Sweet and Sour

“If it is too good to be true, then it is probably not true.”

Hello Amazing People,

Last week we discussed some measures to take before venturing into any online investments. At large, you can apply the suggested criteria to any form of tangible investment.

“How bad could this online investment be?” My colleague asked me. “Others get paid, don’t they?” she further retorted. I smiled mischievously beholding her innocent and naïve look, I drew closer to her and whispered, “Yeah, it can be disastrous”. Her countenance changed, but what do you expect from her? Therefore, I decided to share a story of my friend with her.
A great wave wass passing through the financial industry in my country. Atoibi, a 30 year old gentleman who worked as a teller of one of the renowned banks woke up to the news that his bank had been consolidated with four other banks. This spelt trouble and he had to act quickly, knowing he had very little investments to survive on should he be asked to go home.
Atoibi was thinking of his investments options now. Where should I place my money, he wondered. Deep down within his heart, he speculated that a bank or financial house might not be a sound option now, since the wind had not stopped blowing. Additionally, he figured also that those institution s could not offer the returns he needed. He decided that the bank or financial house has not an option for investment for him.
Atoibi had a friend who spoke to him about an online investment opportunity he had discovered, knowing the dilemma his friend was.
The details of the package he preached; a 135days investment and an ROI of 300%, with an exciting news of daily payments and withdrawals. The company was located somewhere in Southern America; this company purportedly was investing the money in mining and cryptocurrency in Europe.
Atoibi worked the whole package in his head and it sounded very attractive, especially the aspect of daily payments and withdraws. This altered from the model of most conservative investment, which made payment at the end of the investment horizon. This blew his mind off.
He invested all he had $500 as his initial deposit. He needed to sign up with the bitcoin equivalent of the money. He very new to this whole scheme, he got assistance from his up line who happened to be his friend who introduce him to the business. He was directed to a local bitcoin trader for the currency value. After all payments had been made, his account was activated and he saw a live virtual office showing his $500 and the amount to be received by the end of the cycle, $1,500. He could not believe his eyes; he finally had a system that will pay him without any vigorous work. He further saw an investment opportunity in this company. The many people he referred the bigger his bonuses and the shorter his days of investment.
He received payments and withdrew his funds as promised over a period of 15 days. “The whole thing was not a fraud,” he said to himself. He took monies from family members to invest and took bonuses off them.

when it gets sweeter than your anticipation

The juice got sweeter, that he took a redundancy package and left his job at the bank. He said to himself, “I found a business that pays more than any day job.” He invested his package as well. Woooooow. Isn’t that too much? Haven’t you heard of risk diversification? Well he had already danced to the rhythm of the beat.
After 30 days of enjoying early retirement, he got a surprise. He woke up on Tuesday morning and the website was off. “Holy word!’ He said. He felt chills in his system but kept his cool because he had taken money from his family hence he could not escalate. He got in touch with others and was told it was just a system upgrade. The next three days was troubling but held on the assurance. The system became active after 3 days, which was a Friday. Joy and happiness saddled in Atoibi’s heart. All the investments were intact. Just 3 hours after the system was active, all outstanding balances went to zero. ZERO! Yes zero it was. What in the heavens was happening? He also asked a couple of people and they were equally clueless. Team leaders were contacted and they gave assurance for the second time. The website was still undergoing upgrade for better delivery of service and was to resume in the next four days. Only God could tell where the team leaders were getting the assurances.
Now, things were heating up, the terms and conditions were varying from the initial. Nevertheless, he had no option but wait, which he did helplessly. Tuesday dawn, which happened to be the day of resurrection of the site, he couldn’t sleep. He sat on his bed I wait for daybreak. Lo and behold at 7 o’clock am the system was active again with all balances restored. Hurray!
This system update story left a print on his mind, an unresolved feeling. So to bring his spirit to rest, he just like any other person would do, decided to withdraw all the accrued balance.
It was then he realized something bigger than what he dreaded had a possibility of occurring. Withdrawal s were not permitted. Though the balances were restored withdrawals had been restricted. What was he going to do next? The thought of losing all his investment made him feel like dying. He wanted assurance but not this time, team leaders were also lost in the seas of the mind.
Instructions popped up on the site and it read
”Cherished customer, withdrawals has currently being restricted due to the system upgrade. We wish to inform you however that before you can be made to withdraw restored balances, you must sign up two new investments. Any inconvenienced caused is deeply regretted”

This is where we end the story for this week. We shall continue to unravel what might lie beyond the horizon of online investment.

Online investment is a REAL DEAL.

Cheers!

Elmay

Want to Invest Online? Here are some precautionary measures to take

Want to invest online? Here are some simple precautionary measures to take.

Investment has been an old business practice, which is gaining deeper roots in the society. The culture of investments is a great weapon to be used in dissociating oneself from poverty and mediocre living. Now investment has much more options then it used to; Stocks, Forex, Cryptocurrency amidst other opportunities to make returns. ‘Let your money work for you’, is a preaching that has sunk into the hearts of many. This has penetrated so much that people are hunting and sniffing around looking for lucrative investment opportunities to place their funds.

Return on Investment (ROI) has become the talk of the day; it is the honey that is being sought after to spice up our cereal. High Returns on investments seems to matter most to people than the associated risk.

As the thirst to invest is increasing so, has the juice to quench the thirst become much tastier. Scammers are more resourceful to give better taste of the juice people are in search for. They promise high returns to whet your investment appetite.
Online investment has become the trend of the day, in satisfying our insatiable thirst for more money, we have exposed ourselves to scammers. Online investment is not evil but a great deal of malice might lie beyond your reach on the internet.
Before investing in any opportunity, I have enlisted simple factors to look at.

Simple factors to consider in signing up an investment package

1. Verifying the identity and profile of the management and directors of the business.
2. Conducting your due diligence to ensure the business is not linked to any closed business
3. Check how sustainable is of the return of investment they are quoting.
4. Verify if the company is not running a Ponzi scheme.
5. Verify the actual return on the purported underlying instrument

Though investment rate that is being quoted sounds like sweet melodies in your ears, be cautious and do not get your hands burnt like others. Remember the maxim – if it is too good to be true, it is not true.

Online investment is a REAL DEAL.

Cheers!

Elmay

CURSE OR DEPOSIT? II

‘Deposits’ as used in this article refers to sums of money paid to a bank or financial institution for purposes of savings or investment. However it is seen, deposits are cash that are lodged by an individual with an institution who promises to make the cash available upon call as per the contract. Financial institutions by concept are middlemen between owners of funds ( including other resources now) and users of funds, so they are extremely interested in deposits.  To drive deposit taking opportunities, Financial institutions design various products ranging from savings and quasi-savings products, forms of investment accounts designed for daily deposits, hybrid current accounts and fixed deposits. The principal means of collection used by MFIs in particular for deposit mobilization is to marshal a team of mobile bankers and dispatch them into various potential markets to scout for clients. Many MFIs consider such deposit as a reliable source of fund that is sure, sturdy and even cheap. As such it could propel their business towards growth.  Just before you hit the road to begin mobilizing deposits, let us spend some time on these few reminders. Please be reminded that this write-up is in the context of the operations of micro finance Institutions.

• High Cost of Funds

For purposes of this discussion, it is important to separate fixed deposits from normal savings. The former is usually longer term and fixed than the later. The bulk of most MFI’s deposit portfolio is fixed deposits. Often times funds from depositors are necessarily procured under high interest rate regimes. What usually constitutes the bulk of deposits for tier II MFIs is fixed deposits. Wikipedia describes Fixed Deposits as a financial instrument provided by Institutions which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.Fixed deposits have had to be attracted by offering high interest rates. Due to high Treasury bill rates caused by excessive state borrowing, MFIs must offer very high interest rates to be able to compete with the state or other financial institutions. It is therefore not uncommon to find that MFIs are forced to offer interest rates ranging from as high as 34% to 45% per annum.

This MFI’s fixed deposit portfolio is a typical portfolio for most Micro finance Institutions. The average interest rate offered is as high as 30.18% for all duration of investments. Due to competition and drive to expand their portfolio, many institutions have had to offer as high as 60% interest rate for fixed deposits. I heard from a friend recently that there is an investment house that is paying about 7% interest a month. These rates tend to be realistically unsustainable because they impose a very high burden on the MFI’s interest expense. There are not many innovative investment opportunities in the market to use these very expensive funds for and make considerable gains that are enough to service the interest, let alone make some profits ( I stand corrected on this point though). The only way to expect to sustain these rates would be to keep offering such rates perpetually to draw more funds to pay off maturing FDs. Such an expectation would amount to walking on a very thinly volatile rope; because a least shock would kick start a serious liquidity crash. Unfortunately, many MFIs have had to walk this tight rope only to the doom of their own survival and that of the whole financial industry.

• High Expenses incurred in procuring Deposits

Aside the high cost of funds that deposits attract is the high expenses incurred in procuring those deposits. Due to competition and credibility issues, most MFIs have to invest considerably in a sales structure to execute ‘overly’ aggressive sales policies to get funds. These expenses manifest in the form of high salaries, commissions and remunerations on many sales staff, daily traveling expenses to distant markets to be able to mobilize some funds, costly market storms and commercials. Much income is usually not generated from all the deposits that are mobilized to defray the high expense of getting them.

• High incidence of Withdrawal

Another phenomenon that makes undue focus on deposit-taking not a worthwhile strategy is the high levels of withdrawal that MFIs have to grapple with in Ghana. Owing to the nature of saving habit of clients of MFIs, withdrawals are usually high. In most cases the difference between total deposit (especially savings and quasi savings accounts, hybrid current accounts) and total withdrawal in a period is almost zero at best. Sometimes the difference is negative, indicating that withdrawals exceeded deposit for the period. This problem of high withdrawal may also be due to the immense negative publicity and skepticism that attends the reputation of the MFI.

Due to high withdrawal, it is difficult for MFIs to have reasonable time to do business with the mobilized funds for profit. In most cases and for many MFIs, it is only a case of keeping clients’ money safe and idle awaiting their call. Charges and other commissions could have been used to either deter withdrawal or increase income but they have not been a substantial aspect of many MFI’s income stream in reality. This is again due to stiff competition from banks and other upper tier financial service institutions who also engage in micro banking with competitive advantage due to their size and inherent credibility.

Must Institutions therefore stop accepting (or even mobilizing) deposits? How can these challenges be mitigated to turn things around for the MFI? Please watch out for the next article to discuss that!!!

Kindly feel free to make contributions by way of comments

A Curse or Deposit

Micro finance institutions play a key role in the provision of credit for small and medium enterprises as a driver of growth and alleviator of poverty. The high rate of crash or collapse, though, of micro finance institutions in Ghana has been a threat to entrepreneurs, investors and customers alike. It is important to understand that there are multiple factors that could individually or together spell the fall or dissolution of a micro finance company. It is easy however, to discern from the books of a micro finance that is headed for collapse that it is reeling under huge liabilities of customer deposits, usually procured under high interest rates. The high debts from such deposits usually precipitate doom for micro finance institutions through acute and constant liquidity problems.

How is it that micro finance institutions that are supposed to be lenders, often become net borrowers of expensive funds such that it is difficult for them to breakeven, much less, make profits?Classical micro finance theory teaches that the main focus of the institution is to provide credit facilities to the poor for trade and other finances. Pioneer Companies such as Grameen, founded by Mohammad Yunus in the 1970s were faithful to the traditional model of micro finance. Their main focus was to provide credit to poor farmers, especially women in that region. To make repayment of loans easy and flexible for clients however, it was necessary for them to implement an arrangement of accepting compulsory deposits. This approach to micro finance proved very effective such that Institutions like Grameen since the 1970s have seen steady growth of profits except for three years.

Another example is the story of UT financial services in Ghana. This Company was established in 1997 to primarily provide credit to its customers. UT’s focus on provision of loans was so clear and pronounced that it become a household name as a place to go to for loans by everyone. Once again, to make loan repayments easy and flexible so that the portfolio is not fraught with bad loans, there was need to accept compulsory deposits. Over a short time span, UT grew steady and fast to become a universal bank. The success stories of the above mentioned micro finance institutions underscore a very important element of profitability and growth for institutions in the industry: The main business of micro finance is to sell credit to customers. It is true that financial inclusion is extended through providing all banking services (including accepting deposits) to the un-banked, but this should not be done in a manner such that the main purpose of being in business (being profitable) becomes a lost course for the institutions involved.

The focus of micro finance institution has shifted almost clearly from the provision of loans and credit facilities to that of buying colossal fund from the public in deposits. This shift is easily discerned in the models of many contemporary micro finance institutions. The purpose of this paper is to submit the pitfalls of making micro finance institution primarily a deposit-seeking institution within the Ghanaian financial system context. It will highlight the factors that make excessive (or rather aggressive) pursuit of deposits too expensive for a micro finance institution and why it can be inimical to its long term survival. It will finally present credit provision and possibly other ways of divesting the asset portfolio of an MFI as a sure way of taking advantage of the market and making profit.

Please watch out for the next part of this series.