THE EFFECTS OF PONZI SCHEMES ON THE ECONOMY OF NIGERIA. Ponzi schemes are fraudulent investment scams that promote high rate of return with little risks to investors, these returns which are usually short term, are higher than the investments for the sole purpose of enticing new investors.
Ponzi schemes mostly begin as legitimate businesses until they are unable to pay promised returns then they begin to dwindle.
They were actually named after charles ponzi who became notorious for using the technique as early as 1920 in the united states of America.
These schemes are usually operated by enticing new investors with consistent and higher rates of returns than the previous investments. The success of one ponzi scheme has led to the creation and birth of many others in Nigeria, some of which are listed below:
- Givers forum
- get help world wide
- foster funds
- Ultimate cyclers
- liberty funds
- Double cash
Most of these Ponzi schemes are disasters in waiting because, they take money from one person and give to the other ( robbing peter to pay paul and vice versa) without adding any real value to the economy as records of these transactions are not kept and made open to regulatory authorities.
They affect millions of lives and shake the socio economic dynamics of a nation. Many people have argued that ponzi schemes have absolutely no effect on the economy of Nigeria but a closer look reveals that they have direct and indirect effects as well as positive and negative effects.
The negative effects are mostly minimal and go largely unnoticed except by the economist. It is advisable to curb the activities of ponzi schemes to avoid undesirable returns and obnoxious economic impact.
The current recession in Nigeria indirectly promoted ponzi schemes as many people invested in them in a bid to lessen their financial burdens . Others who were motivated by greed also waded in to enjoy high returns of financial investments.
When these schemes began to fail in their ability to pay up promised returns, pandemonium broke loose as many people who had invested lots of money became paranoid while the promoters of some ponzi schemes in Nigeria vanished into thin air.
For instance, the promoter of MMM Nigeria is said to have absconded and currently resides in a foreign country with his family leaving the participants in total confusion and anguish.
Ponzi schemes have played a major role in the life of the average Nigerian by enabling him earn quick money even without engaging in a productive venture.
This increased the disposable income of many Nigerians and has aided a rise in demand for products and services that these individuals wouldn’t have been able to afford on a normal day.
Many wise Nigerians were able to inject profits earned from ponzi schemes into businesses and these expanded promotion and created little employment opportunities. When compared to bank loans, ponzi schemes are fair because there are zero interest rates involved.
Direct Effects Of Ponzi Schemes On The Economy
They kill creativity, gradually destroy work ethics and cause a decline in social services by encouraging greed and laziness.
Energies that would have been invested in productive ventures is stolen or diverted into ponzi schemes, causing a decline in the overall productivity and possibly slows down the gross domestic product (GDP) growth.
Although ponzi schemes may temporarily alleviate poverty, they will not curb inflation because a decline in production reduces availability of goods for purchase and demand becomes higher than supply.
Ponzi schemes may have falsely inflated Nigeria’s GDP but the effect is negligible because the economy is not something that responds to right or wrong.
So on a macro scale, the effects of ponzi schemes on our economy are minimal. Before the prevalence or boom of ponzi schemes in Nigeria, we already were faced with adverse economic conditions.
This explains why nigerians whole heartedly embraced the schemes because many people saw them as a reliable escape from poverty and a golden opportunity for financial breakthrough.
Another direct effect is the reduction in consumption expenditure; the poor people who lost money in ponzi schemes suffered the most as they have been forced to reduce their expenses even on basic amenities and this reduced the effectiveness of demand especially in rural areas where most of these people reside.
Indirect Effects Of Ponzi Schemes On The Economy
Many people have lost so much money in ponzi schemes and this has reduced their capability to access means of livelihood, health facilities and other necessities. A man was reported to have committed suicide after losing all his money in MMM.
Money lost by investors has created a loop hole in the financial system of the country because many Nigerians withdrew their life savings from banks while some borrowed money and injected into these schemes. The loss of these monies may signify loss of capital formation which slows down economic growth but like I mentioned earlier, this effect is minimal.
Loss of credibility: every well functioning financial system is built on credibility, trust and integrity. Ponzi schemes have undermined the confidence of many Nigerians.
The probability that very many unemployed Nigerian youth are investors in ponzi schemes is high, these youth have expended so much energy in getting friends, family and acquaintances to partake in these schemes and upon their collapse, these youth lose credibility to future investment that may be of help to them.
In a bid to meet up with pressing needs, Nigerians are likely to spend more than they save because of high expectations and trust in the ability of Ponzi schemes to deliver high rates of returns.
When these schemes fail, they are left with little savings which translate to little investments and the very unlucky ones are left with nothing.
It is safe to conclude that ponzi schemes have briefly liberated some poor Nigerians from the shackles of financial burdens and poverty while contributing its quota to the current recession.
It is left for the government to decide the fate of Ponzi schemes in Nigeria because to the average Nigerian, ponzi schemes do not pose any threat to the economy.
Click here to Join Recharge and Get Paid
Click here to Read Latest School News in Nigeria
Copyright Warning!We work really hard and put a lot of effort and resources into our content, providing our readers with plagiarism-free articles, original and high-quality texts. Contents on this website may not be copied, republished, reproduced, redistributed either in whole or in part without due permission or acknowledgement. Proper acknowledgement include, but not limited to (a) Proper referencing in the case of usage in research, magazine, brochure, or academic purposes, (b)"FAIR USE" in the case of re-publication on online media. About possible consequences you can read here: What are the consequences of copyright infringement? In an effort to protect our intellectual properties, we may report your website to Google without prior notice and your website be removed from search engines and you may receive a strike. All contents are protected by the Digital Millennium Copyright Act 1996 (DMCA).