April 19, 2022

Registration and Operation of the Bank Neutral Cash Hubs Operations in Nigeria

by AO2LAW

Share on linkedin
Share on twitter
Share on whatsapp
Share on facebook

Introduction

Financial inclusion has continued to assume increasing recognition across the globe among policy makers, researchers, and development-oriented agencies. Its importance derives from the promise it holds as a tool for economic development, particularly in the areas of poverty reduction, employment generation, wealth creation and a general improvement of welfare and standard of living. The global pursuit of financial inclusion as a vehicle for economic development had a positive effect in Nigeria as the exclusion rate (amount of Nigerians not financially inclusive) reduced from 53.0 % in 2008 to 46.3% in 2010.[1] Encouraged by the positive development, the Central Bank of Nigeria (CBN) in collaboration with stakeholders launched the National Financial Inclusion Strategy on 23rd October, 2012 with the aim of further reducing the exclusion rate to 20% by 2020.[2]

The CBN pursuant to the provisions of the Central Bank of Nigeria Act, 2007 (CBN Act)[3] and the Banks and Other Financial Institutions Act (BOFIA Act)[4] has the requisite statutory power to issue guidelines for the maintenance of adequate and reasonable financial services to the public. On 15^th March 2022, the Guidelines for the Registration & Operation of Bank Neutral Cash Hubs (the Guidelines) in Nigeria was released by the CBN in furtherance of its mandate to promote a sound financial system in Nigeria. The CBN, in collaboration with Banker’s Committee initiated the Nigerian Cash Management System (NCMS) which seeks to reduce costs and improve operational efficiency in the country’s cash management value chain. One initiative towards the above stated goal is the introduction of Bank Neutral Cash Hubs (BNCH).[5]

The Concept of Bank Neutral Cash Centres

BNCHs are cash collection centres which are to be established and operated by registered processing companies or Deposit Money Banks (DMBs) based on business needs. BNCHs are to be located in areas with high volumes of commercial activities and cash transactions. The hubs will provide a platform for customers to make cash deposits and receive value irrespective of the bank with which their account is domiciled. The Guidelines aim to provide minimum standards and statutory requirements necessary for the registration and operations of BNCHs to ensure effective supervision. One of the key objectives of setting up BNCHs is to reduce the risks and cost borne by banks, merchants, and huge cash handlers in the course of cash management activities; to further deepen financial inclusion; and to leverage on shared services to enhance cash management efficiency.

Eligibility and Activities of the Bank Neutral Cash Centres

BNCHs are eligible to provide and conduct of the following operations:[6]

· Receipt of Naira denominated deposits on behalf of financial institutions from individuals and businesses with high volumes of cash.

· High volume cash disbursement to members of the public on behalf of financial institutions.

· Any other activities that may be permitted by the CBN

Bank Neutral Cash Hubs are expressly prohibited by the Guidelines from conducting the following operations:

· Engaging in any financing transaction involving foreign currency

· Money lending activities

· Sub-contracting its operations to a different entity

· Any other duty not expressly provided by the Guidelines

· CBN prohibited activities[7]

The Guidelines have provided for only two entities that are eligible to register as BNCHs in Nigeria. The entities are i.Deposit Money Banks (DMBs) – Deposit money banks (otherwise known as commercial banks) are simply resident corporations and quasi-corporations that have any liabilities in form of deposits payable on demand, transferable by cheque or otherwise for making payments. They are usually licensed by CBN. Examples are Zenith Bank, Access Bank etc ii. Cash Processing Companies (CPCs) – Cash Processing Companies are companies that deal with cash collection, counting, sorting process, Automated Teller Machine process. There are only two licensed CPC in Nigeria today. One of which is the Integrated Cash Management Services (ICMS).[8]

Procedure for Obtaining BNCH License

An entity seeking approval is required to submit a formal application to the Director, Currency Operations Department (formerly called Branch and Currency Operations) at CBN. This application would undergo two stages of processing which are Approval in principle and the Final Approval.^{^[9]} It is important to note that this approval comes with monetary implications including a non-refundable sum of N100,000 for the approval-in-principle and a non-refundable sum of N500,000 for the final approval. Upon the grant of the final approval, there are also other structural requirements such as a physical location, evidence of ability to meet technical requirements and provision of modern infrastructural facilities such as office equipment, computers, telecommunications, to perform the BNCH’s operations and meet CBN and other regulatory requirements, evidence of insurance to cover hub vault cash. iv. Evidence of collaboration with the Nigeria Police Force (NPF) amongst other requirements.[10]

Threshold of Financial Support

The threshold for deposit and withdrawal of funds in any BNCH has been prescribed to be a minimum of:

· N500,000 (Five Hundred Thousand Naira) for individuals

· N1,000,000 (One Million Naira) for companies

Thus, any person (whether individual or corporate) who wants to perform a financial transaction that does not meet up with the required threshold would not be capable of transacting with any BNCH. Notably, the BNCHs are expected to comply with CBN’s cashless policy and Consumer Protection Regulations and other extant laws that would be used to combat money laundering and the financing of terrorism.[11]

Conclusion

The creation of BNCHs is in sharp contrast with the CBN’s cashless policy as introduced in 2012 under the leadership of Sanusi Lamido. The cashless policy simply means that transactions can be carried out without the use of bank notes. It also introduced the use of electronic transfer in financial transactions. It stipulates a cash handling policy of N500,000 for individuals and N3,000,000 for corporate bodies. However, the establishment of the BNCHs at high values areas of commercial activities would aid financial inclusion as the Guidelines do not require the creation of accounts by customers with the BNCHs for eligibility, thus doing away with the strenuous process usually associated with typical commercial banks. This would encourage a lot of people to patronize the hubs.

[1] CBN’s website <Central Bank of Nigeria:: Financial Inclusion (cbn.gov.ng)> accessed on March 29 2022 at 2:52pm

[2] ibid

[3] Section2(d)

[4] Section 57(2)

[5] Exposure Draft on the Guidelines of the Bank Neutral Cash Hub (BNCH) Operations in Nigeria

[6] Article 3.0 of the Draft Guidelines

[7] ibid

[8] Business Day Newspaper<‘Using services of cash management companies will help banks achieve cost optimisation’ – Businessday NG > accessed March 29 2022

[9] Article 5.0 of the Draft Guidelines

[10] Article 5.2 of the Draft Guidelines

[11] Article 9.0 of the Draft Guidelines

Share on linkedin
Share on twitter
Share on whatsapp
Share on facebook

For further information on the foregoing (none of which should be construed to be actual legal advice), please contact (with the subject: “Registration & Operation of the Bank Neutral Cash Hubs Operations in Nigeria”):

$\"\"$