Of Rising Wonder Banks & Ponzi Schemes, and the Need For Financial Literacy

In 2008, the world’s largest fraudulent investment Ponzi scheme owned by a renowned fraud-star, Bernard Madoff collapsed with huge investments belonging to several Hedge funds, International banks and Private individuals in the United States. The con artist admitted that the global giant Ponzi schemed owed at least $50million.
Its collapse spread fear in the financial system across the globe and has led to loans write offs and huge losses. It was also devastating for pensioners, health and academic institutions and philanthropic organizations whose funds were placed in Madoff’s Ponzi scheme. As at 2013, there were up to 67 Ponzi Schemes worth an estimated $3 billion alone.
As at December 2016, there are about ten Ponzi schemes operating in Nigeria such as MMM, Zar fund, NNN, E-Cooperative online, Givers Forum, Crowd Rising, Unlimited Cycler, Twinkas and Icharity.

The Schemes work by convincing a potential investor to invest his or her fund for a specific period at a specific rate. In November 2016, MMM Nigeria, announced temporary closure of the scheme citing huge traffic on its website as the reason of the shut-down. However, earlier in September, 2016 there were several outcry from its estimated three million investors across the Country. In January, 2017, the Ponzi scheme announced its return with a promise to pay its investors starting from the small ones.
The scheme is designed in such a way that the first cycle of investor would convince another round of investors for the same reason. Not long ago, the Economic and Financial Crimes Commission, EFCC, arrested promoters of an online Ponzi scheme, Swiss Golden, which has conned more than 7,000 Nigerians to the tune of over N3 billion as at April, 2018. There have been rise in the number of Ponzi and Pyramid schemes across the globe.

Similarly, the EFCC in August and September 2019 also arrested the promoters of Millionaires African Leaders Club, a collaborative Ponzi scheme based in Enugu and MGB, based in Kano who promise their customers an irresistible return up to 50% respectively.
In trying to minimize the wide spread of these Fraudulent schemes, the securities and exchange commission (SEC), Nigeria in a statement called on the attention of the general public and warned that Ponzi scheme have no tangible business model, and frowned against investing in same. It also advised the general public to desist from investing in such. Similarly, the CBN and the Managing Director/CEO, NDIC, Umaru Ibrahim, called on the general public to desist from investing in Wonder Banks and embrace investments with acceptable returns. The Apex bank also added that the Schemes are becoming a national embarrassment.
A most important component of modern economy is the legal framework aimed at protecting investments. Countries need to ensure enforcement of financial laws to guarantee supply of credit into their economy. In Nigeria, about 60% of the equity investments belong to foreign investors. As such, any disruption in the financial sector and or the political environment may result to capital flight.
Despite the calls and warnings to the general public by the regulators and stakeholders, a large segment of the population has continued to invest in the Ponzi schemes. Just like the Madoff victims, their counterparts in Nigeria continue to invest in same.
In order to safeguard the financial system and to protect innocent public from the nasty activities of the promoters of these schemes, there is need for the regulators and stakeholders to collaborate with the National Assembly and come up with additional measures to curtail the wide spread of these schemes by implementing the following:
.Come up with a bill ‘The Unregulated Deposit Schemes & Protection Interest Bill’ that will clearly spell out the consequences of unregulated deposits with fines and sentences for promoters.

.Tougher regulations and enforcements of laws regarding the Ponzi and pyramid schemes.

.Stronger sanctions to protect the poor and small depositors from the unscrupulous individual who rip off innocent depositors.

.Confiscate the assets of the Ponzi & Pyramid Schemes promoters
In addition to the above, the regulators should also launch a second phase of financial literacy campaign to enlighten the general public on the risks involved in the Ponzi and Pyramid Schemes. The regulators should pursue financial literacy more aggressively as it holds the key to averting a mad rush to join such schemes.
The continuous existence of these Schemes do not mean well to the financial system as it takes away money from the formal system to unregulated schemes which results to disruptions and reduction in confidence in the financial system. The Regulators should therefore continue to safeguard the financial system and the general public from the menace of Wonder Banks, Ponzi and Pyramid schemes to prevent the loss of public confidence in the financial system.

Muhammadu S. Bello, sent this piece from Abuja and can be reached at [email protected]