As Nigerian government mulls custody of unclaimed dividends, what’s global best practice?

The Nigerian government’s tentative plan to take custody of unclaimed dividends belonging to private shareholders has predictably elicited mixed reactions, but should there even be a debate over who takes custody of funds other than the owners.

Sources close to the government say the plan, which is contained in Section 39 of the proposed 2021 Finance Bill, allows the government to step in to protect shareholders who lose the right to unclaimed dividends to the paying company after 12 years. The money would be given to shareholders when they do step up, otherwise the funds could go into infrastructure investment, according to the sources.

Critics however say the cash-strapped government has other intentions for the unclaimed dividends. The critics, mostly private sector leaders, say the government is swooping on private resources to make up for a gaping revenue shortfall that has been opened up by lower oil prices and the adverse economic effect of the Covid-19 pandemic on non-oil revenues.

They say that Abuja’s lack of accountability, transparency and efficiency means it is not a good custodian of even public resources let alone private. The government did say the fund, which will be domiciled with the Central Bank of Nigeria (CBN), would be partly managed by the private sector. But a recent history of boycotting the private sector has been brought up to discredit the government’s claims.

While the debate rages over whether the government has the moral right to serve as the custodian of unclaimed dividends, which the Securities and Exchange Commission (SEC) said hit N158 billion as at June 2020, or whether it should be left in the custody of the private company paying the dividend, attention should shift to what the global best practice is regarding unclaimed dividends.

But there is hardly any global best practice. That is because the issue of unclaimed dividends in many countries is nearly non-existent. Capital markets around the world have used technology to reduce the cases of unclaimed dividends.

Dividends are paid directly to shareholders even before they are claimed.

In Nigeria, although the use of an E-dividend platform that allows shareholders to receive dividends directly into their bank accounts is now in place, shareholders must still go through a tedious process of filling a mandate form, where they supply their bank account numbers, registrars shareholders account numbers, clearing house account numbers and bank verification numbers before their dividend is paid.

“After filling and signing the forms, a copy is then supposed to be taken to the bank for them to sign,” said Afolabi Araromi, a shareholder who gave up on claiming his dividends after being discouraged by the rigorous process.

“I found it quite rigorous as I hate to visit banks and prefer to transact online,” Araromi said.

When the form is filled and completed, there are cases where registrars delay in effecting payment for weeks, sometimes months.

Every company listed on the floor of the Nigerian Stock Exchange (NSE) has a unique Registrar that manages their outstanding shares on their behalf. The Registrars are mandated to manage all shareholder issues such as dividends, public offers, share certificates, bonus issues, etc. on behalf of companies.

“Claiming dividends continues to be a frustrating experience for many Nigerians, and that is why there are so many cases of unclaimed dividends. Sometimes the money is not worth the hassle and so no one turns up to claim the money,” one investor told BusinessDay.

The optimism, which greeted the transition to the E-dividend platform, has fizzled out, as it has not significantly reduced the spate of unclaimed dividends.

From as little as over N2 billion in 1999, unclaimed dividends have since risen to N158.4 billion at the end of 2019, representing an increase of 32 percent from N120 billion recorded in 2018.

There is no need for Registrars, and cases of unclaimed dividends are practically non-existent in a country like the United States, according to a US-based retail investor who spoke with BusinessDay.

“The focus in Nigeria should be about how to get the true owners of these unclaimed dividends to get their entitlements rather than a battle over who should take custody,” the investor who did not want to be named, said.

“Dividend payment is seamless in the United States and that works for everyone. Nigeria should work towards the same rather than debate whether the government or a company should have custody of the money,” the investor said.