FG Savings Bond: Opening up the Capital Market to Ordinary Nigerians

Abimbola Johnson hails the floating of the FG Savings Bond in the Nigeria’s capital market, noting that the initiative is a new avenue for investment by retail investors

If you are an ordinary Nigerian looking for where to invest your little savings, just approach any stock broker in the country and ask whether they are authorised to sell the Federal Government Savings Bond (FGNSB). If you get a Yes answer, tell them you’re interested in investing your little cash-as little as N5,000 and you’ve become an investor and a player in the capital market. It is that simple and fast.

That is the magic of the new initiative of the Debt Management Office, DMO, called the FGNSB. It is a new way to invest for the ordinary Nigerians and small scale investors who may be excluded from operations at Nigeria’s Capital Market.

Retail investors looking to invest in the FGN Savings Bond only need a minimum of N5,000 to invest. Subsequent investment over N5, 000 will be in multiples of N1,000. Meaning that you cannot invest N5,500 or N12,700. It’s either N6, 000 or N13,000 or N30,000. The maximum amount a single retail investor can invest in the FGN Bond is N50m.
The bonds were rolled out on March 13 and for the first time, the popular common man in Nigeria got the opportunity to become an investor; a player in the country’s capital market. Over 75 percent of the bonds traded were from small investors who would have either kept their little cash in the bank where returns will be zero or at best insignificant, or use them to purchase some items to avoid wasteful spending.

An elated Abraham Nwankwo, Director General of DMO, whose office midwifed the deal, said: “The FGN Savings Bond, the first of its kind in Nigeria, was opened to investing public by way of offer for subscription over a five-day offer period starting from Monday, March 13, 2017 to March 17, 2017 and N2, 067,961,000 was raised from the retail market at 13.01 percent coupon. “

He said about 2.067 billion units were allotted to 2,575 people, stressing that the bond is for the retail investors and is being issued to ensure that all Nigerians participate. The bonds will be issued monthly and it would run for five offer days.
At 13 percent coupon, a small investor could not wish for a better deal; it is far above what a bank deposit of equal amount would guarantee. Moreover, the interest would come every quarter to all investors. The government is issuing the savings bonds targeted at ordinary Nigerians of all income groups, giving them the opportunity to earn an income through saving and investing.

Apart from personal benefits to investors, the bond is also expected to help promote the savings culture of Nigerians, many of who don’t save in banks because of very low-interest rates. Unlike bank deposits, the bond earns you an interest that will be paid quarterly directly into your bank account.
The bond is safe and is backed by the full faith and credit of the federal government. Government bonds hardly default, so you are nearly 100 per cent sure that you will get your money back in full along with the interest. This bond is not just for the rich or comfortable, it is available for the low income also. With as little as N5,000 you can invest in the bond.

In a country where citizens love festivities and elaborate celebrations, the savings bond is a prudent way to save towards marriage, funerals, holidays, school, project, retirement and others. The bond can also be used as collateral to get a loan from a bank.

The bonds have a tenor of two and three years respectively, and that means you can either invest in a savings bond with duration of two years or one with duration of three years. The interest rates are determined by the DMO, and they will be paid quarterly into your bank accounts while the principal will be paid at maturity, depending on the tenor of your bond.
The FG Savings Bond is quite innovative in the way it makes the capital market all-inclusive. It is a unique and fascinating way to deepen the capital market in a way that it caters to all segment of society and makes everyone a stakeholder in the economy.

Commenting on the listing of the bond, Executive Director, Capital Markets, NSE, Haruna Jalo-Waziri said the Exchange was elated to list the bond, which he called an “innovative investment offering” that caters to the retail segment of the Nigerian capital market. He said the take-off of the bond “underpins the efforts of the Federal Government to continue to work with stakeholders to deepen the capital market whilst delivering value to investors at all income levels.”

Moreover, the FG Savings Bond will go a long way in creating better awareness of Nigeria’s capital capital. Nigeria’s capital market has suffered from the financial literacy of potential domestic investors and closing that gap has been a special project of the Central Bank of Nigeria, CBN, the Nigerian Stock Exchange, the Security and Exchange Commission, SEC and other stakeholders. The FG Savings Bond, because it is targeted at retail investors, has the potential to deepen the level of awareness about the Nigerian capital market.

Yakubu Dogara, Speaker House of Representatives is one political leader who must be impressed by the FGN Savings Bond. Dogara had for long lamented a situation where a large chunk of the nation’s resources or capital is heavily concentrated in the hands of few chief executive officers. His grouse is that such skewed situation would widen the inequality gap, eliminate the middle class and plunge more people into abject poverty, thereby posing serious threat to the sustenance and survival of democracy.

The Speaker had, at different fora, made it clear that the skewed distribution of wealth is even more worrisome because the flow of resources from Nigerian citizens to multinational companies operating in the country makes them rich. “Unfortunately, these same companies, rather than invest in the NSE and grow the economy of Nigeria, would rather repatriate their profits 100 percent to their own countries without investing a dime back to the system,” he said.

Thus, the savings bond is government’s way of affirming its faith in the capital market, and at the same time widening access to the market, while deepening the savings culture of all Nigerians.
– Johnson wrote in from Abuja