Investing In Nigeria With Raphael: Is This A Scam?

Welcome to the 'Investing in Nigeria with Raphael' series. This series focuses on educating everyday Nigerians on the Investment landscape in Nigeria. We will be introducing different characters who face issues with investing and highlighting the various ways to solve their problems. This series is brought to you by Raphael Emenyonu, an investment manager at ARM.


Is This A Scam?

At some point in your life, it is very likely that you will have an investment decision to make, and determining whether that investment is a scam or legit could really make or break your personal finances. In today's episode, we will be using a young man named 'Frank' as a case study and highlighting a few steps he can take to ensure than he avoids getting scammed.

Frank moved to Canada some years ago, not long after his university education in Nigeria. He is doing very well in his career and would like to invest some of his money in Nigeria. A friend told him about a product that pays 30% monthly return on saved capital. Frank likes the high return idea but needs to be sure he is taking the right decision but he never wants to get broke, and is scared of losing his hard-earned money.


How can Frank ensure investing in the product would be the right decision?


To help Frank understand how to identify the right investment instrument or product and avoid getting scammed, I have devised 6 simple checkpoints which you can also use as a guide whenever you have an investment decision to make. Here we go:


1. Frank needs to confirm that the product is regulated. For instance; Banks are regulated by the Central Bank, while Asset Management Companies are regulated by the Securities and Exchange Commission. Therefore, the product and Issuers should be regulated.

2. The product should be advertised through different medium beyond word of mouth. If the product is not talked about on the radio, advertised in the newspapers or Television, seen on a bill board, then Frank needs to be wary of the opportunity.

3. What’s the total funds under management for the said product? Here’s another question that requires clarification. The Federal Government of Nigeria would always announce the amount they intend to raise via Treasury bills for instance, the ARM Money Fund is about N27m in size. If an investment product cannot provide this information then, Frank should be wary again.

4. What does the product invest the monies in? If the product cannot speak to this please take a walk.

5. Who are the people behind the product or the company? Frank needs to know the people behind this investment company or product. If Frank cannot check this box then, he should take a walk.

6. No legit product pays the same return periodically. Likewise, no legit business will do same. Take for example if you run a business you are not likely to make the same profit every time. Same applies to investing in a product. Even the Federal Government does not pay the same return on Treasury bills every time (check out the yield on Treasury bills a year ago and compare it to now). Therefore, Frank should not invest in any product that pays the same return every time.


If Frank can check all these 6 boxes then, he can go ahead with the investment opportunity. Otherwise, he needs to look elsewhere. These 6 boxes would guide Frank in taking the right investment decision with his hard-earned money in Nigeria and anywhere else in the world.

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