Cryptocurrency Use Soars in Nigeria Despite Banking Ban

A woman checks her phone in Owerri, Nigeria Credit: Obiageli Adaeze Okaro/Moment via Getty Images

Cryptocurrency adoption is growing rapidly in Nigeria despite attempts by regulators to limit access as users seek alternative methods of transacting.

Nigeria placed sixth 2021 Global Crypto Adoption Index published by blockchain analysis organization Chainalysis in October 2021. Factors driving the use of cryptocurrency include a lack of access to traditional finance, the depreciation of the naira, and inflation. More than a third of Nigerians between the ages of 18 and 60 surveyed by cryptocurrency exchange KuCoin invest in cryptocurrencies, according to an April report.

This despite the fact that the country’s central bank declared in February 2021 that the use of cryptocurrencies is “a direct violation of existing law” and prohibits it. commercial banks to process them. He warned that cryptocurrency trading poses risks including loss of investment, money laundering and terrorist financing.

Peer-to-peer platforms

The crackdown has pushed users to peer-to-peer or P2P platforms such as Paxful and LocalBitcoins.

“There was a first shock, but the water will always find its way and the young people found the P2P — the volume [of transfers] that they carried out through the banks has been moved [to P2P]so banks no longer collect fees for these transactions,” Adedeji Owonibi, CEO and founder of Nigerian blockchain consultancy Convexity, told S&P Global Market Intelligence in an interview.

“There are thousands of people chatting every moment,” Owonibi said.

Nearly two-thirds of the 360 ​​Nigerian cryptocurrency investors surveyed by KuCoin have used fiat currency to buy cryptocurrency on peer-to-peer exchanges. Many users rely on According to Chainanalysis, P2P platforms are not only an on-ramp to cryptocurrency, but also a tool to send funds and engage in business transactions.

P2P platform Paxful has seen an increase in the number of customers using its services.

“On Paxful, we have seen a big increase in remittances entering the country,” Oyewole Joledo, Senior Director of Paxful Nigeria, told Market Intelligence. “For a more nimble generation of young people, sending money by traditional means seems to fade. They need more comfort. They prefer to do all this from their phone.”

Discounts

The World Bank had forecast that remittances sent to sub-Saharan Africa would have increased by 6.2% year-on-year in 2021 to reach $45 billion, following a decline induced by the pandemic in 2020. The Nigerian Diaspora had higher disposable income due to lower spending amid COVID-19, enabling them to send more money home, said Jimi Ogbobine, Consulting Manager at Agusto Consulting Ltd. in Lagos, to Market Intelligence.

Still, converting cryptocurrency to naira is difficult and as such deters expats from sending remittances in bitcoin or ethereum, Ogbobine said. As long as the government ban remains in place, friends or family will not be able to walk into a bank and change cryptocurrency to naira, which means that, for now, people prefer to send money via official money transfer operators, Ogcoil said.

Ogbobine has seen the cryptocurrency used more often by Nigerians to send money out of the country to circumvent regulatory hurdles aimed at stopping outflows.

Still, new rules released in May suggest a softening of Nigeria’s anti-cryptocurrency stance. Entities wishing to launch initial offerings of digital assets are asked to submit a white paper, which will be reviewed by the Nigerian Securities and Exchanges Commission, while cryptocurrency exchanges are expected to have a minimum paid-up capital of 500 million of naira.

According to Teslim Shitta-Bey, editor of financial research group Proshare Nigeria, remittances represent “a fairly large part” of banks’ business, and a growing fraction of these transactions are done online.

“Apart from traditional loans and [foreign exchange]digital transactions are very important,” Shitta-Bey said. “Banks’ digital revenue as a share of total revenue has increased over the past few years…because younger generations now conduct almost all transactions digitally, including remittances.

Remittances are a “very important” source of non-interest income for Nigeria’s largest lender, Access Bank PLC, and have been growing in recent years, a company spokesperson told Market Intelligence. The bank saw no revenue impact from authorities banning bank customers from making transfers from their bank accounts to cryptocurrency platforms, the spokesperson said.

Macro-factors

Lack of financial inclusion and macroeconomic factors are also pushing Nigerians to trade cryptocurrencies. Financial technology company BPC estimates that 57% of Africans do not have a traditional bank account or mobile money account.

Meanwhile, the naira has fallen 60% against the US dollar since October 2014, annual inflation was 16.5% in April and only 37% of people aged 15-34 were in full-time employment. in 2020.

People are increasingly buying tether, a stablecoin pegged to the dollar, as they realize how volatile the dollar-naira exchange rate is, Paxful’s Joledo said. “It’s important because currently the [exchange] rate is scary for the average Nigerian,” Joledo said.

As of June 8, US$1 was equivalent to 415.13 Nigerian naira.