NDIC assures bank customers funds’ safety amidst surge in Ponzi scheme
By Dele Ojo
Bello Hassan, Managing Director/ Chief Executive Officer, Nigeria Deposit Insurance Corporation, recently advised bank customers in the country not to entertain fear in case any bank failed in the course of business as their money is very well insured, stressing that over 97 per cent of depositors of banks would be fully covered by the Corporation in the event of bank failure.
Though the number of accounts in banks in the country has risen from 83.0 million in 2016 to 128.million in 2019, the NDIC maximum insured limit of N500, 000 fully covered over 97.0 percent of the insured deposits. This entails that any customer of a bank that have more than N500,000 in account balance shall be paid N500,000, while those having less than N500,000 account balance would be paid all their deposits.
Deposit Insurance is a system established by the government to protect depositors against the loss of their insured deposits. The role of the banking sector, the financial safety net, and other financial institutions that accept deposits from the public are important in the economy because of their involvement in the payments system, their role as intermediaries between depositors and borrowers, and their function as agents for the transmission of monetary policy. By their nature, banks are vulnerable to liquidity and solvency problems, because they transform short-term liquid deposits into longer-term, less-liquid loans and investments.
According to Mr. Hassan, “what these figures entail is that only less than three per cent of accounts/depositors are not yet fully covered by the prevailing coverage limits, adding that the implication of this is that in the event of failure of a bank, above 97 per cent of depositors would be fully covered by the Corporation.”
From the foregoing statistics he stressed, ‘‘It could be observed that the Corporation’s deposit insurance coverage limits are not only adequate, but also robust enough to engender confidence in our banking system”.
The NDIC boss explained that the Corporation’s maximum coverage limits of N500,000 per depositor in commercial, merchant and noninterest banks, primary mortgage banks and mobile money operators, as well as N200,000.00 per depositor in microfinance banks remained the most adequate and robust in the world.
Bello stated this recently at 2021 Finance Correspondents and Business Editors (FICAN) workshop in Gombe State organised by the commission.
The NDIC reassurance becomes imperative in view of the resurgence of illegal funds managers, otherwise known as Ponzi schemes, in the country, attracting gullible investors, with attendant loss of life savings.
A Ponzi scheme is an investment scam that involves the payment of purported high returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.
In many Ponzi schemes, rather than engaging in any legitimate investment activity, the fraudulent actors focus on attracting new money to make promised payments to earlier investors as well as to divert some of these “invested” funds for personal use. The SEC investigates and prosecutes many.
As with many frauds, Ponzi scheme organizers often use the latest innovation, technology, and product or growth industry to entice investors and give their scheme the promise of high returns, because their activities are not covered by law, or rather insured since they are not licensed by Central Bank or Securities and Exchange Commission (SEC).
Meanwhile, the Securities and Exchange Commission (SEC) has expressed serious concern over the resurgence of Ponzi schemes and illegal fund managers in the country’s financial sector. This is as more members of the investing public continue to fall prey to their activities.
Lamido Yuguda, the Director-General of SEC, at an enlightenment workshop with the staff of the Federal Ministry of Finance, Budget and National Planning on Wednesday in Abuja, revealed that the unlawful schemes had continued to enjoy massive patronage of the populace and remained a source of concern for regulators in the financial sector.
Mr. Yuguda said the commission is ready to continue to apply measures and seek the cooperation of relevant stakeholders towards preventing the activities of these Ponzi schemes, stressing that the reputation of the financial markets and investors’ confidence, among others, have been negatively affected by the upsurge of the illegal schemes.
SEC has been at the forefront of the fight against Ponzi schemes and illegal capital market operators, by stepping up its enforcement actions to safeguard the investing public, following an upsurge in their activities since 2019.
The commission had in March 2020, warned stakeholders and the investing public against the activities of some unlawful/unlicensed market operators and promoters of fraudulent schemes as they listed 12 fraudulent Ponzi schemes with bogus investment and return claims.
Also, in August 2021, it vowed to clamp down on illegal capital market operators, especially Ponzi Schemes operators as the commission has identified their activities as a huge problem for the economy and the country in general.
In Nigeria, Ponzi schemes date back to the 1980s and early 1990s with the famous ‘Umana-Umana’ investment platform that held sway in Port Harcourt and Calabar, the ‘Planwell’ scheme in Edo State as well as ‘Nospecto’ in Lagos.
In November 2015, the Mavrodi Mundial Moneybox or MMM scheme, founded by Sergei Mavrodi, a convicted Russian fraudster, was launched and Nigerians were fleeced of billions of naira.
Others like Twinkas and Ultimate Cycler were later introduced between that time and 2016, but they all crashed in 2017.
As of June 30, 2021, the Nigeria Deposit Insurance Corporation (NDIC) had paid a total of N101.67 billion in uninsured sums to depositors of failed banks, according to Bello Hassan, the corporation’s Managing Director/Chief Executive.
The Nigeria Deposit Insurance Corporation is an independent agency of the Federal Government of Nigeria. The purpose of the deposit insurance system is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay their deposits, thereby helping to maintain financial system stability.
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