Setting Up a Bureau De Change (BDC) in Nigeria: A Comprehensive Guide for Entrepreneurs, 2024

Bureau De Change (BDC) operations serve as intermediaries between the formal financial system and the broader economy by offering retail foreign exchange services to the public. If you are considering setting up a BDC in Nigeria, there are several factors you must be aware of, ranging from regulatory requirements to corporate governance standards.

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This post, presented by African Market Entry Consulting Ltd, a corporate and compliance agency in Nigeria, will provide a comprehensive guide on the process of establishing a BDC, the key differences between Tier-1 and Tier-2 licenses, eligibility requirements for promoters, and permissible activities for BDC operators. We will also explore whether BDCs are allowed to create online platforms for foreign exchange services under Central Bank of Nigeria (CBN) guidelines.

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Understanding Bureau De Change (BDC) Operations

A Bureau De Change (BDC) is a financial institution licensed by the Central Bank of Nigeria (CBN) to carry out retail foreign exchange transactions. BDCs play a pivotal role in meeting the foreign currency needs of travelers, students, and individuals requiring foreign exchange for medical treatment, payment of school fees, and other related transactions.

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The regulatory oversight of BDCs is governed by the CBN under the Central Bank of Nigeria Act, 2007, and the Banks and Other Financial Institutions Act (BOFIA) 2020. These regulations ensure that BDCs maintain transparency, financial integrity, and compliance with Nigeria’s broader financial policies.

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Eligible and Non-Eligible Promoters for BDC Ownership

One of the most critical elements in establishing a BDC is understanding who can own or promote such an institution. The CBN has laid down strict rules to ensure that only individuals and entities with clean financial and regulatory histories are allowed to operate a BDC. This is crucial to maintaining the integrity of the foreign exchange market.

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Eligible Promoters

Eligible promoters are individuals or corporate entities that meet the CBN’s regulatory requirements for financial stability, transparency, and competence. These entities or individuals must provide verifiable proof of their financial contributions and must not have any conflicts of interest with other financial institutions.

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Non-Eligible Promoters

The CBN has explicitly outlined several categories of individuals and entities that are not permitted to participate in the ownership or promotion of BDCs, either directly or indirectly:

1.????? Financial Institutions: Commercial, merchant, non-interest, and payment service banks, as well as holding companies, and payment service providers, cannot promote or own BDCs.

2.????? Serving Financial Services Staff: Employees currently working for financial services regulatory bodies, such as the CBN, the Nigerian Financial Intelligence Unit (NFIU), or regulated financial institutions, are prohibited from owning BDCs.

3.????? Government & Public Officers: Individuals holding public offices, as defined in the Nigerian Constitution's Fifth Schedule, are also restricted from owning or promoting BDCs. This applies to all government entities at the federal, state, and local levels.

4.????? Non-Governmental Organizations (NGOs): NGOs, cooperative societies, charitable organizations, academic institutions, and religious organizations cannot own or promote BDCs.

5.????? Foreign Nationals & Non-Residents: Non-Nigerian non-resident individuals and entities, as well as non-resident non-regulated companies, are not eligible to promote or hold shares in a BDC.

6.????? Telecommunications Service Providers: These entities are also barred from engaging in BDC ownership or promotion.

7.????? Sanctioned Individuals: Any individual or entity that has been sanctioned by the CBN for unethical or illegal practices is ineligible to own or promote a BDC.

8.????? Other Restricted Entities: Shareholders in another BDC (whether directly or indirectly) and any other entity that the CBN may designate as ineligible.

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The CBN’s stringent guidelines on eligible and non-eligible promoters ensure that the individuals or entities behind BDC operations possess the necessary financial integrity and are free from conflicts of interest that could negatively impact the FX market.

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Tier-1 vs. Tier-2 BDC Licenses

BDCs in Nigeria are categorized into two tiers: Tier-1 and Tier-2. Understanding the key differences between these two categories is essential when planning your BDC operations, as the scope of business, operational areas, and financial requirements vary significantly.

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Tier-1 BDC License

A Tier-1 BDC license allows the BDC to operate on a national scale, which means the business can open multiple branches across Nigeria and appoint franchisees. Tier-1 BDCs are well-suited for larger enterprises with the resources to maintain widespread operations.

• Minimum Capital Requirement: ?2 billion
• Non-Refundable Application Fee: ?1 million
• Non-Refundable License Fee: ?5 million
• Annual License Renewal Fee: ?5 million

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Tier-1 BDCs can appoint franchisees with the approval of the CBN. The franchisor (main BDC) is responsible for overseeing the operations of its franchisees, which must adopt the franchisor's branding, operational platform, and reporting standards. This category is ideal for BDCs that plan to serve a broad geographical area, including multiple states and regions across Nigeria.

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Tier-2 BDC License

A Tier-2 BDC license is more limited in scope. It authorizes BDCs to operate only within a single state or the Federal Capital Territory (FCT). Tier-2 BDCs can open up to three locations, which include one head office and two branches, but they are not allowed to appoint franchisees.

• Minimum Capital Requirement: ?500 million
• Non-Refundable Application Fee: ?250,000
• Non-Refundable License Fee: ?2 million
• Annual License Renewal Fee: ?1 million

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Tier-2 BDCs are best suited for smaller enterprises that want to operate on a more localized scale, targeting a specific state or region.

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Application Process for BDC Licensing

The process of establishing a BDC in Nigeria involves two key stages: Approval-in-Principle (AIP) and Final Licensing. The CBN thoroughly assesses the financial stability, governance structure, and operational readiness of prospective BDCs before granting a license.

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Stage 1: Approval-in-Principle (AIP)

To obtain an AIP, prospective BDC operators must submit an application to the Governor of the CBN. This application must include:

• Business Name Reservation: Evidence of name reservation with the Corporate Affairs Commission (CAC).
• Shareholder Details: A list of proposed shareholders, along with their Bank Verification Number (BVN) for individuals or Tax Identification Number (TIN) for corporate entities.
• Capital Verification: Verifiable proof of capital contributions from the shareholders, demonstrating that the minimum capital requirement has been met.
• Application Fees: Payment of the non-refundable application fee via Real Time Gross Settlement (RTGS) to the CBN.
• Corporate Documentation: Draft Memorandum and Articles of Association (MEMART) outlining the objectives of the BDC.
• Business Plan: A comprehensive business plan, including the BDC’s projected financial performance, operational scope, and IT infrastructure.

Once the CBN reviews and is satisfied with the application, it issues an Approval-in-Principle (AIP). However, the AIP is not an authorization to begin business operations; it simply allows the promoters to proceed with the next steps, including incorporation with the CAC.

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Stage 2: Final Licensing

After receiving the AIP, promoters have six months to apply for the final license. During this stage, they must provide evidence of the BDC’s readiness to operate, including:

• Incorporation Documents: Proof of incorporation with the CAC.
• Head Office & Branches: Details of the physical office space, including compliance with safety and security standards.
• IT Infrastructure: Evidence of operational readiness, including the installation of systems to support compliance with CBN regulations (e.g., KYC, AML, and CFT frameworks).
• CBN Inspection: The CBN will conduct a pre-licensing inspection to assess the physical infrastructure, IT systems, and the general readiness of the BDC.

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Once these requirements are met, the CBN may grant the final license, authorizing the BDC to commence operations.

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Corporate Governance Requirements

The CBN requires all BDCs to maintain a robust corporate governance structure to ensure transparency, accountability, and ethical operations. Key governance requirements include:

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Board Composition

For both Tier-1 and Tier-2 BDCs, the board of directors must consist of at least five and three directors respectively, with Tier-1 BDCs allowed up to seven directors, and Tier-2 up to five. At least one director must be independent non-executive directors (INEDs) for Tier-1 BDCs, while Tier-2 BDCs may have at least one INED.

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Gender Diversity

No BDC board can consist of members of only one gender. This regulation ensures that gender diversity is maintained in the leadership of BDCs, in line with Nigeria’s Sustainable Banking Principles.

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Tenure of Directors

Non-executive directors can serve for a maximum of 12 years (three terms of four years each). The managing director/chief executive officer (MD/CEO) and executive directors can serve for a maximum of 15 years, with terms not exceeding five years each.

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The CBN also enforces fitness and propriety standards, requiring all directors, shareholders, and senior management personnel to pass integrity checks and meet specified qualifications.

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Permissible and Non-Permissible Activities

BDCs are authorized to carry out retail foreign exchange transactions, but the CBN has clear guidelines on what activities are allowed and what activities are prohibited.

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Permissible Activities

• Foreign Currency Acquisition: BDCs may acquire foreign currency from sources such as tourists, expatriates, International Money Transfer Operators (IMTOs), and embassies.
• Foreign Exchange Sales: BDCs can sell foreign exchange for personal travel allowance (PTA), business travel allowance (BTA), school fees, and medical bills.
• Cash-Out for IMTOs: BDCs may serve as cash-out points for remittances from IMTOs.

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Non-Permissible Activities

BDCs are not allowed to:

• Engage in street trading or unregulated foreign exchange sales.
• Accept deposits or grant loans in any currency.
• Maintain accounts for customers or act as custodians of foreign currency.
• Engage in international outward transfers or speculative FX trading (e.g., futures, forwards).
• Conduct offshore business or maintain correspondent banking relationships with foreign entities.

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Are BDCs Allowed to Create Online Platforms?

One question often asked by entrepreneurs looking to set up a BDC is whether they can create an online platform to offer foreign exchange services. According to the CBN guidelines, BDCs are not permitted to create or operate solely online platforms for foreign exchange transactions. All transactions must be conducted at the BDC’s physical office, ensuring transparency and compliance with regulatory requirements.

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However, BDCs can maintain a digital presence for customer engagement and transparency purposes, such as displaying current exchange rates, but the actual foreign exchange transactions must occur at their registered premises.

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Setting up a Bureau De Change (BDC) in Nigeria offers a lucrative opportunity for entrepreneurs to participate in the country’s foreign exchange market. However, it requires strict adherence to CBN guidelines, including eligibility criteria for promoters, corporate governance standards, and regulatory compliance for daily operations.

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The process involves obtaining an Approval-in-Principle (AIP), meeting the financial and operational requirements, and securing a final license from the CBN. Whether choosing a Tier-1 or Tier-2 license, understanding the distinctions between these categories is essential for deciding the scale and scope of your BDC’s operations.

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At African Market Entry Consulting Ltd, we specialize in helping businesses navigate Nigeria’s complex regulatory landscape. If you’re considering setting up a BDC, our team of compliance experts can guide you through each step of the process, ensuring you meet all regulatory requirements and position your BDC for long-term success. Contact us today ([email protected]) to learn more about how we can assist you in setting up your BDC in Nigeria.