As we settled into the evening of Tuesday, we received in shock the story of a federal high court in Abuja granting the request of the Central Bank of Nigeria (CBN) to freeze accounts of some fintech companies in Nigeria for 180 days pending investigations.
The accounts include RiseVest Technologies Limited, Bamboo Systems Technology Limited, Bamboo Systems Technology Limited OPNS, Chaka Technologies Limited, CTL/Business Expenses, and Trove Technologies Limited.
In the motion paper filed by the apex bank, it was alleged that the involved fintechs were complicit in operating without a licence as asset management companies and utilising FX sourced from the Nigerian FX market for purchasing foreign bonds/shares in contravention of the CBN circular referenced TED/FEM/FPC/GEN/01/012, dated July 01, 2015.
If you look at it closely, the apex bank thinks they could be weighing on the value of Naira against dollars since technically they are importing “foreign financial products” into Nigeria thereby re-adjusting Nigeria’s balance of payments.
No doubt, the need to grow and build wealth is a very pertinent concept to a lot of Nigerians where the basket of investment opportunities in the financial market space is narrow, platforms like the fintechs offering offshore investment opportunities are seen as a breath of fresh air.
Nigerians are now actively trading or holding foreign equities now exceeds those investing in local collective investment schemes or mutual funds, according to the Securities and Exchange Commission. About 70% are said to be between the ages of 18 and 40, a demographic that’s shunned the local stock market, whose total active investor base is less than a million.
As much as there is a need to have some form of regulation in the fintech space, there are so many other ways government can bring the fintechs to the negotiating table without so much reputational damage. What the action of the government has done is what I referred to as “reputational damage”. This does not look good at all for the startup’s companies.
A lot of Nigerians are scared that they might be losing their funds alongside the freezing of the accounts, and that has created a lot of negative feedback and tension as nobody knows what the next step of the government will be.
It is a shame that, despite its huge market, Nigeria is proving to be very difficult terrain for tech companies to function.
Not forgetting that, in February of 2020, the Lagos state government imposed a sweeping ban on bikes which effectively crippled bike-hailing companies. The same government also put down a policy for taxi-hailing which has been described as extortion rather than regulation.
In February 2021, the Central Bank of Nigeria (CBN) issued a directive forbidding banks from facilitating crypto transactions, severely crippling the operations of crypto startups. Later on, it would forbid fintechs from using Bank Verification Number (BVN) for KYC verification.
In June, the Federal Government banned the operation of Twitter after the microblogging platform deleted a tweet by President Muhammadu Buhari which contravened Twitter rules. It has remained banned ever since and though there have been talks about lifting the ban, nothing concrete has materialized.
All these just show that the Nigerian market is not friendly to startups and businesses at large and this is sending a very bad message to the international communities as foreign investment obviously will go down.
To be more specific, data from the National Bureau of Statistics (NBS), foreign capital inflow in the country declined by 61 per cent in the first half of 2021, foreign direct investments (FDIs) stood at $232.74 million as against $362.84 million recorded in the corresponding period of the previous year while foreign portfolio investments (FPIs) stood at $1.53 billion, way lower than the $4.69 billion recorded in H1 2020.
Given the dwindling much needed foreign capital importation by Nigeria in other to spur economic growth and development, is antagonizing the Fintechs the best the government can do?