The cost of obtaining a Bureau De Change (BDC) license dropped to N15 million following news of the country’s transition towards a single exchange rate
In a major development for Nigeria’s financial landscape, the cost of obtaining a Bureau De Change (BDC) license dropped to N15 million following news of the country’s transition towards a single exchange rate.
However, the shift towards a unified exchange rate is expected to have adverse effects on the profitability of Bureau De Change operators, who have traditionally benefited from arbitrage opportunities and Nigeria’s multiple exchange windows.
Historically, BDCs have thrived by capitalizing on the disparity between exchange rates and leveraging the arbitrage opportunities presented by Nigeria’s complex currency market. However, with the introduction of a unified exchange rate, the market has already begun to react, and interest in BDC licenses has cooled significantly.
A market expert explained, “Until now, BDCs received a weekly allocation of $20,000 at the official rate, allowing them to sell it on the parallel market at a nearly 100% margin. This substantial arbitrage made their business highly profitable and led to an influx of BDC dealers. However, with the unification of rates, the motivation to hold on to these allocations diminishes.”
BDCs have enjoyed tremendous profitability, with the Central Bank receiving an overwhelming 500 requests for BDC licenses on a weekly basis. However, the recent floatation of the Naira by the CBN has caused the USD exchange rate to reach N700. As a result, the activities of BDCs, which largely operate in the parallel market, are expected to slow down significantly.
While the move towards a unified exchange rate holds potential for the long-term stability of the market, it presents significant challenges for BDCs that heavily rely on arbitrage. The CBN had previously threatened to halt the issuance of BDC licenses in 2021, but even with a unified exchange rate, the underlying issue of the FX demand backlog in Nigeria remains unresolved.
As Nigeria continues to navigate its path towards a single exchange rate, the future of Bureau De Change operators hangs in the balance. While the potential benefits of rate unification are evident, the profitability of BDCs, once considered “insanely profitable” businesses, now faces uncertainty and disruption. The financial landscape in Nigeria is undergoing a transformation, and the fate of BDCs will depend on their ability to adapt to the changing market dynamics.
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