Nigeria’s new due diligence rules draw mixed feelings –

June 28, 2023 Mary

Nigerians who want to open an account, take a loan or conduct other transactions may be required to produce their social media accounts, according to the Central Bank of Nigeria’s (CBN) regulation on customer due diligence (CDD).

The new regulation is like an answered prayer for most digital lenders, while for some experts, it raises questions about financial inclusion. For example, the CBN regulation does not clarify whether banks and financial institutions are expected to implement every requirement to the letter or waive some requirements.

According to the regulation, the primary objective is to provide additional CDD measures for financial institutions under the regulatory purview of the CBN to further their compliance with relevant provisions of the Money Laundering (Prevention and Prohibition) Act, 2022, Terrorism (Prevention and Prohibition) Act, 2022, CBN (Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction in Financial Institutions) Regulations, 2022, and international best practices.

Banks and other financial institutions licensed by the CBN are required to carry out the CDD measures when establishing business relationships; and when carrying out occasional transactions above the applicable and designated threshold of $1,000 or its equivalent in other currencies or as may be determined by the CBN from time to time, including where the transaction is carried out in a single or several transactions or operations that appear to be linked.

CDD measures are also required when carrying out occasional transactions that are wire transfers, including cross-border and domestic transfers between financial institutions, and when credit or debit cards are used as a payment method to effect money transfers.

The measures are also necessary when there are doubts as to the veracity or adequacy of previously obtained customer identification data, or there is a suspicion of money laundering, terrorism finance, and payment fraud.

Some experts say the regulation is best suited for the credit market in Nigeria. Credit penetration is at 5 percent, which is one of the lowest in Africa and does not reflect the size of the country at over 200 million. One of the significant drawbacks in the credit market is the lack of identification for the greater number of Nigerians.

“This is more geared towards improving credit risk. People will take a loan regardless. You just might be asked for more details,” said Joshua Chibueze, chief marketing officer at Piggyvest.

Digital lenders have long employed social media to make decisions on whether to approve a loan or not. These lenders usually don’t rely on collateral to give loans and they prioritise speed of delivery to attract potential borrowers.

Millions of Nigerians live out their lives on their social media accounts. Some people believe a person’s character is just as important as their income and assets when making a lending decision.

A primary goal of many lenders is to assess a consumer’s stability, ability and willingness to pay. Most lenders believe social media can offer these insights, hence the reliance.

Nevertheless, some experts say the requirement for social media and other documentation could keep millions of Nigerians already outside the banking system locked out, if not properly communicated. Since the CDD measures come into play from the moment of establishing a business relationship, financial institutions may find it difficult to apply discretion if an unbanked customer is unable to provide many of the documents.

“I think this is a hindrance to open banking, where we want people to open more accounts. So the market woman in Ibadan, Gombe, does she now need to get a Facebook account or an Instagram account before she can open an account; what does this mean? It needs to be clarified,” said Esigies Aguele, CEO of VerifyMe.

Aguele also pointed out the history of CBN being used as a tool in the hands of the government to ban people’s accounts because they participated in protests. In the case of the EndSARS protests, the authorities needed to do was identify and profile the social media accounts of the people that helped the protesters, then ordered the accounts to be blocked.

“There is an NDPR issue, especially given the history of CBN blocking people’s accounts who have protested in the past. I think this is a little bit insensitive to Nigerians. I just don’t think it is something the government should be getting involved in,” Aguele said.

But Adedeji Olowe, CEO of Lendsqr, a digital lending company, says the CBN regulation is an effort to restructure the identification system and ensure that bad actors are not taking advantage of the financial service.

“The regulation talks about email, social media, employer name, and public position; they talk about all the things you should collect from customers. It lists all the possible things they can collect. If you do not have any of the information, it is not compulsory that you should provide it. That regulation says to collect social media, collect employer numbers, what happens to the person that is not employed? Does it mean they will not be served? What about the public position? Of course, it is not everybody that will be on social media and it is not compulsory,” said Olowe.

There is also the concern about whether the regulation would replace Know Your Customer (KYC) operators. Agueli said a better focus for the regulation should be on providing proper criteria for KYC and analytics in the country.