Nigeria to allow asset-backed token offerings, crypto excluded
(Kitco News) - The African nation of Nigeria continues to be a testing ground for integrating blockchain technology as the country’s Securities and Exchange Commission (SEC) is now considering permitting initial coin offerings for tokens backed by equity, debt, or property.
According to a report from local media outlet Inspen Online, Abdulkadir Abbas, head of securities and investment services for the Nigerian SEC, said the country plans to allow permits for tokenized coin offerings on licensed digital exchanges that are backed by assets like equity, debt and property but specifically stated that cryptocurrencies would not be permitted to be used as collateral.
Abbas referred to fintech as “a building block for enhancing financial inclusion,” and said it is a vital piece in facilitating the transformation of the Nigerian capital market. “Traditional means can no longer work, the average age of investors in the capital market is 45-50 years and we are currently trying to attract the millennials to the market and this can be achieved with the aid of fintech,” he said.
Nigeria is Africa’s most populous country with more than 200 million citizens, and 43% of that population is under the age of 14 and more open to the digital world.
“We are exploring ways to leverage fintech to bring on young people to the market,” Abbas said. “The capital market sees fintech as an opportunity and that is one of the ways we intend to change the dynamics of the capital market.”
Included in this exploration is the development of rules around crowdfunding and other aspects of the digital economy that had been yet unaddressed. “We always like to start, as a regulator, with a very simple clear proposal before we go into the complex ones,” Abbas said.
Last November, the government of Nigeria announced a plan to redesign and replace all banknotes in the country in an effort to combat counterfeiting and the hoarding of physical cash. This currency redesign also came amid the rollout of the Nigerian central bank digital currency (CBDC) – the eNaira – which received a lackluster reception from the public.
In December, the Central Bank of Nigeria (CBN) announced withdrawal limits for physical banknotes due to a shortage of the new bills and as part of its effort to encourage greater adoption of the eNaira. The limits led to widespread anger and protests as citizens waited for hours at banks or in ATM lines only to be told that they could only withdraw 1,000 naira (less than $2) in some instances.
As a result of the pushback from the populace, the Nigerian government announced in March that it would extend the deadline for using the old notes through the end of 2023. But the months of cash shortages and struggles to buy basic necessities had the desired effect as the adoption rate of the eNaira began to increase in March as many people had no choice but to use the digital currency to be able to purchase food and other necessities.
Nigeria accounts for the largest volume of cryptocurrency transactions done on peer-to-peer (P2P) trading platforms outside the US. At the height of the cash shortage, as the value of the Naira plunged, the premium for Bitcoin (BTC) on some P2P exchanges hit highs in excess of 160% as Nigerians dumbed their dollars as quickly as possible.
This latest development is seen as the next step in the government’s plan to increase the adoption of digital currencies in Nigeria. As more citizens begin to engage with digital assets, more service providers and exchange platforms will be needed to serve the population.
For that reason, the SEC is now processing applications for digital exchanges on a trial basis while the government continues to restrict the trading of cryptocurrencies. The regulator's goal is to attract digitally-savvy residents to invest in local assets including equities, which most in the country have avoided for years.
According to Abbas, Nigeria’s SEC is now looking to register firms as digital sub-brokers, crowdfunding intermediaries, fund managers and tokenized coins issuers, but is awaiting approval from the CBN before it begins registering cryptocurrency exchanges.
All license applications will be required to undergo a year of “regulatory incubation,” which will allow the SEC to observe their operations while they offer their services on a probationary basis. “By the 10th month, we should be able to make a determination whether to register the firm, extend the incubation period or even ask the firm to stop operation,” Abbas said.
While stressing the benefits offered by fintech, Abbas also expressed the need to strike a balance between investor protection and innovation, saying that financial inclusion cannot be achieved without a good strategy for financial literacy.
Kitco News