13 December 2017

Nigeria: Increasing Awareness On Govt Savings Bonds

Goddy Egene writes on the renewed efforts by the Debt Management Office to create more awareness on the Federal Government of Nigeria Savings Bonds and grow patronage by retail investors

When the Debt Management Office (DMO) launched the Federal Government Savings Bond (FSB) in March this year, one of the major objective was to ensure that retail investors enjoy the benefits of bonds issued by the federal government. While the Federal Government of Nigeria (FGN) bonds give regular returns on investments, retail investors have remained shut out due to huge amount required to invest in the bonds. Hence, only institutional and high networth investors have been enjoying the benefits of the bonds. However, in order to allow retail investors enjoy some of the benefits in bonds, the DMO last March launched the FSB.

The FSB and its benefits

FSB, issued by DMO on behalf of federal government, is part of the government's programme targetted at the lower income earners to encourage savings and also earn more income (interest) when compared to their savings accounts with banks. FGN Bonds are debt securities (liabilities) of the FGN backed by the 'full faith and credit' of the federal government and no default risk. This means that it is a safe investment where interests will be paid at regular period and principal repaid at maturity.

The bond is usually denominated in Naira with a minimum subscription of N5,000 and a maximum of N50 million. It has a fixed interest rate that will be paid every quarterly and has a tenor of two to three years.

The purpose of the bond is to deepen the national savings culture. It is aimed at providing opportunity to all citizens, irrespective of income level, to contribute to national development. It will enable all citizens participate in and benefits from favourable returns available in the capital market and diversify funding sources of the FGN.

The FSB has the following benefits: It offers guaranteed returns, and encourages financial inclusion among low income households; it enables individuals to enjoy those benefits which accrue to high net-worth investors in the capital market; it has a competitive fixed rate - interest rate; the interest incomes earned from the securities are tax exempt; and the FGN savings bond certificate can be used as collateral for loan.

"The rationale for the issuance of FSB are to deepen the national savings culture, diversify funding sources for the government and establish a benchmark for other issuers of bonds in the country. It offers guaranteed returns, helps to stimulate and deepen the savings culture among households and encourage financial inclusion. It enables individuals to enjoy those benefits which accrue to big investors in the capital market. Savings bond also helps to increase access to funds available for investment in the economy, thereby floating gross capital formation and increase in output within an economy," the DMO had explained.

Retail investors excited

The introduction of the FSB had excited some retail investors, said it was a very good development for investors, the government and market in general.

For instance, Mr. Moses Igbrude of Independent Shareholders Association of Nigeria (ISAN) told THISDAY that DMO should be commended for finally "democratising" the bond market.

"Since the equities market has remained volatile retail investors like us have been looking for alternative investments. The FSB is, therefore, a welcome development.

The bond market has been an exclusive of high networth investors. Although the DMO made moves in the past to encourage secondary trading of bonds so that low income earners can benefit, that has not really worked out well. However, with the savings bond, many investors will now have the opportunity to participate and benefit from regular interest rates from a government security," he said.

Igbrude said the N5,000 minimum investment is highly encouraging and will make the offer very attractive to retail investors.

Another investor, Mr. Justin Ekere said the beauty of the security is that you are not at risk of losing your capital.

"Unlike some investments in which you risk losing your capital, the savings bond is a less risky investment. Apart from the interest that you will earn every quarter, your capital is preserved and you get it back at the end of the tenor. This is highly heart-warming and encouraging. The DMO has done well by introducing this instrument into the market at this time," Ekere said.

Low patronage

Despite the high optimism that greeted the introduction of the FSB, the patronage has not been as encouraging as expected. For instance, the amount allotted dropped from N2.07billion in March 2017 to N400.57million in July 2017, while the total number of investors also dropped from 2,575 in March 2017 to 779 in July 2017.

Commenting on the development, analysts at FSDH Research had said one of the factors responsible for the poor patronage of FSB was the rally that dominated the equity market in Nigeria.

"The Nigerian Stock Exchange All Share Index (NSE ASI) appreciated by 51.47 per cent between March 01, 2017 and August 9, 2017. Many retail investors diverted funds to the equity market to take advantage of capital appreciation. Other factors are: the low awareness of the benefits and characteristics of the Bond; the low liquidity of the Bond at the secondary market and the high yield on the Nigerian Treasury Bill (NTB)," they said.

They therefore suggested ways to increase investors' patronage. According to them, the DMO and the stockbrokers can organise investors' road shows in various cities and schools across the country.

"This will be an avenue to directly engage retail investors on the need for them to hold the bonds in their investment portfolio. The DMO can work with some identified large corporate organisations that have large number of employees to encourage their employees to invest in the Bonds on a monthly basis. The DMO can also work with government agencies to encourage civil servants to invest in the bond," the analysts stated.

According to them, these strategies should be able to attract a minimum of one million subscribers on a monthly basis.

"If this is achieved and the monthly subscription amount increases, the overall weighted average interest rate on the FGN debt will drop," they said.

DMO Intensifies enlightenment

While the DMO may be considering partnering stockbrokers and raise the awareness on the FSB, the agency is already taking the campaign to the grassroots in some markets across the country. The agency started from the Federal Capital Territory (FCT) where it took the awareness campaign to Gudu market, Wuse market, Dei-dei market and Garki model market. The Director, Portfolio Management Department, DMO, Mr. Oladele Afolabi, told THISDAY that the agency want to ensure that investor make savings that are secure with good returns.

He restated the federal government's commitment to the promotion of savings culture among Nigerians.

At the Gudu District Market in Abuja, Afolabi had to traders that the federal government was committed to promoting a good savings culture amongst Nigerians.

That commitment, he said, led to the grassroots campaign to encourage people to invest in the FSB.

"We are here so that you (traders) can see us and know that what the federal government is offering is real. Government wants you to save and earn good interest on what you save. Saving with your government is the best way to save," Afolabi told the audience.

In a presentation, Mrs. Bose Olafisoye of DMO told the traders that the FSB belongs to the people, therefore, the decision of the DMO to engage with ordinary Nigerians on the streets, in the markets as well as Churches and Mosques.

Speaking at the event also, chairman of the Gudu Amalgamated Traders Association, Chief Bond Nnamani, urged his members to seize the opportunity offered by the DMO to have additional savings especially one guaranteed by the full faith of the federal government.

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