Financial literacy is abysmally low in Nigeria, and I am sure, in other African countries. It can never be taken for granted that an average Nigerian with some extra cash knows what to do beyond buying stuff or just throwing it in some bank accounts. The average Nigerian hardly knows how to invest in the financial market.
That is why I am impressed with what the Debt Management Office, DMO, is doing with the Federal Government Savings Bond, FGSB. The Savings Bond is an Investment Product issued by the Federal Government of Nigeria through the DMO. It is an addition to the FGN Securities Market and is a retail savings product accessible to all income groups.
The purpose of the bond is to encourage a national savings culture and create an avenue for investors to benefit from the favourable returns available in the capital market. The minimum subscription amount is N5000, with additional subscriptions in multiples of N1, 000.00, subject to a maximum of N50, 000,000.00.
Like all FGN Bonds, the Savings Bond is backed by the full faith and credit of the Federal Government of Nigeria. Investors are to subscribe through Dealing Member Firms of the Nigeria Stock Exchange (NSE) who have been duly accredited by the DMO to act as Distribution Agents. And there are up to one hundred of them.
Interest on investment, which is announced by the DMO every month, will be paid directly into investors’ bank accounts every quarter.
Since it was first rolled out in March, the scheme has created such buzz in the investment community that it has been successfully embraced by the target groups, especially those on the low income level. At its first listing on March 13, N2, 067,961,000 was raised from the retail market at 13.01 percent coupon. About 2.067 billion units were allotted to 2,575 people, and 75 percent of these are ordinary Nigerians.
A major reason more Nigerians are embracing the Savings Bond is the passion with which the DMO under Dr Abraham Nwankwo has carried on its advocacy. Before the roll out in March, Dr Nwankwo never spared any air time to talk about it on television and radio. He also talked and has been talking to the press on the uniqueness of this product and why Nigerians must embrace it.
Recently, the DMO and Nwankwo have embarked on nationwide tours to sensitise Nigerians, especially those at the grassroots about this new produce, which seeks inclusiveness of our national economic growth. The DMO has been traveling to all the corners of the country, organising workshops and town hall meetings to sell the idea of the FGSB.
While in Ibadan a few days ago on a one-day advocacy and sensitisation workshop on the Bond to talk to representatives of major interest groups, including market associations, labour unions and many cooperatives in Nigeria, Nwankwo noted: “We are here in Ibadan to enlighten the public about the Federal Government of Nigeria Savings Bond. The government of President Muhammadu Buhari has an economic philosophy of making sure that the economic process is inclusive. As Nigeria recovers from recession and grows, nobody should be left behind. Which means every Nigerian, no matter their income level will have an opportunity to participate in the process of re-activating the economy, and also benefit from the progress that is being made.”
At a similar gathering in Onitsha, where the DMO met leaders of market unions and middle income earning organisations, Nwankwo said the FGSB was designed purposely to favour the poor and give them a stake in government.
Before now, bond issuance, like the monthly locally auctioned FGN Bond and the just concluded $1 billion Eurobond, were restricted to institutional investors and high net-worth individuals. The Savings Bond is expected to help develop and introduce new debt instruments into the fixed income securities’ market to accommodate low income individuals and groups.
Financial market operators have also hailed the bond as innovative. Many believe the product will stimulate savings, especially because of the high returns on it, and give the government the opportunity to fund critical projects with cheaper funds. It is cheaper for government, especially at this period of recession, to borrow cheap funds domestically since it will pay in Naira. Domestic debts do not react to exchange rates.
While there are fears that the interest paid on the Savings Bond (as announced by DMO monthly) could divert savings away from banks which pay a meagre 5 percent, such possibilities are remote. The volume and value of the Savings Bond is not large enough to threaten the banking sector. The DMO is not unaware of this fear, and appeared to have doused it. That perhaps explains why financial institutions in the country are lining up behind the DMO.
The savings bond will no doubt help the government get access to funds available for investment in the economy, thereby facilitating gross capital formation and economic growth. It equally enables the individual investors enjoy those benefits which accrue to big investors in the capital market.
The Savings Bonds are protected because they are secured by the government, and tax on the interest is usually waived while the principal and earned interest is registered with the DMO.
Nwankwo, who has lauded the Federal Executive Council’s approval of the Debt Management Strategy (2016 – 2019), is positive that the strategy would be implemented in such a way as to guide against unsustainable foreign exchange exposure. This is why the Savings Bond is an innovative product from the stable of the DMO.
Nigeria’s low debt to GDP ratio has cleared the road for the country to borrow more to fund its budget, infrastructure and other essential projects that will stimulate the economy and create jobs for the citizenry.
As Nwankwo said during a recent interview: “Sovereign borrowing from the domestic debt market encourages the development of a functional bond market, with the scope to introduce different instruments, which will encourage the habit of domestic saving, intermediation and investment. Such a functional domestic bond market will be tapped by the private sector to raise long-term funds for investment in the real sector and infrastructure projects. Nigeria has developed a deep and liquid domestic bond market where funds of up to 20 years tenor can be raised.”
While investment in the FGN Saving Bond gives personal benefits, it also mobilises the people for national development. This, to me, is why the DMO is mobilising all Nigerians to join and participate in this administration’s philosophy of shared prosperity that the FGN Savings Bond symbolises.