In a 2006 Report, the International Monetary Fund (IMF) notes that the Central Bank of Nigeria (CBN) introduced a Real Time Gross Settlement (RTGS) system in November 2005 as part of its move toward electronic banking. The CBN website states that the country's RTGS system, the Central Bank of Nigeria Inter-bank Fund Transfer (CIFT), is expected to achieve secure interoperability with other payment and settlement systems in the country, thereby ensuring immediate payment settlement with intraday finality as well as delivery versus payment in all securities transactions. Further, the website reports that the CBN is the main regulator of the payment systems, which comprise of banks, discount houses, the Nigerian Inter-Bank Settlement System, the Nigerian Stock Exchange, and card and switching companies as key players. The Nigeria Deposit Insurance Corporation complements the oversight function of the CBN to ensure the efficiency and effectiveness of the payment systems. The CBN adds that all the systems operate largely in accordance with the Core Principles for Systemically Important Payment Systems (CPSIPS) and the Lumfallussy Standards. However there is no validation of this information from a third party source, and no further information is publicly available regarding Nigeria's compliance with the CPSIPS.

General Overview

In a 2006 report, the IMF notes that, in November 2005, the Central Bank of Nigeria (CBN) made operational an RTGS system as part of a move toward electronic banking. According to the CBN website, as of December 2005, the Nigerian payment systems include the retail payments system, large value payments system, and securities clearing and settlement system. The CBN also claims that all the systems operate largely in accordance with the Core Principles for Systemically Important Payment Systems (CPSIPS) and the Lumfallussy Standards. However there is no validation of this information from a third party source, and no further information is publicly available regarding Nigeria's compliance with the CPSIPS.

With regard to its large-value payments system, the CBN states that the high risk inherent in the net settlement system led it to establish an RTGS system, so that processing and settlement of transactions are in real-time, on a payment-by-payment basis, and is final and irrevocable. The advantages to the RTGS include the elimination of credit risk and the more efficient use of liquidity. As to the institutional framework of the payment system in Nigeria, the CBN states that it is the main regulator of the payment system, which comprise of banks, discount houses, the Nigerian Stock Exchange, and card and switching companies as key players. The Nigeria Deposit Insurance Corporation (NDIC) complements the oversight function of the CBN to ensure the efficiency and effectiveness of the payments system. There are, according to the CBN, over 1000 registered institutions providing payments services in Nigeria. These include 25 consolidated deposit money banks (as at 31st December, 2005), 5 discount houses, 759 community banks, 293 bureau- de- change, 111 finance companies, 90 primary mortgage institutions and 6 development finance institutions.

According to the CBN website, the CBN established the first clearing house in Lagos in 1961 and is responsible for the administration and funding of clearing activities within the banking system. The CBN has been at the forefront of reforms to the payment systems in Nigeria and, alone or in collaboration with the Bankers' Committee, has continued to make proposals to the Federal Government to improve the payments system. These efforts led to the enactment of the Dishonoured Cheques (Offences) Decree No. 44 of 1977 and the Bankruptcy Act of 1979. The CBN website further indicates that the central bank has been taking other important measures to improve the payments system. These include the: (1) introduction of the Magnetic Ink Character Recognition (MICR) program in 1991, aimed at modernizing the processing of checks and other payment instruments; (2) establishment of the Nigerian Inter-Bank Settlement System (NIBSS) in 1993 by the Bankers' Committee to complement the CBN clearing and settlement arrangement, minimize settlement delays, and provide same day clearing and settlement of high value inter-bank transfers and payments; and (3) establishment of a Centralized Automated Clearing process in Lagos clearing zone, whereby with MICR Reader Sorters, checks are electronically settled, reducing the processing time by two to three days. Continuing its agenda for reform, the CBN established the Nigerian Automated Clearing System (NACS) in collaboration with other stakeholders, as a successor to the NIBSS in Lagos in 2002. The NACS system is operational in Abuja, and is being expanded to cover other major Nigerian cities by the end of 2007. The CBN website also mentions the introduction of computer-based technology payment instruments, especially the automated teller machine (ATM), in Nigeria. ATMs provides 24 hour service in cash withdrawal, balance enquiry, movement of funds among accounts, deposits of cash or check and settlement of financial obligations.

The Principles

I. The system should have a well-founded legal basis under all relevant jurisdictions.

II

There is insufficient information publicly available regarding Nigeria's compliance with this Principle. The CBN website states that there are no laws dealing explicitly and exclusively with payment systems in Nigeria. However, the CBN Act, as amended in 1999, gives the CBN implicit powers to oversee and regulate the system. The website also mentions several sections of the Act that spell out its role and responsibility. For example, Section 41 of the CBN Act provides that "it shall be the duty of the CBN to facilitate the clearing of cheques and credit instruments for banks carrying on business in Nigeria and for this purpose, the bank shall at any appropriate time and in conjunction with other banks establish clearing houses in premises provided by the Bank in such places as the Bank may consider necessary." Similarly, Section 17 provides that "the Bank shall have the sole right of issuing currency notes and coins throughout Nigeria."

The CBN website also mentions the role of the NDIC, which complements the supervisory function of the CBN in the nation's payment system in accordance with the NDIC Act of 1988. The NDIC's responsibility is to insure all deposit liabilities of banks in order to protect depositors against bank failure and instill public confidence in the system. Further, the Nigerian Stock Exchange facilitates payments and settlements by providing the floor of the exchange for the trading of securities based on relevant laws and regulations.

II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle.

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

II

There is insufficient information publicly available regarding Nigeria's compliance with this Principle. The CBN website, however, enumerates the risk reduction measures that the CBN takes to ensure a robust payment system in the country. Accordingly, settlement banks need meet the minimum requirements of N15 billion in treasury bills and government bonds with the CBN in order to clear checks. The non-settlement banks are required to maintain settlement accounts with their respective settlement banks in accordance with the agency agreement. However, the CBN allows them to maintain operations accounts with the CBN for treasury and foreign exchange operations, as well as to meet their statutory cash reserve requirements. Further, the CBN requires that all settlement accounts be funded. If this is not possible, the CBN can rediscount the clearing collateral -- i.e. holdings in government securities -- in order to fund the account.

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

II

With regard to its large-value payments system, the CBN website states that the high risk inherent in the net settlement system and the need to align itself with international best practice in managing inherent payment and settlement risks led it to establish an RTGS System, so that processing and settlement of transactions are in real-time, on a payment-by-payment basis, and is final and irrevocable. The Nigerian RTGS is known as the Central Bank of Nigeria Inter-bank Fund Transfer (CIFT) System. CIFT is expected to achieve secure interoperability with other payment and settlement systems in the country, thereby ensuring immediate payment settlement with intraday finality, as well as delivery-versus-payment in all securities transactions. The advantages to the CIFT system include the elimination of credit risk and the more efficient use of liquidity. Nonetheless, there is insufficient information publicly available regarding Nigeria's compliance with this Principle.

Further, with regard to payments and settlement finality, the CBN website mentions that one of the central bank's objectives is to ensure that payments and settlements are executed with finality and irrevocability. Another is to encourage settlement procedures that operate on the principles of delivery-versus-payment.

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle.

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle.

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle.

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle. However, the CBN website mentions that one of the objectives of the CBN is to provide a secure and efficient payments system that meets the needs of the economy and international standards.

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle. However, the CBN website mentions that one of the major responsibilities of the CBN is to ensure accessibility of the payments systems in Nigeria for all businesses and individuals in all parts of the country. To facilitate this, the CBN would make sure that the cost of services are reasonable so that it does not become a barrier to access, and that the payment mechanisms are efficient so that consumers find the systems easy to use and are well protected.

X. The system's governance arrangements should be effective, accountable and transparent.

II

There is insufficient information publicly available regarding Nigeria's compliance with this Principle.

A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

II

The CBN website states that, given the important role of well functioning payment systems on a country's economic and financial stability, the central bank has promulgated a set of National Payment Systems policy objectives as broad guidelines and a framework for all payment systems initiatives, with the aim of ensuring that all systems are user friendly, affordable, easily and continuously accessible, and operate at minimum risk. However, there is insufficient information publicly available regarding Nigeria's compliance with this Principle.

According to the website, the CBN's primary objective is to ensure that risk control mechanisms are in place through clear rules and procedures, a sound legal framework and efficient technological systems. Other oversight objectives enumerated on the website include: (1) "Providing a secure and efficient payments system that meets the needs of the economy and international standards; (2) Addressing the risks that jeopardize the efficiency of the payment systems, and manage, reduce and contain them; (3) Ensuring that fraud prevention and detection methods are in place and that fraud occurrences are low; (4) Ensuring that a sound legal framework exists; (5) Overseeing creation of national payment standards, and ensuring that the requisite infrastructures are in place; and (6) Serve as lender of last resort in situations of liquidity problems."

B. The central bank should ensure that the systems it operates comply with the Core Principles.

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle.

C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

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There is insufficient information publicly available regarding Nigeria's compliance with this Principle.

D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

II

There is insufficient information publicly available regarding Nigeria's compliance with this Principle.