By Omowumi Odesomi
Ponzi Scheme – a financial model of paying off old investors with new ones, remains one of the go-to crimes for erudite swindlers, particularly in places like Nigeria with heightened poverty and low financial literacy.
The scheme bears the name of its most popular proponent, an Italian called Charles Ponzi, who racketed in millions of dollars from Americans, including Police Officers and Insurance agents after promising fifty-five percent returns in just forty-five days.
Every year, there seems to be yet another one, and like clockwork, there is another set of people who fall for it and wail with tears after.
However, despite the illegal operations perpetrated by the schemes, and government clampdowns on their activities in Nigeria, they are not relenting.
African Leadership Magazine spoke to a Financial Education Instructor and Personal Finance Coach, Toyin Alasi, to help shed more light on what to expect and the way forward.
Ponzi schemes have been in existence for a long time and notably each time a new one springs up, people invest in it despite outcries that must have been recorded in previous schemes. Why do Nigerians keep falling for such schemes?
There is always the tendency for people to fall for get-rich-quick schemes because of the lack of understanding of how wealth is built, so majorly, I think there’s a gap in the financial literacy of people because if you have a basic understanding of how money works and realizes that wealth-building takes time, it doesn’t happen just like that and it’s not quick then you won’t fall for get-rich-quick schemes.
Another reason why people fall for it is, a lot of people don’t know the right timing to do something. For example, I don’t have a problem with the number of these schemes that come out because they will never stop, more of them will continue to come, imagine for how long they’ve been coming out, people bought into MMM and they still went to the next one Swissgolden, all sorts of things keep coming and people keep falling for them.
The reason this is going to keep happening is that such businesses will always want to see different ways to make money.
Now the major issue is that most people don’t know the right time to invest in a particular thing or when not to do so. Not understanding the timing of where you are in your financial journey is a problem, so taking the risk is not the problem but the timing of the risk.
How then do we bridge the gap to make sure Nigerians get the needed financial education to avoid being victims always?
There are two parts to it: the part of the government and the part of the investors. There’s a saying that you can only lead the horse to the river, you cannot force the horse to drink so most investors are not open to learning, it’s a problem of our generation so people don’t want to stick to anything. That’s a challenge on its own.
So that’s why you find out that on platforms on social media if you can’t catch people’s attention in two seconds, you are done because people don’t want to read, it’s not in those days that people can read a book and are interested and that’s a problem. So, investors must be willing to learn and on the part of the government, people like me and other stakeholders who are supposed to educate, there has to be more funds going into advocacy because people need to know, we have to put it in their faces. Government is in a good position because they have a lot of funds they can put into it.
I know there are a lot of initiatives going on, as I belong to a financial literacy group technical committee of the Securities and Exchange Commission, SEC, and constantly we post company news, hold seminars, constantly, there are meetings among stakeholders to
keep educating the populace, so we need to expand our reach and do much more.
Works are also going on into putting financial literacy as part of the curriculum in schools as well as in University campaigns. A lot of advocacy programs have to be going on not just by the government but other stakeholders too, the private sector and of course the
investors must also be willing to learn, they must see the need. This is not always easy as the financial industry is a bit challenging because people think you should not tell them how to manage their money.
What specific roles are expected of relevant government agencies like the SEC, EFCC, ICPC, CBN in ensuring that these Ponzi schemes do not thrive?
Well, they can tighten the policies and regulate more.
The challenge is this, the sector is a bit unregulated even though the government does its part. For example, in the case of the one currently going on, they were licensed by the SEC and they still went down with people’s money so it’s a bit dicey. They can regulate more but at the same time, I think it is much more on the investors to know when to pull out of
an investment or when to stay there better still, investors should speak with the regulated firm, the Capital Market.
For example, they are highly regulated
even if you won’t do that, benchmark what you are investing, whatever returns they are willing to pay you, benchmark them and give government-regulated inspectors so that you can know what is possible or what is not possible.
For example, if someone tells me I will get thirty percent per month, I will know that I might get it for the first month, second month, and third month but it’s not sustainable, that investment will die because I know that even on the stock market, it’s very hard to get thirty percent per month. In a stock market that is highly regulated, with government monitoring and all that, where business is regulated and controlled, you can’t
get up to 30 percent monthly, so why will I expect somebody who is just passing by to give me forty to fifty percent per month.
So you can benchmark against that while the government will continue to tighten the regulation against schemes like that. One way they can do that is by consistent investors’ education and awareness.
I think the government might need to look into hiring advocacy personnel that is not within the organizations for a more effective approach because doing it within the organizations might not make it effective so they should consider hiring companies to teach financial literacy, give them the contract maybe for a year or two.
There’s a bill currently at the House of
Representatives seeking to prohibit Ponzi schemes and other pyramid investments with a proposed 10 years jail term if convicted by the court. What’s your take on the bill and the proposed jail term?
I think it’s a good step in the right direction because we always say this thing that when people who break the law in Nigeria travel out, they get there and don’t break the law. Why? Systems and structures, and proper monitoring, so we can have a bill to it and we will make sure people are aware. It will reduce it because nobody wants to be jailed. When that bill is passed, it will help to tighten the process.
A bill like that will help because the rate at which it is coming out is alarming.
How do we identify Ponzi schemes?
The first thing is they promise you high returns in a short time claiming minimal risk so the simple way to check is that in Economics, the higher the returns, the higher the risk so if you’re telling me, I don’t have to take any risk and I’ll get my money back and still get high returns, then there is a problem.
High returns, low risk in a short time is ridiculous so the rule of thumb should be what is the going rate on the regulated market because if the CBN is giving two or three percent per month or the Stock Market in a year does twenty-five
percent and you are promising me a thirty percent return on investment (ROI) in a month, then I don’t want to be with you because I know that the risk is there to lose that money. So be wary of such investments.