2 February 2018

Namibia: In the Midst of Junk, Namibians Want to Make a Quick Buck

Pyramid schemes such as MLC247 and Virtual Bank continue mushrooming despite stern warnings by the Bank of Namibia last December that they are illegal.

An investigation by The Namibian has shown that these schemes continue attracting members and preying on unsuspecting members of the public.

BoN's deputy director for corporate communications, Kazembire Zemburuka, told The Namibian this week that the central bank has become aware of the rise in online-based financial schemes and has commenced an assessment to determine their legitimacy.

"Once the assessment has been completed, the bank will communicate its position on the matter to the public. The bank continues to discharge its responsibility in a proactive and vigilant manner, in order to take the necessary action as stipulated in the relevant law," he said.

Economist Ngoni Bopoto said the appeal of above average returns in quick money making schemes such as MLC247 and forex trading will always be attractive to mankind particularly when markets or the economy are depressed.

"In fact, it can be argued that the prospect of making a quick buck underpins all speculative activity (informed or otherwise)," he said.

Bopoto, who is a research analyst at Namibia Equity Brokers further said that when it comes to making a quick buck, it all depends on the type of product and different individuals' risk preferences.

"Some products are plain pyramid or ponzi schemes whereby new investors' money is used to pay earlier investors creating the impression of a return on "investment" where there is none. This is not sustainable because at some point new investors will dry up or economic situations may prompt investors to withdraw resulting in the structure collapsing and people losing their money," he said.

Bopoto said the culture of instant gratification has increased individuals' vulnerability to various schemes disguised as investments, and that the Bank of Namibia is escalating scrutiny of these and criminalising participation.

"It is therefore important to meticulously analyse any prospects prior to participation. At Namibia Equity Brokers we conduct diligent research before recommending any investment products, instruments and/or equity to our clients," said Bopoto.

Indileni Nanghonga, an analyst at Simonis Storm Securities, told The Namibian that it is human nature to look for get-rich-quick schemes.

All the schemes recently initiated in Namibia promise instant riches and this is what is stoking the attention of the public, he said.

"Distressed consumers and the high level of inequality lead to people engaging in anything that looks like hope for their financial problems. Currently, many households are highly indebted and we believe that has partly led to such actions," he said.

High unemployment and lack of financial literacy can also lead to such behaviour, he added.

Nanghonga, however, said he does not think participating in pyramid schemes is the best way for individuals to make quick money, "because these schemes are unregulated and make unwarranted promises of huge profits that cannot be guaranteed. If you are looking to make money quickly you best try the casino or the lottery."

Zemburuka further said once the bank becomes aware of the existence of a scheme, as a standard practice, the bank conducts an assessment to determine whether such a scheme contravenes the Banking Institutions Act, 1998 or not. If the scheme contravenes the act, the bank directs such a scheme to stop operations immediately, and refund all money collected from participating members, he said.

"It should be borne in mind that the bank's role is restricted to [reporting] persons promoting illegal financial schemes to the competent authorities i.e. the Namibian Police and the prosecutor general's office for prosecution," he said.

Zemburuka said there is a pending case in the High Court against a scheme called West Coast in which people charged with promoting illegal financial schemes are being prosecuted.

He added that with the rise of online financial schemes run by people outside the jurisdiction of Namibia, the bank is not in any position to help consumers if may have lost money. Nevertheless, the bank continues to caution members of the public not to participate in such schemes because they expose themselves to the risk of losing their investments and/or face criminal prosecution.

FOREX TRADING

Another quick buck scheme attracting more locals is forex trading. This is different from pyramid schemes.

According to Bopoto, the advent of technology introduced algorithmic trading, which is simply the process of using computer programmes to execute a specific set of trading instructions usually based on momentum indicators like moving averages rather than fundamentals.

The speed and efficiency of execution lowers trading costs and reveals potentially profitable situations at rates humans could never fathom, he said.

"While this may make trading more efficient and increase your chances of an upside, profit cannot be guaranteed," said Bopoto.

Forex business trainer and founder of Global Growth Investment Namibia Michael Amushelelo told The Namibian that while the cost of living is always going up, salaries are not increasing proportionately.

"Now that we are in junk status, we are facing people most certainly looking at alternative sources of income and Forex is certainly one of them," he said.

Amushelelo said what most people do not know is that forex trading is the biggest liquidity market in the world, as for years it was only a few wealthy individuals who had access to this market, mostly banks, insurance companies, pension funds and so forth.

"Do most people ever wonder what the bank does with money in a 32-day investment account? Well, let me educate the nation.

While you think your money is in your 32-day account, it is actually being traded on the forex market," he said.

Amushelelo, socially known for flaunting his wealth and posing with wads of cash on social media said that forex trading has liberated him financially.

"I invest for hours just trading on the forex market. I make a daily average of anything between US$6 000 and US$6 900," he claimed.

The young Windhoeker further cautioned that the forex market has a certain degree of risk, if you have no idea what you are doing, "but consumers should bear in mind that the first rule of investing is that you should never invest money that you are not willing to lose."

Nanghonga commented on this issue: "Forex trading is very high risk and as it goes, high risk can be coupled with high reward or high losses. The main risk in forex trading is not in the instrument itself, but rather the leverage that is taken on with such products. Some forex brokers provide up to 500 times leverage."

"I would not recommend forex trading to anyone unless they are already an expert trader, just like I would not recommend brain surgery to anyone unless he is a brain surgeon," he said.

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