Promoting Savings Culture


It is very much unlikely that there is an adult person, man or woman, who has never borrowed money at one time or the other. It could be from an individual such as parents, brother or sister, friends or from a lending institution.

Institutions, states, and nations, just like individuals also borrow to augment revenue and execute projects.

But it is disputable to argue that everyone saves. It is even more so to suggest that everyone engages in long-term saving, especially in this clime where there is, for the multitude, a huge disparity between income and expenditure, with the later weighing heavier.

Yet, some experts have argued that anyone who earns income is capable of saving a part of it, notwithstanding the pay cheque. It is a matter of re-ordering priorities, they argue. Saving is good, especially if it is done on a medium to long term basis with a financial institution that pays interest on savings. It will not only allow one save for the rainy day, as they say, but also allows the money to grow.

But this argument is not persuasive enough in Nigerian where financial institutions pay meagre interest on savings, mostly in single digit. Yet when they want to lend the money they charge double digits interest.

This is why the Federal Government Saving Bond that is billed to go on sale later this month is a game changer for Nigerians, especially for retail investors who have not been prominent players in the country’s capital market. The Debt Management Office, MO, announced last week that the FG will put on sale savings bonds with two to three-year maturities.

Although Interest rate for the bond has not been announced yet, but going by the rate of other FG bonds, it is expected to be up to 16.5 percent or more and will be paid quarterly.The bond offer will open on March 13 and end after five days, the debt office said, adding that new issues will be sold every month.

The FG intended to raise money locally to offset growing budget deficit through the bond. The government depends on local borrowing to fund more than half its budget deficit, which is expected to reach N2.36 trillion this year. It issued a $1 billion Eurobond in February and is now seeking National Assembly’s approval for an additional $500 million Eurobond.

There is a plan to also put on offer, a-N20 billion “Green Bond” in April this year. This is in addition to a plan to sell a $300 million Diaspora Bond abroad this year and its first Sovereign Sukuk in the local mark.

While the government looks to raising fund to finance critical infrastructure projects such as power, roads, and rail, and projects aimed at diversifying the economy away from oil and gas, the judicious use of the funds generated will no doubt bring positive turn-around to the economy.

Spending on critical capital projects as one planned by the Muhammadu Buhari administration is one of the surest and fastest ways of reflating an economy in depression.

But while the savings bond will help government mobilise domestic resources for deployment into important capital projects to reflate the economy, the savings bond also as its benefit for the ordinary Nigerians.

The bond issuance is part of the Federal Government programme targeted at the lower income earners to encourage savings. Up till now, you have to be among the high-net-worth Nigerians to be a player in the capital market and earn fantastic returns on your investments. The FG Saving bond will change all that as ordinary Nigerians with as low as N5000 have the opportunity to invest in this bond. Not only would such persons be saving money for important personal projects, but they will also be in a position to earn more income through double digit interest to be paid on the bond.

Thus the bond enables individuals to enjoy those benefits which accrue to high-net-worth investors in the capital market at a competitive fixed interest rate. Moreover, the income earned from interest is tax exempt and the FGN SB Certificate can be used as collateral for a bank loan.

One of the strongest rationale for the bond, according to Dr. Abraham Nwankwo, Director General of the Debt Management Office, MO, is to “democratise” participation in the investment market so that all classes of Nigerians are partakers. In order words, the FGN saving bond will make investment in the capital market more inclusive and less exclusive as it presently is.

While the minimum subscription for other FGN bonds is N50 million, the minimum subscription for the FGN Savings bond is N5, 000.

The bonds also have the potential to bring some positive changes in the banking sector, such as making banks increase the interest they pay their customers. Savings accounts at Nigeria’s commercial banks pay up to 5 percent in interest which is well below the monetary policy rate (MPR) of 14 percent, but the country’s inflation is running at more than 18 percent annually.

Meanwhile, banks charge as high as 23 percent to customers on loans but pay far less on deposits.

The savings bond offer could push deposits out of commercial banks into Government bonds in which retail investors are mostly shut out of currently. That may put pressure on the banks and force a reform For potential investors who may not be able to afford the luxury of waiting for two or three years for the bond to mature, there is no cause for alarm. Nwankwo said the bond will be listed on the Nigeria Stock Exchange and will be traded every day. So if a holder of a two-year bond needs the money after six months, he just goes to his broker who takes it to the secondary market for sale, and he gets his money immediately.

Already not less than 98 stock brokers had been accredited for the sale of the bond.

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