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CBN Gov proposes N100b tax on mobile phone users

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 Mobile phone users will be in for hard times if proposal by the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele to the federal government to introduce mobile phone call tax becomes a reality.

The Governor, who broke the news at the 2016 Annual Bankers’ Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) on Friday night, in Lagos, said such tax, targeted at the middle, upper class and long phone call makers, can generate N100 billion annually into the federal government coffers.

Speaking on the theme: “Policy options for reversing Nigeria’s economic downturn” he said the country’s economy is currently facing a classical case of “stagflation” and although the 2016 budget is well on track to tackle it, there is need to boost revenue generation base though increased taxes.

He suggested that government could explore opportunities for more revenues to wriggle out of stagflation and recession by introducing a negligible telecom surcharge to be paid by initiator of a telephone call.

“There are several ways we can raise additional revenue to finance the increased expenditure that is needed to engender fast and sustainable growth in the economy. I think we can consider introducing a negligible telecom surcharge to be entirely borne by the initiator of a call. In order to protect the poor and vulnerable amongst us, we could structure it to only take effect after the third minute of talk. Some analyses have indicated that the government could earn about N100 billion per annum from this alone,” he stated.

Emefiele explained that the surcharge will mainly be borne by middle and upper class people since many poor people do not make calls for more than three minutes.

He explained that stagflation occurs when a country’s Gross Domestic Product (GDP) is falling or stagnant while unemployment and inflation are rising, all simultaneously.

“As recent data from the National Bureau of Statistics (NBS) indicate, Nigeria’s GDP growth decelerated by 0.36 per cent and 2.1 per cent in the first and second quarters of 2016, respectively. More also, the rate of price inflation for the months of September and October were 17.9 per cent and 18.3 per cent, respectively, while official statistics also indicate that the country’s unemployment rate increased to 12.1 per cent and 13.3 per cent during the first and second quarters,” he stated.

Emefiele said that stagflation is a difficult condition for policymakers to deal with, insisting that no single macroeconomic policy can address rising inflation and slow growth simultaneously, because fighting inflation may require implementing policies that might, in the short term, be inimical to economic growth, whereas expansionary policies to stimulate growth usually worsen inflation.

Still on taxes, the CBN boss said government could also consider introducing minimal property taxes across the country. “This not only raises money for the government but also could be a veritable weapon against corruption since it creates a database of who really owns homes in this country. Another option to consider would be to fully implement the 2003 Cabotage Act. This is Act stipulates that all cargoes and passengers in the inland and coastal waters be transported by ships and ferries built, owned, crewed and manned by Nigerians,” he said.

Emefiele explained that contrary to the requirement of this Act, there are several foreign-owned vessels providing shipping services locally. “Out of about 600 ships that operate within our waters, only about 60 of them are owned by Nigerians and are mostly idle, in violation of the Act. Industry sources suggest Nigeria may be losing as much as N2 trillion annually from this anomaly. In addition to raising revenue, a full implementation of the Act could also spur job creation, capacity building, and significant backward integration,” he said.

Speaking further, he said that exchange rate is simply a price that is determined by the forces of demand and supply.

He said that while the proposal may seem controversial, variants of this policy have proven to be highly effective in other climes and even here in Nigeria. “For example, throughout the early days of South Korea’s economic renaissance, the government intermittently used excessively stiff tariffs, quantitative restrictions and prohibitive inland taxes to effectively ban many items with potential for high imports, and simultaneously, offered generous and subsidized loans to firms for export promotion causes. In fact, at some point, about 93 per cent of total imports into South Korea were subject to one or more such restrictions,” he said.

Emefiele admitted that interest rates are a veritable tool for curtailing inflation but with inflation at over 18 per cent, the regulator would be abjectly failing on one of its cardinal objectives if it cuts interest rates at this time. “Second, for those who say we need a rate cut to spur growth, we need to remind that high inflation is highly inimical to economic growth. Indeed, many empirical studies have estimated the threshold level at which inflation becomes significantly growth retarding to be 11 per cent for developing countries. With ours at 18.3 per cent, one must question the judgment of cutting interest rates at this time,” he said.

The CBN Governor insisted that interest rates reflect not just the cost of capital but also the cost of doing business, hence, the need to also look at interest rates from the perspective of the lender. “Given that most banks have to individually provide security, power, and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates. Notwithstanding these facts, we will continue to use moral suasion to encourage commercial banks to be more considerate in interest charges on customers,” he stated.

 

The post CBN Gov proposes N100b tax on mobile phone users appeared first on The Nation Nigeria.

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Banking / Insurance

Current Legal Issues Arising from Banking and Financing Arrangements

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In August 2020, Diagoe Plc’s Nigerian entity announced that it was struggling to refinance a $23 million debt and trim costs following a shortage of dollars in the local-foreign exchange market. While the lack of access to greenback (dollar) remains a growing concern for borrowers in Africa, the downturn in the revenue and profits as a result of COVID-19 has recently become a more prevalent cause for the inability of many borrowers to fulfill their contractual obligations.

The disruption of supply chains, compulsory quarantine, and social distancing regulations are a few examples of the effect of COVID-19 which in turn have materially caused economic instability and affected the ability of borrowers to meet their financial obligations. There is therefore a need for lenders and borrowers to critically consider the implications of the current economy on their financial obligations.

This article highlights some key implications the current financial terrain may have on borrowers’ businesses and their ability to comply with their contractual obligations. The article further sets out recommendations for lenders and borrowers who are faced with the task of funding and repaying loans under respective financing arrangements. While there are numerous impacts of the resultant effect of COVID-19 on covenants in finance documents, this article highlights only a few of such key legal consequences on financial obligations.

Financial Conditions and their Implication on Covenants in Finance Documents

Generally, financial covenants in a loan agreement are undertakings given by the borrower to test the performance of the business servicing the loan and to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity.  These performance covenants may cover the borrower’s business both back or forward to assess whether the business is showing any signs of distress that could potentially affect its financial obligations under the finance documents.

Also Read: Helios Investment Partners Backed Africa Specialty Risk Group Launches

However, as a result of the steps taken to combat the COVID-19 pandemic, many businesses have seen a severe and abrupt drop in income which has affected the ability of businesses to meet some performance covenants.Where these covenants have been breached as a result of the pandemic, the lenders may declare a default under loan documents and demand early payments of loan which acts as a drawstop, such that the borrowers will not have access to their facilities. A drawstop event means a breach by the borrower of a financial covenant which gives the lender the right to refuse to make further loan advances under a facility agreement.

In light of the foregoing difficulties that both lenders and borrowers may face in these uncertain times, the following paragraph sets out practical solutions that may be explored by the parties. 

Legal Considerations for Borrowers and Lenders

With the current unpredictability of the financial markets, it is important that borrowers and lenders conduct a critical review of their current loan documents to verify the implications of COVID-19 on their rights and obligations. Most importantly, borrowers have to fully disclose to their lenders the current situation of their businesses, highlighting any potential breach before it happens helps to build trust and to enable the lenders to have a clear picture when deciding if they will be willing to adjust financial obligations in line with the current realities of the economy and take into consideration some practical solutions set out below.

First, parties may agree to re-negotiate and subsequently amend their financial covenants, taking into consideration the impact of COVID-19 on the borrower’s ability to comply with their financial covenants. For instance, certain definitions in the finance documents may no longer reflect the current realities of the borrower’s business, such as EBITDA which is used as a metric for thelast four fiscal quarter periods of earnings before interest, taxes, depreciation, and amortization to measure the company’s financial performance.

Thus, where the EBITDA has been affected as a result of the pandemic an amendment to its substance will be an appropriate step in order to reflect the current financial condition of the borrower. Other re-negotiation may be in relation to compliance with certain conditions provided under the finance documents.For example, a facility agreement may include provisions requiring the borrower to fulfil certain further conditions precedent before it can access additional funding under the relevant facility.

It usually includes confirmation that:

(i) no Event of Default or a potential Event of Default has occurred and is continuing; and

(ii) the repeating representations are true in all material
respects, in each case, as at the date of the utilisation request and the proposed utilisation date.

In such instances, parties may either amend the provisions or the borrower may request that the lender grant waivers in the event that such conditions will not be fulfilled.

Another consideration that the borrower may explore (subject to the fulfillment of any available conditions or if waivers are granted by the lender) is utilizing any undrawn commitment under its existing facilities. Although, it has been highlighted above that material breaches of covenants may give right to the lender torefuse to provide additional funding, it may be in the interest of lenders to provide same. This is because additional funding may positively impact the borrower’s business and in turn improve the lender’s chances of full debt recovery.

Finally, parties may consider undertaking a full restructuring of the financing by re-negotiating substantial terms and entering into restructured facility documentation which may capture relaxation of financial covenants, obtaining a moratorium on interest payment obligations, all necessary requirements, amendments, waivers, and consents required by the borrower. Essentially, the restructured facility documentation is drafted on much better terms that reflect the current financial conditions and commercial needs of the borrower.

Conclusion

The global COVID-19 pandemic has no doubt placed a strain on the ability of some businesses to service their debts under finance documents. While many governments especially in developed countries have granted some aids, this may not be enough especially for companies in certain industries that have been seriously hit by the pandemic. The situation is even worse in undeveloped markets where there is little or no support from government. Thus, it is unavoidable that re-negotiation and restructuring are considerations that will likely be put forward by borrowers to avoid triggering defaults under their finance document during these unprecedented times.

It is advisable that lenders on the other hand, are more flexible with their approach with their borrowers and are willing to work around re-negotiating the financial covenants with the borrowers given the current uncertainties arising in the economy.

Written By: Bukola Adelusi recently completed her LL.M in corporate law at Western University, Ontario. Prior to her LL.M, she practiced with a top-tier law firm in Nigeria, where she specialized in banking and finance, M & A and private equity.

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Financial Inclusion: Ecobank Group And Alipay Partner On cross-border remittance

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Alipay users to benefit from Ecobank’s cross-border remittance solution

LOME, Togo, February 12, 2020 – The leading pan-African bank, Ecobank has signed a cross-border remittance agreement with Alipay, the world’s leading payment and lifestyle platform, that aims to bring more inclusive financial services by providing a fast, safe, affordable and convenient way for workers to transfer money back home.

The partnership will facilitate instant transfers from Rapid transfer, Ecobank’s remittance solution, to users of Alipay, which serves more than 1.2 billion people globally together with its local e-wallet partners. This provides an additional channel option which will increase options available to users, help lower transaction costs and enhance the quality of service in the market.

Also Read: How Tech Is Enhancing Recruitment: An Interview With Sandy Simagwali, Co-Founder Of Graft Africa

Nana ABBAN, Group Consumer Banking Head said: “Our panafrican cross-border remittance solution, Rapidtransfer, has over the years been delivering transparent, convenient, and affordable services to the African diaspora and their African-based dependants. So, it is a natural extension for us to use it to deliver the same advantages to migrant workers across Africa. Through our partnership with Alipay we are further leveraging the scale and capacity of our unified payments ecosystem on the global stage.”

“We are excited to partner with Ecobank and use our technology to bring fast, affordable, and convenient remittance services to more users globally, especially workers who are living far from home,” said Ma ZHIGUO, Alipay’s head of the global remittances business. “We are committed to working with partners such as Ecobank, using innovative technologies to help global consumers gain access to inclusive financial services, creating greater value for society and bringing equal opportunities to the world.”

The solution will be rolled out across our entire footprint, subject to required local approvals.

Ecobank

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A “Meeting of Minds” Report Identifies Five Main Challenges Facing African Banks

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Pierre-Guy Noël, Chief Executive-MCB Group (Source: The Mauritius Commercial Bank Ltd (MCB)

Further to the “Meeting of Minds” workshop, a report probing into discussions has been published this week by Mauritius Commercial Bank (MCB)

PORT LOUIS, Mauritius, December 20, 2019- In October 2019, during the tenth Africa Forward Together (AFT) forum in Mauritius and spearheaded by Mauritius Commercial Bank (MCB), a special workshop aptly called “Meeting of Minds” session leveraged the insight and brainpower of over 35 C-level and senior banking leaders across the African region and beyond.

The aim of this session was to identify and prioritise the main challenges faced by their banks in five distinct but interlinked areas that were purposefully scoped to look beyond numbers:

  • Expertise
  • People
  • Operational Efficiency
  • Risk
  • Corporate Sustainability


Further to the “Meeting of Minds” workshop, a report probing into discussions has been published this week by MCB. It identifies five main challenges facing African banks and financial institutions, as follows:

  1. Lack of technical expertise amidst the increased cybersecurity risk
  2. KYC issues hampering financial inclusion
  3. Talent Management, retention and development
  4. Customers’ education and staff skills gap
  5. IT & Digitalisation and Transformation Programme – Expertise

On a maximum rating of 9 points, the experts assessed the following:

Risks:

  • Cybersecurity and lack of experience: 7.1


Sustainable development:

  • Inadequate institutional framework is a burden: 7.1


People:

  • Talent management: 7


In the editorial of the report, MCB Group CEO, Pierre-Guy Noël speaks of an alignment of African banks and institutions on the key issues they have to face. “Considering the relative heterogeneity of African markets in terms of distinct characteristics and level of maturity in consumer behaviour, there was a remarkable alignment on the challenges facing the region’s financial institutions,” he said. On the main threat posed by cybesecurity, MCB Group CEO observed : “Additionally, there is a lack of appropriate risk assessment and framework that caters for the exigencies arising from the use and adoption of new digital solutions.

The rise of cybersecurity attacks and other cyber frauds were therefore highlighted as the most significant challenge, compounded by the lack of technical expertise and familiarity at senior levels in these fields (…) In parallel across the rest of most institutions, is the significant shortage of technical expertise and know-how in IT, digitalisation and related transformation programmes…”

The lack of KYC and other compliance frameworks “to facilitate the on-boarding of unbanked segments remain a key obstacle for regional banks to further financial inclusion. This challenge emerged in many discussions”, added Mr. Noël, who also stresses upon the challenge of developing solutions from customer segments that are distinct and sometimes unrelated (urban customers with high digital literacy vs rural unbanked segments requiring traditional supports and channels).

Last but not least, sustainable development and the necessity to embed its principles into corporate DNA are also issues highlighted by Mr. Noël. “The alignment of long-term value to stakeholders with corporate sustainability requires a considerable strategic push, a deep adjustment of corporate culture and a more measured risk-management mindset. This adjustment will have to take place sooner than later, because a trusted bank with a wider positive impact is increasingly being upheld as the minimum standard vis-à-vis stakeholders ranging from our own customers and central banks, to providers of lines of credit”.

Also Read: Vodacom Tanzania and WorldRemit launch mobile money transfers to M-Pesa accounts in Tanzania

MCB’s CEO insists on the fact that the insights of the report can help prioritise strategies for the future and promote awareness “that collaboration and partnership within the region has potential to address many of the common challenges facing African banking and financial services today”.

Read the full “Meeting of Minds” report here http://bit.ly/2MfPRy2

The Mauritius Commercial Bank Ltd (MCB).

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