• Tuesday, May 21, 2024
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Red flags as fintechs offer juicy rates on Big Brother’s N60m

Red flags as fintechs offer juicy rates on Big Brother’s N60m

Conversations on what an ideal savings or investment return should be started after the N60million cash prize for the Big Brother winner led to competition among fintechs on who can offer the most interest on the amount won if given the fund to manage.

Ezra Olubi, co-founder, PayStack said, “No institution can guarantee you interest rates higher than your country’s prevailing bond rates.”

Different savings and investment platforms pitched interest rates ranging from 12-24 percent to the Bigbrother winner using their X handles formerly known as Twitter.

It started when Piggyvest, a savings and investment platform tweeted “Ilebaye call me.”

It further showed its high-yield savings account called ‘PiggyFlex’, offering a 12.517 percent interest for a 366 days maturity period. This amounted to N7.510million on the N60million investment.

Read also: BBNaija: 8 financial tips for next Big Brother Naija winner

Many Nigerians seen under the comment section of this post found the interest to be small. “Your interest is too low for 1 year,” one @DcClint1 wrote.

Others mentioned how they would earn more on various betting platforms.

Olubi said anyone offering rates above Nigeria’s bond rate to a mass market audience has the responsibility to educate investors on the attendant risks involved.

He said the reaction to Piggyvest’s tweet showcasing their safe lock interest rates at ~12 percent underscores how deeply Ponzi schemes, wonder banks, and pervasive financial illiteracy have scarred the Nigerian financial mindset.

Many investors patronising Ponzi schemes in Nigeria seem to be ignoring the obvious “red flags” raised by the promoters, in their quest for the promised above-average returns, which ordinarily defy market trends and signal potential fraud.

Ponzi schemes are ‘investment’ schemes that promise unrealistic returns, which ordinarily should be treated with caution.

The merchants target greedy investors in their push to grow their pyramid schemes which pay returns to their investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources.

Not too long after a digital microfinance bank, FairMoney tweeted “Ilebaye, don’t pick up the wrong call! Just saying.”

The microfinance firm is offering 23 percent interest on the N60 million cash price for a 365-day duration, at maturity this will be N72.420million after a 10 percent withholding tax withdrawal.

Another fintech platform Credpal tweeted “We trust you to choose wisely”.

Credit pal showed that after investing the N60million with them for 360 days starting today, she will get N72.960million. A 24 percent interest rate.

Read also: Nigerian fintechs jostle for talent amid market boom

Adesina Olumide, an analyst at Quantum Economics also tweeted that the FGN bond market yields based on different tenors are between 13 -15 percent, “Any guaranteed return in Nigeria, higher than that deserves a regulatory microscope.”

There is a hypothesis around that new fintech microfinance banks (MFBs) use customer money that was invested in their Fixed Deposit product (ROI up to 15 percent per annum) to issue a loan to other users at up to 30 percent for 30-days period

BusinessDay research shows that FairMoney loan amounts range between N1,500 to N3million with repayment periods from 61 days to 18 months at monthly interest rates that range from 2.5 percent to 30 percent (APRs from 30 to 260 percent).