Trapped funds

Trapped funds are local currency amounts a foreign company lawfully holds in a country but can neither convert nor take out. In 2022, IATA (International Air Transport Association) publicly warned about its member airlines' revenue trapped in Nigeria: tickets sold in naira, well-stocked accounts in Lagos, and no way of obtaining the dollars to repatriate the money. Emirates suspended its flights to the country the same year, citing those sums. Trapped funds are local currency assets a foreign company lawfully owns but can neither convert nor transfer out of the country. The cause varies. A hard currency shortage at the central bank that thins out auctions, formal exchange controls, an administrative queue that never clears. For a CPRI (credit and political risk insurance) policy, the distinction comes in three stages. Inconvertibility covers the inability to exchange local currency for hard currency through legal channels. Non-transfer covers the case where conversion is possible but moving the funds out is prohibited or prevented. Transfer delay, lastly, covers a prolonged wait with no formal refusal, and that is the typical Nigerian case: no one prohibits anything, the dollars just do not come. The policy sets a waiting period, often expressed in months, at the end of which the situation is deemed a loss if it persists. Wording matters: some policies require a documented attempt to convert through official channels, others exclude situations known at inception. A country already short of hard currency is not covered like a healthy one. The underwriter asks when the funds were built up, where they came from, and what steps were taken. Devaluation is not part of the loss: the insured is paid at the applicable rate, which can leave a sizable loss when the currency fell during the waiting period. Older funds, accumulated before the policy, are negotiated separately, when they can be covered at all.