Berkeley Legal | Foreign Exchange Framework in Nigeria
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17 Oct Foreign Exchange Framework in Nigeria

The foreign exchange regime in Nigeria is regulated by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act Cap F34 LFN 2004 (FEMM Act), the Central Bank of Nigeria Foreign Exchange Manual (CBN Manual) and the guidelines/ circulars issued from time to time by the Central Bank of Nigeria (CBN). Nigeria’s foreign exchange market is made up of three main segments, the CBN window, the interbank (Authorised Dealers and Authorised Buyers) and the Bureau de Change. There is the parallel market which does not have any legal backing but exists between unlicensed players who buy and sell foreign currency not in accordance with the rules or required legal documentation.

Memorandum 2 of the CBN Manual provides that all purchases and sales of foreign currencies in Nigeria in respect of goods and services should be effected through an Authorised Dealer. An Authorised Dealer is any bank licensed under the Banks and Other Financial Institutions Act as amended from time to time and such other specialised banks issued a with licence to deal in foreign exchange.

The CBN Manual also provides that sales and purchases of foreign currencies may also be done by hotels registered as Authorised Buyers and bureau de change (BDC) but only for limited amounts.

The parallel market for foreign exchange has been in existence from the exchange control era and albeit illegal continues to cater for payments which do not qualify under the CBN regulations or for which parties do not have adequate documentation for the procurement of foreign currency through the banking channel. Due to a shortage of foreign currency from the CBN and the inactive interbank market (due to the limitations on the rates at which banks can buy foreign currency above the CBN rate) there has been a flight to the parallel market to fund transactions – both visible and invisible trade. The widening disparity in exchange rates which has created huge arbitrage opportunities has further increased activities in the parallel market, owing largely to the windfall gains arising there from.


Section 4 of the FEMM Act provides that foreign currency from the following sources may be sold in the foreign exchange market:

  1. Foreign currency domiciliary accounts maintained in authorised banks in Nigeria;
  2. Foreign currency held or imported by:
    • Nigerian citizens returning to Nigeria from any other place outside Nigeria;
    • Foreign nationals resident in Nigeria;
  3. Agency commissions, professional fees and other forms of invisible earnings;
  4. Non-oil export proceeds earned by exporters of Nigerian commodities;
  5. Foreign currency held by Nigerian citizens resident in Nigeria;
  6. Foreign currency imported by foreign nationals to purchase goods in Nigeria;
  7. Foreign currency imported or held by foreign embassies, high commissions and international organisations from external sources;
  8. Foreign currency held in external accounts by individuals, bodies corporate and unincorporated, commission agents, professional bodies, insurance companies and other similar bodies;
  9. Foreign currency imported by tourists into Nigeria;
  10. Foreign currency imported for direct investment in Nigeria; and
  11. Foreign currency from such other sources as the Minister may, from time to time, specify by order published in the Gazette.



Following the continued slide in crude oil prices, reduction in government revenue and the consequent pressure on Nigeria’s external reserves, the CBN has found it difficult to meet the foreign currency demand of Nigerian companies both for visible and invisible transactions. In order to ‘control’ the exchange rate, the CBN has continued to be the main source of foreign exchange into the market and banks are no longer allowed to trade in foreign currency. The new rules which include shutting the CBN window to procurement of certain items from the foreign exchange market has led to funding such trade transactions via the ‘parallel market’. The gap between the current official rate of N305/US$1 versus the parallel market rate has created resistance from the net sellers of foreign currency to inflow foreign currency at the official rate. This has further created a closure of interbank sources and full reliance is now placed on the limited CBN funding.


Below are some of the options:

  • Procurement of foreign currency from Authorised Dealers via Form A and/or Form M. Pursuant to the CBN manual, Authorised Dealers may deal in specified foreign currency by buying foreign currency without limit and selling same against approved Form A and/or Form M. Form A is an application to pay for service transactions (invisible trade transactions) while Form M is an application to import (i.e. imports of physical goods – visible trade transactions).


  • Obtaining foreign loans/facilities from offshore financial institutions. After such foreign loans/facilities have been obtained, the Authorised Dealer will subsequently issue a Certificate of Capital Importation (“CCI”) to the company evidencing the inflow of the foreign loan. Where the company seeks to repay the loan to offshore lenders, the company will need to show that the funds were in-flowed, evidenced by a CCI, and on that basis access the foreign exchange market to repay its loans to the offshore lenders.


  • Currency Swap. A currency swap (or a cross currency swap) is a foreign exchange derivative between two institutions to exchange the principal and/or interest payments of a loan in one currency for equivalent amounts, in net present value terms, in another currency. One advantage of a currency swap is that it hedges against or reduces exposure to forward exchange rate fluctuations.


  • Foreign Currency Forward Contract. The company seeking to procure foreign exchange may enter into a forward contract with a vendor. By locking into a forward contract, the vendor sets a future exchange rate which allows the company hedge against future exchange rate fluctuations and leaves the company fully protected against any appreciation or depreciation in currency.

The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact