CBN Introduces Form X for SMEs Requiring Basic FX Documentation

Chika Amanze-Nwackuku

As part of its objectives to increase foreign exchange liquidity and make it accessible to small and medium enterprises (SMEs) and other retail businesses, the Central Bank of Nigeria (CBN) has introduced the use of Form X for SMEs that require basic documentation.

Confirming this in a statement on Monday, CBN spokesman, Mr. Isaac Okorafor, said the innovative measure is meant to ease the bottlenecks associated with documentation usually encountered by this category of businesses.

He explained that the new form, which must be completed by all SME applicants, requires them to fill the form with a supporting application letter, as well as beneficiary invoice and bank wire transfer details.

The objective of the new guideline, he further stated, is to remove obstacles usually encountered by those whose FX needs for either visibles or invisibles transactions are as small as or less than $10,000.
Okorafor reiterated the central bank’s determination to continue to ensure adequate supply of FX for genuine transactions in the coming days.

The CBN last week opened a special FX window for SMEs to enable entrepreneurs import eligible finished and semi-finished items not exceeding $20,000 for each business per quarter.
That was in addition to the special intervention in the Bureau de Change (BDC) segment of the FX market that saw each operator accessing $20,000, against $10,000 per week.

Okorafor had said: “The special interventions were necessitated by findings that a large number of SMEs were being crowded out of the FX space by large firms and will also service genuine demand for invisibles like tuition fees, medical and personal/basic travel allowance.”

The central bank has consistently sold dollars at both the spot and forward markets, and required banks to pay for the greenback, effectively draining naira liquidity in the market.
Analysts noted that efforts of the CBN aimed at ensuring stability in the FX market may have already started yielding results, as the market is now awash with dollars.

Indications of excessive FX liquidity in the market were evident on Thursday last week when operators could only pick a little over $39 million out of the $100 million offered by the central bank.
According to market analysts, with this development, the naira is likely to firm up against major currencies during the week at the parallel market.

Also, as part of measures to sanitise the FX market, the CBN increased the limit on banks’ foreign currency borrowings to 125 per cent of shareholders’ funds after some lenders breached its regulatory limit due to the recent fall in the naira.

Reuters reported that the new regulation replaces a 2014 rule capping foreign borrowings, including Eurobonds, at 75 per cent of shareholders’ funds as Nigeria tries to manage widespread capital shortfalls at lenders due to a currency crisis and bad loans.

The new rule also prescribes that all foreign borrowing should be hedged through the financial markets and debt should have a minimum of five-year maturity except for trade lines.
It directed lenders to report on their utilisation of foreign currency borrowings on a monthly basis.