policies of the different participating countries and to achieve financial oversight whilst preserving market integrity, the Central Banks remain at the apex of financial activities in the various participant countries, prescribing the minimum liquidity threshold for Direct Participants (these are financial institutions that maintain a settlement account with the relevant Central Bank, they are responsible for proving the needed liquidity to secure the pre-funding arrangement required to achieve Real-Time Gross Settlement in the PAPPS marketplace), the Central Banks also have the prerogative to prescribe nature and form of transactions eligible for settlement on the platform.

The new regional payment system is a laudable initiative which without doubt has the capacity to integrate Africa by enhancing payment efficiencies across the region and significantly reducing the incidental cost of currency conversion which prior to PAPPS cost the region circa USD5Billion per annum. Nonetheless, for the new market infrastructure to deliver economic prosperity to the region on a massive scale, it remains imperative that African Countries boost their export potential through improved manufacturing/production capacity and to bridge the massive infrastructure gaps needed to enable the mobility of goods and services across the region.

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WHAT YOU SHOULD KNOW ABOUT THE APPROPRIATIONS ACT, 2022

Parameters and Fiscal Assumptions

The 2022 “budget for Economic Growth and Sustainability” was signed into law by President Muhammadu Buhari on Friday, 31st December 2021, two weeks after the National Assembly passed the bill.

The allocations in the budget were guided by six strategic objectives of the National Development Plan of 2021 to 2025, which are: diversifying the economy, with robust MSME growth; investing in critical infrastructure; strengthening security and ensuring good governance; enabling a vibrant, educated, and healthy populace; reducing poverty, and minimizing regional, economic, and social disparities.

Key Elements of the Budget: Expenditure Summary

The total estimated aggregate expenditure is N17.13tn which is N735.85bn more than the initially proposed sum of N16.39tn and represents a 17.57% increase over N14.57tn for 2021. The increase in the proposed expenditure is attributed to the introduction of 6,576 new projects and the reduction of the allocation to 10,733 projects by law makers.

  • Statutory transfer
  • Recurrent (non-debt) which is the largest expenditure is estimated to amount to N6.91tn, is 40.3% of total expenditure and 17.3% higher than the 2021 Budget.
  • Debt Service
  • Aggregate Capital Expenditure of N5.47tn accounts for 31.9% of total expenditure.
  • Sinking fund

N3.61tn is estimated for debt service and this represents 22% of total expenditure. This is a 15.7% increase from the N3.12tn allotted for debt service last year. This increase in public debt is a result of borrowings to put the economy back on track after 2 recessions.

Key Elements of the Budget: Revenue Summary

The estimated aggregate revenue to fund the 2022 budget is N10.7tn which is 32% higher than the 2021 estimate of N8.1tn. The major revenue generation strategies are as follows:

  • Enhancement of tax and excise revenues through policy reforms and tax administration measures;
  • Review of the policy effectiveness of tax waivers and concessions;
  • Boost of customs revenue through the e-Customs and Single Window initiatives (implementation of the African Continental Free Trade Agreement may be a major driver for this strategy); and
  • Safeguard revenues from the oil and gas sector.

The government has also expressed its intention to strengthen the existing framework for concessions and Public Private Partnerships. There will also be a review of the Finance Act to input measures to aid the Strategic Revenue Growth Initiative (SGRI).

Key Elements of the Budget: Deficit, Financing, and Critical Ratios

The 2022 budget has a total fiscal deficit of about N6.39tn. This represents about 3.5% of the projected GDP of N184tn (this amount was stated by the Minister of Finance at the public presentation of the budget in October,2021), slightly above the 3% threshold set by the Fiscal Responsibility Act 2007 (FRA).

The President, however, insisted that this was necessary to tackle the security problems prevalent in the country.

Finance Act 2021

In order to achieve the revenue projections in the 2022 budget, the Finance Act took effect from the 1st January 2022 and introduces amendments to some tax laws.

The Finance Act amends the: Capital Gains Tax Act (CGTA); Companies Income Tax Act (CITA); Fiscal Responsibility Act (FRA); Personal Income Tax Act (PITA); Stamp Duties Act (SDA); Federal Inland Revenue Service (Establishment) Act [FIRSEA]; Tertiary Education Trust Fund (Establishment) Act [TETFEA]; National Agency for Science and Engineering Infrastructure Act (NASENI Act); Value Added Tax Act (VATA); Nigerian Police Trust Fund (Establishment) Act [NPTFEA]; Finance (Control and Management) Act [FCMA], and Insurance Act.

Conclusion

So, what do we expect to see this year?

  • Early passage of the budget will aid government in achieving its objectives.
  • Enforcement of amendments introduced by the Finance Act, 2021.
  • Removal of petrol and electrical tariff subsidies may contribute to inflation.
  • Government driving heavy revenue generation by paying particular attention to tax compliance and remittances.
  • There may be a downward review on tax incentives like Pioneer Status and tax incentives for petroleum companies.
  • Revenue generation from the growing investment in the Nigerian technology ecosystem by the introduction of taxes to foreign technology companies with significant economic presence in Nigeria.
  • Leveraging on implementation of the African Continental Free Trade Agreement (AfCFTA) to enhance customs revenue.
  • Focus on tackling insecurity.
  • Introduction of major projects in the education and health sectors.

HOW TO GET STARTED

Do you need to know more about the Appropriation Act? Our Finance  team is available to support you.

You may contact our team on: Email: info@dealhqpartners.com Telephone: +234 1 4536427 or +234 9087107575

Click here to download PDF

WHAT YOU NEED TO KNOW ABOUT THE “E-NAIRA”

WHAT YOU NEED TO KNOW ABOUT THE “E-NAIRA”

In response to the global rise in the use of digital payment solutions and the cryptocurrency market, the Central Bank of Nigeria (“CBN”) has created the eNaira, in a project termed “Project Giant”, which will be launched on 1st October 2021. In furtherance of this, the CBN engaged a global fintech firm Bitt Inc, as the technical partner for the development of the digital currency. The rationale behind the eNaira is to promote and facilitate the cashless culture amongst Nigerians while keeping up with contemporary economies of the world and maintaining the value of the Nigerian currency/foreign reserve. The eNaira is expected to aid financial inclusion, improve payment efficiency, improve revenue and tax collection, and aid targeted social interventions.It is noteworthy that various central banks worldwide are currently developing and issuing their central bank digital currency (CBDC). Some of these countries include China (digital yuan), Ghana (eCedi), Tunisia (eDinar) Senegal (eCfa), Tunisia (Petra), Dubai (emCash) amongst others.

CBDCS AND CRYPTOCURRENCIES

Although a digital currency, the eNaira is different from other cryptocurrencies using blockchain technology, such as Bitcoin and Ethereum, in that it is issued and regulated by a sovereign authority. The eNaira users will not be anonymous, i.e., the users will undergo an onboarding exercise and will provide identifying information such as BVN or NIN, as the case may be. The personal account details and transaction activity of every user of the eNaira system will be monitored by the CBN.

In addition, the eNaira is fiat currency and is not subject to the volatility associated with the digital currency market; the value of the eNaira will be at par with the value of the Naira and will be subject to the appreciation and devaluation of the Naira currency.

E-NAIRA DESIGN FEATURES 

In a bid to set out the eNaira as distinct, the CBN introduced certain features in the eNaira Design, these features include:

  1. It is a legal tender;
  2. It is subject to parity of value, which is pegged to the value of Naira;
  3. It operates on a tiered structure for consumers;
  4. It operates with an account-based wallet;
  5. It possesses a transaction limit for customers, determined by their applicable tier;
  6. It maintains a tiered AML/KYC approach (NIN, BVN as unique identifiers);
  7. It is a non-Interest bearing CBDC;
  8. It ensures settlement finality; and
  9. It is value-based.

HOW WILL E-NAIRA OPERATE

As the eNaira is an electronic currency, consumers will be required to download the electronic wallet and get onboarded into the system through an invitation link received from their financial institution. Once the process has been successfully completed, users will be able to commence electronic financial transactions with the eNaira. Users can fund their eNaira wallet through their financial institution.

E-NAIRA PARTICIPANTS 

There are several stakeholders involved in the operation of the eNaira model which take on the following roles:

  1. Monetary Authority (CBN): The CBN has the sole responsibility to mint, issue, distribute, redeem, destroy the eNaira and act as digital currency manager by executing and managing digital currency transactions. It will also manage the storage of transaction data on the Hyperledger Fabric Blockchain, the blockchain ledger the eNaira will operate on.
  2. Financial Institutions: Financial Institutions facilitate the participation of end users in the eNaira technology. They serve digital currency managers by carrying out the following roles:
    1. Requesting eNaira from the CBN and issuing to users;
    2. Managing digital currency across branches;
    3. Conducting Know-Your-Customer (KYC) activities;
    4. Conducting identity and Anti- Money Laundering (AML) compliance activities.
  1. Government/ Government Agencies: The government and relevant government agencies are end-users of the eNaira technology and may use the platform for the following purposes:
    1. Processing out going payments such as salaries and interventions; and
    2. Receiving incoming payments from consumers.
  2. Businesses and Merchants: Merchants and business will use the eNaira technology to process potentially swifter and lower cost payments from consumers. The eNaira will support payment options such as POS, remote pay and other online payment capabilities.
  3. Consumer (Banked and Unbanked Consumer): Individual consumers whether having a bank account or not are allowed to engage in several transactions involving other consumers or directly with financial institutions using the eNaira. They will be able to send and receive eNaira in their eNaira wallets and also process payments.

THE E-NAIRA WALLET

In a bid to safeguard the eNaira and for convenience, a special feature is being introduced, which is the eNaira wallet, a virtual enclosure where every consumer or user of the eNaira platform can comfortably track and manage available eNaira funds. It is expected that there will be no service charge for wallet-to-wallet transactions.

It is important to note that the licensed Financial Institutions shall be responsible for providing their customers with their eNaira Wallets.

PAYMENT FEATURES

Users will be able to engage in a number of payment transactions with the eNaira, including:

  1. E-Naira wallet to eNaira wallet payments;
  2. E-naira wallet to bank account payments;
  3. Bank account to eNaira wallet payments;
  4. User E-naira wallet to Ministry, Departments and Agency (MDA) eNaira wallet payments;
  5. MDA eNaira wallet to user eNaira wallet payments;
  6. E-Naira to cash conversion;
  7. cash to eNaira conversions;
  8. FX to eNaira conversion (through the Central Bank); and
  9. FX to eNaira Wallet payment (through International Monet Transfer Operators).

ON-BOARDING A CONSUMER ON THE E-NAIRA SERVICE

As a way of popularizing the eNaira initiative within the Nigerian citizenry, the several financial institutions, particularly banks, are directed to encourage the participation of their customers in the eNaira service and send out invitation codes to verified and validated customers. This makes the process easier as customers with already generated codes have a rather seamless onboarding.

RETENTION OF E-SETTLEMENT SYSTEMS

Under the eNaira system, existing infrastructure for electronic settlement systems such as the NIBSS and other switching platforms will be retained and integrated into the implementation of the eNaira.

CONCLUSION

Although the eNaira project is novel and still budding, it is interestingly one project that appears promising especially for the Nigerian economy. There are a number of obvious challenges to its widespread acceptance such as the high rate of technology illiteracy amongst the citizenry, the unrestrained monitoring of transaction activities in the eNaira system, which almost defeats the point of digital currency as is widely accepted, and lack of access by users to the ledger records. There are however some positives. Other than ensuring potentially swifter and cheaper payments, the eNaira provides relative value stability (subject always to the inflationary nature of the Naira), will be an officially accepted legal tender, and possesses an anti-fraud management system for the protection of users.

 

HOW TO GET STARTED

Do you need to know more about the eNaira? Our Technovation team is available to support you. You may contact our team on: Email: info@dealhqpartners.com Telephone: +234 1 4536427 or +234 9087107575

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Season 1 Episode 2 – AFCFTA: Leveraging Technology to achieve regional competitiveness

Simply is the sponsored Podcast of DealHQ Partners, where we engage thought leaders on trending issues around law and business in the most simplistic manner.

Our Tosin Ajose joins Mrs. Nkemdilim Uwaje Begho, the CEO of Future Software Resources Limited and a Non-Executive Director in Stanbic IBTC Bank who is recognized as a  seasoned digital transformation executive and one of Forbes top 10 female tech founder in Africa in conversations around the Africa Continental Free Trade Agreement and the role of technology in achieving competitiveness in Africa’s new borderless and integrated market.

This episode examines the role of digital in fast-tracking the gains of AFCFTA, how technology and innovation will facilitate connectedness and a truly homogeneous market, big data, data share, and regional collaboration, and how Nigeria can position itself for competitive advantage in the free zone

 

Listen here:   linktr.ee/DealHQ

 

 

Simply by DealHQ Podcast – Cryptocurrencies and the Nigerian Financial Market

Simply is the sponsored Podcast of DealHQ Partners, where we engage thought leaders on trending issues around law and business in the most simplistic manner.

In this maiden episode, Our Lead Advisor, Tosin Ajose is in conversation with Mr. Michael Ugwu, the Founder and CEO of Freeme Digital Limited and pioneer General Manager for Sony Music Entertainment West Africa, a venture capital investor and cryptocurrency enthusiast discussing issues bothering on cryptocurrency adoption, market trends, trading, counterparty risks and regulations from a Nigerian perspective and from a broader Africa wide view.

The whole world acknowledges the unprecedented growth in the global cryptocurrencies MARKET with Nigeria recording over $400 million traded in 2020 alone inspite of its low internet penetration. Statistics show a high level of enthusiasm around the adoption of cryptocurrencies, especially amongst the youth. This episode examines the cryptocurrency market in Nigeria from an investor’s perspective, opportunities in Decentralised Financing (DeFI), lessons, and opportunities for new adoptors.

Listen here:   linktr.ee/DealHQ

 

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