CBN Issues Cash Hub Consultation

The Central Bank of Nigeria (CBN) is planning to introduce Bank Neutral Cash Hubs (BNCH). It has issued a consultation paper en route to issuing final guidelines, and the draft proposals lay out the CBN’s vision and intentions.

The aim is to reduce the cash management costs and risks for banks and other financial institutions (OFI) by introducing more flexibility and capacity into the system. The BNCHs will allow cash handling irrespective of where the cash originated, although there are transaction limits. At the moment some cash handlers in busy areas face significant stress given the volumes of cash having to be moved each day to the banks for deposit.

In addition to the CBN are the Deposit Money Banks (DMB) and Cash Processing Companies (CPC), which are the institutions allowed to apply to be BNCHs. The plan is they will run the BNCHs, receiving money via the cash in transit (CIT) companies from the commercial banks and OFIs.

A key player in all of this is the Nigerian Interbank Settlement System (NIBSS), which determines what cash needs to be moved.

Role of the BNCH

BNCHs will act as cash collection centres for the depositing and withdrawal of cash irrespective of the bank. They will not be allowed to invest or lend, to handle foreign currency, to be involved in transactions prescribed by the guidelines or to sub-contract their duties.

BNCHs are intended to handle large volumes and so there is a minimum transaction value for individuals of 500,000 naira and 1 million naira for corporations.

The draft guidelines lay out minimum standards and requirements for those wanting to register as BNCHs and for their operation. They also lay out the role and responsibilities of the regulator as well as the participating institutions, and the rights and responsibilities of customers. These include compliance monitoring, consumer protection and dispute resolution.

All of this is intended to reduce the risks and costs associated with cash handling and management by the banks, merchants and huge cash handlers. Efficiency should be increased from sharing services and financial inclusion should be deepened.

Approval process

There is a two stage approval process. Approval in principle includes paying a 100,000 naira application fee and submission of a detailed business plan. Final approval requires considerable detail about how technical requirements will be met, insurance requirements, collaboration with the police, how the applicant’s system will connect with NIBSS and the proposed service level agreements with CPCs and DMBs for the settlement, clearing and indirect connectivity with NIBSS.

A 500,000 naira fee is involved, along with information on consumer protection, adherence to regulations such as Anti Money Laundering and Counter Terrorism Financing and how they will meet the requirement for cash activity reporting through the portal.

Areas of concern

The guidelines seek to address key areas of concern such as the security of cash deposited at BCNHs. Only registered CITs can be engaged for cash movements. In addition, insurance cover is required matching total deposits in custody, effectively indemnifying a cash hub against the risk of theft.

It will be interesting to see if the CBN encourages or allows incentives for using BNCHs by allowing reduced charges on transactions with BNCHs compared with the charges on cash deposits and withdrawals at DMBs