THE RETURN OF THE WONDER BANKS

We have been trying to alert the general public about THE RISE OF THE WONDER BANKS but people just couldn't care less. However, it seems as if we have been vindicated as one of these new wonder banks folded up today as its operators absconded with depositors' funds. Well, what can we say. Some dogged investigative journalists and members of the public recently unearthed the activities of some Nigerian companies that promise investors extraordinary returns on cash deposits. Thesecompanies are reminiscent of the disastrous pyramid marketing scheme created in the eighties by Umana Umana, a storied con man who used a financial pyramid marketing scheme to cheat people out of their money in the eighties. These latest incarnations are now referred to as "Wonder Banks" and recent press reports show that they have attracted a very high numberof investors so far. Many people, illiterate and educated, fromdiverse walks of life have put money into these schemes. It seems thatthe appeal of easy money is just too great for many Nigerians.The Central Bank of Nigeria, which has been under intense pressure toclarify the legal status of these "wonder banks", finally released a statement that disowned their activities but stopped short of shutting them down. Rather, the bank advised members of the public to desistfrom doing business with all unregistered finance houses.The apex bank also published an advertisement in the national papersthat warns about "the recent spate of (sic) resurgence of illegalcompanies offering outrages (sic) interest rate (sic) under differentguises…" It also published a list of seventy-six registered finance houses. However, the CBN did not directly condemn these wonder banks or mention them by name.The feeling among people is that the issue could turn into a full scale public relations disaster for the apex bank, whose Governor iscurrently being attacked on several fronts. Most people feel that theCBN is sending a wrong message through its attitude towards these illegal firms and they feel that the bank could be blamed if these companies eventually collapse and disappear with investors' funds.According to the nation's financial laws, only registered financial institutions are allowed to accept deposits from the public. Manywonder why the case of Nospecto, Wealthzone and company, is beinghandled differently. The CBN is sending a wrong message by saying thatit is okay for any company to set up shop and start accepting deposits from the public without meeting the regulatory requirements.These companies also undermine the nation's achievements in terms offighting money laundering and financial crimes. Since they are notsubject to the nation's banking laws, they do not have to reportsuspicious looking deposits to the Central Bank and criminals couldeasily use them as avenues to launder money. It is commendable thatsome banks have refused to do business with these companies citing KYC(Know Your Customer) concerns.However, some banks have been unable to resist the lure of easyprofits and are fuelling the growth of these firms. If the CBN saysthat they are illegal, then why won't it shut them down and return allthe monies to investors. If the CBN could shut down a registered banklike Savannah Bank for shoddy management practices, why can't it shutdown firms that are not even registered to carry out banking business but do it all the same? Nospetco Joint Venture Management, a Lagos-based firm is clearly the biggest of these firms. The firm is known to be very secretive about its mode of operations and customers are made to sign blind contractsthat give the firm complete control over their money. While the firm claims to be involved in the oil and gas sector and actually owns sometrucks, their clandestine mode of business raises one importantquestion. What do they really do? Some people claim that several prominent Nigerians are known to be involved with these firms and some high net-worth individuals haveeven invested their money in these schemes. Could it be that our government agencies are being pressured by some of the country's big players?Most people have risen to defend these firms. They say that there isnothing wrong with firms that pay out stratospheric interest rates.They also say that thrift collectors do the same thing without paying high interest rates. These are not logical arguments. Even though thecountry's economy is largely informal and traditional institutionslike Esusu and thrift collection agencies thrive, they are all registered and do not operate under a shroud of secrecy like these firms.The CBN initially denied responsibility for policing such firms andsaid that it was the duty of the Securities and Exchange Commission,SEC. However, this is not an issue that should be treated with such levity. Itis not a matter of who is responsible. I can't imagine Ben Bernanke,the U.S Federal Reserve Chairman allowing such a scandal to happenunder his watch.The most important thing is for the EFCC, CBN and the SEC to shut downthese firms and return all deposits to customers before it becomes afinancial fiasco. And Soludo should realize that he will be a big target if these companies fail. It is imperative that he joins hands with other agencies and end this nonsense.



Project Think Team!