Retail Trading Apps In Nigeria Face a Defining Moment

Perhaps he spoke too soon, because 19 days later, on Aug. 17, a court in Abuja granted an order to the Central Bank of Nigeria (CBN) to freeze 15 bank accounts belonging to Risevest and the other three companies for 180 days.

The allegations against each company differ in some aspects: Risevest is accused of trading cryptocurrency against Nigeria’s ban in February, but the main complaint is that using dollars from Nigeria’s forex market to buy foreign stocks for users falls foul of a July 2015 directive, which placed purchases of Eurobonds and foreign currency shares on a list of banned items.

All four firms say that users’ investments are safe, that they can fund and withdraw from their accounts as usual. But a week after the order, an existential question remains: how will Risevest and co resolve the fundamental issues between them and Nigeria’s monetary sovereign?

Fighting Nigeria’s inflation since 2014 

Even if “Robinhood for Africa” is how these startups are described, they did not start off with a mission to provide commission-free trading to amateur retailers.

Instead, they set out to give Nigerians a means to hedge against rising inflation—from 8.2% at peak oil prices in June 2014 to 17.4% this July. “If you are making returns in naira, no matter how high those returns are, eventually devaluation will take those returns away,” Eke, the Risevest founder, said in a 2020 interview.

A license might be the middle ground 

After issuing statements to reassure users, the affected startups have largely continued with business as usual. None of them confirmed if the court order has been implemented, but legal and compliance teams are in talks with CBN representatives for solutions.

Licensing by the CBN could be one resolution, since the suit accused the startups of operating without an asset management license. That would mean another license requirement to add to the digital sub-broker license created by Nigeria’s Securities and Exchange Commission (SEC) this year. Chaka was the first (and so far the only) startup to acquire that, an achievement it rode to a $1.5 million pre-seed raise in July.

But another reason why this suit has been controversial is that it is the SEC, not the CBN, that normally issues asset management licenses in Nigeria. Cowrywise, a company that offers savings and mutual funds services in naira, received a SEC license this year.

For Uche Aniche, an investor in Trove, the bank’s action is “depressing” and shows a failure to be strategic in managing Nigeria’s fledgling innovation ecosystem: “They are losing the big picture and are failing to leverage the opportunities these innovations avail us.”