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Tag: savings bond

  • Savings Bond opens grassroots investment window

    Savings Bond opens grassroots investment window

    The first Federal Government Savings Bond auction for the year began on January 8 and ended January 12. The two and three-year bonds, due in January 17, 2020 and January 17, 2021, were offered at 11.098 per cent and 12.098 per cent per annum respectively. The Debt Management Office (DMO) said the attractive yields and tax-free nature of the bonds are incentives for grassroots investors, writes COLLINS NWEZE.

    For investors, both local and foreign, returns on investments remain key consideration at all times. The high yields that come with investing in the monthly Federal Government Savings Bond have continued to excite investors interested in building sustainable wealth.

    More interesting is that grassroots investors with N5,000 and above have opportunity to invest in the bond, an area that was previously left for the rich.

    The first Savings Bond auction for the year commenced on January 8 and ended on January 12. The 2-year Bond, due January 17, 2020 and 3-year Bond due January 17, 2021, were offered at 11.098 per cent and 12.098 per cent per annum respectively.

    Analysts said savings bonds in Nigeria like any other place are debt securities issued by the government to help fund development projects. They are debt instruments offered by sovereigns to mobilise resources from the general public, especially individuals and small savers.

    The bond offer helps to stimulate and deepen the savings culture among households, assists in the diversification of funding sources for the government and establishes benchmarks for other issuers. It equally encourages financial inclusion across the social and economic strata.

    The attractive yield curve and tax-free nature of the bonds remain the incentives to bring more grassroots savers into the financial services net.

    Managing Director, Afrinvest Limited, Ike Chioke, said the bond is targeted at low income earners to encourage savings and earn more income (interest) when compared to their savings account with banks.

    He disclosed that in order to create incentive for retail subscribers to participate in the new market segment, the DMO tweaked the market structure for the Federal Government Savings Bonds to a minimum subscription of N5,000.00 (additional investments in multiples of N1,000) and a maximum of N50 million.

    In an emailed report to investors, Chioke said income from savings bond are tax free and has a competitive fixed interest rate to be paid every quarter, while it is also considered liquid as it would be tradeable on the Nigerian Stock Exchange.

    Continuing, he said the Savings Bond Certificate can be used as collateral for loan, just as the bond offers guaranteed return and encourages financial inclusion among low income households. It also enables individuals to enjoy those benefits, which accrue to high net-worth investors in the capital market.

    “Afrinvest Securities Limited has been appointed as one of the agents designated through the Nigerian Stock Exchange (NSE) to offer this service to their clients. To invest in savings bond through Afrinvest Securities Limited, you would be required to fill the subscription form (and submit KYC documents), also indicating the amount you want to buy,” the report said.

    The Debt Management Office (DMO) led by its Director-General, Ms. Patience Oniha, said the offer is backed  by the full faith and credit of  the Federal  Government and charged upon the general assets of Nigeria.

    According to the DMO, the bond also qualifies as securities in which trustees can invest under the Trustee Investment Act. It also qualifies as government securities within the meaning of Company Income Tax Act (CITA) and Personal Income Tax Act (PITA) for Tax Exemption for Pension Funds among other investors. The bond is listed on the Nigerian Stock Exchange and qualifies as a liquid asset for liquidity ratio calculation for banks.

    Analysts praised the DMO for introducing the Savings Bond into the securities market for retail investors and taking the instrument to the grassroots. The DMO plans to sustain investor’s interest in the product through public sensitisa-tion of the  gains of investing in the Bond, which has a competitive fixed interest rate with its income exempted from taxes.

    According to the DMO, the savings bond will help broaden the country’s funding base. The Bond is targeted primarily at retail investors to enable them contribute to the development of the country, while also earning good returns on a safe investment in a sovereign instrument.

    The FGN Savings Bond was launched by the DMO in March 2017 and is issued every month through stockbroking firms trading on the NSE. The Bond is promoting the savings culture in the country and enhancing financial inclusion.

    Since its introduction in March, the bond has attracted a lot of new investors to the FGN Securities market with its attractive features. The income earned on the bond is exempted from taxes and it can be traded in the secondary market at the Exchange.

    Also, the DMO has in recent months taken the bond campaigns to Abuja, Ibadan, Kano, Onitsha, among other cities. The DMO also took the bond campaign to traders within the Federal Capital Territory, Abuja.

    Speaking at the Gudu District Market, Director, Portfolio Management Department, Oladele Afolabi, told traders that the Federal Government was committed to promoting a good savings culture among Nigerians. He said the DMO would sustain the campaign to encourage more people invest in the bond. “We are here to let you know that what the Federal Government is offering is real. Government wants you to save and earn good interests on what you save. Saving with your government is the best way to save,” Afolabi said.

    The traders were told that the Savings Bond belongs to the people, hence, the decision to involve ordinary Nigerians on the streets, in the markets, churches and mosques.

    The Gudu market outing was the first of many other awareness initiatives that the DMO would be undertaking to have Nigerians invest in the bond.

    Gudu Amalgamated Traders Association Chairman, Chief Bond Nnamani, urged his members to seize the opportunity offered by the DMO to have additional savings, especially one guaranteed by the full faith of the Federal Government.

    The Federal Government issues the Savings Bond every month in tenors of two and three years with a minimum subscription of N5, 000. Interest on the Savings Bond is tax free.

    The one-day advocacy and sensitisation workshop in Ibadan was attended by trade union leaders, associations in the Southwest region, where the benefits of investing in the bonds were emphasised.

    The DMO said all interested Nigerians can subscribe through stockbroking firms trading with the NSE and accredited distribution agents licensed by the DMO.

    The bond, the DMO said, would empower every Nigerian economically and is principally for retail investors with a view to providing opportunity for them to contribute to national development as it improves the savings culture in Nigeria.

    A financial expert, Charles Odinaka, said the FGN Savings Bond complements the Central Bank of Nigeria (CBN’s) financial inclusion project.

    He said CBN’s financial inclusion vision was aimed at enabling the Nigerians know, understand and develop the ability to evaluate financial products/services so as to lower the number of financially-excluded persons within the population from 46.3 per cent to 20 per cent by the year 2020.

    “In addition, financial inclusion enables financial service providers understand the needs of their customers, products and associated risks. The financial inclusion in Nigeria and would continue to work towards this aspiration by extending FGN Savings Bonds to under-banked businesses, communities and individuals across the country.

    “Specifically, the FGN Savings Bonds give investors ease of access to investment opportunities. The investors in the bonds will ultimately become drivers of the economy and eventually contribute their quota to the economic growth of the nation. I foresee a situation where all members, youths, students, traders, name it, operating in the economic space or playing field, do not have difficulty in investing their money because of the benefits that come with the bonds,” he said.

    On his part, CRC Credit Bureau Limited Managing Director, Tunde Popoola said the government is in need of funds to stimulate and keep the economy running more effectively.

    “The bond is capable of boosting savings culture among Nigerians. And it has been brought down to between N5,000 and N50 million, which is affordable to many Nigerians. The funds raised can be deployed into infrastructure funding. We are going to be interested in the next phase of the offer to determine its modalities of implementation. We need to see detailed guidelines for its implementation,” he said.

    For the government, the savings bond will help to increase access to funds available for investment in the economy thereby facilitating gross capital formation and economic growth. It will equally enable the individual to enjoy those benefits, which accrue to big investors in the capital market.

  • DMO takes savings bond to grassroots

    DMO takes savings bond to grassroots

    The Debt Management Office (DMO) has taken Federal Government of Nigeria (FGN) Savings Bond campaign to the grassroots. The debt office is  targeting traders  within the Federal Capital Territory, Abuja.

    Speaking at the Gudu District Market, Director, Portfolio Management Department, Oladele Afolabi, told traders that the Federal Government is committed to promoting a good savings culture amongst Nigerians. He said the DMO will sustain campaign to encourage more people to invest in the Savings Bond.

    “We are here to let you know that what the Federal Government is offering is real. Government wants you to save and earn good interests on what you save. Saving with your government is the best way to save,” Afolabi disclosed.

    The traders were told that the Savings Bond belongs to the people, hence, the decision to involve ordinary Nigerians on the streets, in the markets, churches and mosques.

    The Gudu market outing is the first of many other awareness initiatives that the DMO will be undertaking to have Nigerians invest in the Savings Bond.

  • Fed Govt raises N6.69b via Monthly Savings Bond

    The Federal Government has generated a total of N6.69 billion through the monthly issuance of the Federal Government of Nigeria Savings Bond (FGNSB) since in March this year. The bond issuance, was in pursuit of its objective of financial inclusion by attracting retail investors into the bond market.

    The amount raised since inception grew to N6.69 billion following the conclusion of the FGNSB Offer for October 2017. Out of the N6.69 billion raised since inception of the FGNSB, N3.71 billion was for the 2-Year Bond while N2.98 billion was for the 3-Year Bond.

    The Debt Management Office (DMO) which issues the FGNSB on behalf of the Federal Government said the high level of subscription by investors since the debut offer in March, shows that the product appeals widely to investors. According to the DMO, 9,103 subscriptions have been received so far from investors across the county.

    Analysts praised the DMO for introducing the Savings Bond into the securities market for retail investors and taking the instrument to the grassroots. The DMO plans to sustain investor interest in the product through sensitization of the public about the gains of investing in the Bond which has a competitive fixed interest rate with its income exempted from taxes.

  • Fed Govt’s Savings Bond opens for investors at high yields

    The Federal Government has offered for subscription two-year and three-year Savings Bonds to investors at 13.535 per cent and 14.535 per cent. The monthly offer opens today and ends on Friday.

    A statement from the Debt Management Office (DMO) said the two-year bond will be due in August 2019 and the three-year bond has a maturity date of August 2020.

    The offer has a minimum subscription of N5,000 with increases thereafter in multiples of N1,000 up to a maximum subscription of N50 million.

    The Debt Office said the bond is backed by the full faith and credit of the Federal Government, with quarterly coupon payments to bondholders.

    The DMO stated that the savings bond will help broaden the country’s funding base.

    The Federal Government Savings Bond is targeted primarily at retail investors to enable them contribute to the development of the country, while also earning good returns on a safe investment in a Sovereign instrument.

    It was launched by the DMO in March and is issued every month through stockbroking firms trading on the Nigerian Stock Exchange. It promotes savings culture and enhances financial inclusion.

    Since its introduction, the bond has attracted a lot of new investors to the FGN Securities market with its attractive features.

    The income earned on the bond is exempted from taxes and it can be traded in the secondary market on the Nigerian Stock Exchange (NSE).

  • ‘Banks’ deposit base not threatened by Savings Bond’

    ‘Banks’ deposit base not threatened by Savings Bond’

    The Group Chief Finance Officer, United Bank for Africa Plc, Ugo Nwaghodoh, has said the Federal Government of Nigeria Savings Bond is not a threat to commercial banks’ deposit base, adding that the N2.067 billion raised in the maiden offer, does not threaten the deposit drive of commercial banks.

    “I do not think the FGN Savings Bond will threaten commercial banks’ drive for deposits. The sky is too wide for all birds to fly,” he said.

    He spoke against the drop of the   13.189 per cent coupon paid to investors this month, which is higher than any interest on deposit any commercial bank.

    Also, a financial expert, Charles Odinaka, said the FGN Savings Bond complements the Central Bank of Nigeria’s (CBN’s) financial inclusion project.

    He said the CBN’s financial inclusion vision was aimed at enabling the Nigerians know, understand and develop the ability to evaluate financial products/services in the financial markets, thereby decreasing the number of Nigerians that do not have access to financial services from 46.3 per cent to 20 per cent by 2020.

    In addition, financial inclusion enables financial service providers understand the needs of their customers, products and associated risks.

    The financial inclusion in Nigeria would continue to work towards this aspiration by extending FGN Savings Bonds to under-banked businesses, communities and individuals across the country.

    “Specifically, the FGN Savings Bonds give investors ease of access to investment opportunities. The investors in the bonds will, ultimately, become drivers of the economy and eventually contribute their quota to the economic growth. I foresee a situation where all members, youths, students, traders, name it, operating in the economic space or playing field, do not have difficulty in investing their money because of the benefits that come with the bonds,” he said.

    Managing Director, CRC Credit Bureau Limited, Tunde Popoola, said the government was in dire need of funds to stimulate and get the economy out of recession, adding that domestic debts do not react to exchange rates, and the loan repayment is in naira.

    “The bond is capable of boosting savings culture among Nigerians. And it has been brought down to between N5,000 and N50 million which is affordable to many Nigerians. The funds raised can be deployed into infrastructure funding. We are going to be interested in the next phase of the offer to determine its modalities of implementation. We need to see detailed guidelines for its implementation,” he said.

    For the government, the savings bond will help to increase access to funds available for investment in the economy, thereby facilitating gross capital formation and economic growth. It enables the individual to enjoy those benefits which accrue to big investors in the capital market.

  • Savings Bond raises hope for grassroots investments

    Savings Bond raises hope for grassroots investments

    The Federal Government through the Debt Management Office (DMO) will today float the Federal Government of Nigeria (FGN) Savings Bond, which comes with competitive fixed interest. The Bond, first issued in March, has so far enjoyed wide acceptance among grassroots investors. As the third batch of the offer opens today and ends on Friday, stakeholders are calling on more Nigerians to be part of this strategic initiative to broaden the securities’ market and help the government finance developmental projects, writes COLLINS NWEZE.

    Low income earners, who for years have struggled to be part of key investment opportunities in the securities market, have now found their voices in the nation’s investment landscape.

    Thanks to the Federal Government of Nigeria (FGN) Savings Bond, which the Debt Management Office (DMO) has continued to float since March this year, when the maiden offer was unveiled.

    Savings bonds in Nigeria, as elsewhere, are debt securities issued by the government to help fund development projects. They are debt instruments offered by sovereigns to mobilise resources from the general public, especially individuals and small savers. It offers guarantees that help to stimulate and deepen the savings culture among households, assists in the diversification of funding sources for the government and establishes benchmarks for other issuers. It equally encourages financial inclusion across the social and economic strata.

    Now in its third month of offer- after March and April editions, the Bond is at the heart of government’s determination to raise the economic power of grassroots investors. This month’s five-day offer, which starts today and ends on Friday, May 13, is expected to, like the previous offers, be a success.

    Speaking ahead of today’s offer, DMO Director-General, Abraham Nwankwo, said the offer is targeted at the low income earners to ensure that they have a stake in government.

    He spoke while addressing leaders of market unions and middle income earner organisations in an advocacy/sensitisation workshop on the FGN Savings Bond in Onitsha, Anambra State, at the weekend.

    He said over the years, government has issued bond, but it remained elitist bonds, which were sold as wholesale bond to privileged individuals, corporate companies and organisation.

    “All these super rich individuals bought it as wholesale bond, but the difference we have in the FGNSB is that we are making these bonds available to the ordinary Nigerians. There are a lot to benefits in investing in the FGNSB. First is that it is an opportunity for the common man to have a stake in the country. You can boost of having borrowed to the federal government,” he said.

    “Again, your investment has interest accruing to you, straight into your bank account, and your interest is tax free. There are many benefits. By Monday next week, the savings bond will open, and it will remain open for five days. We will also disclose the interest rate, and everyone is at liberty to buy. You can invest from as little as N5,000 to as high as N50 million,” Nwankwo said.

    Before the Onitsha campaign, the DMO team was also in Kano. Speaking at the one-day sensitisation workshop in Kano, Nwankwo said, the bond was to enable low income earners contribute their quota to the development of the nation’s economy.

    He said the bond was part of the federal government’s initiatives of inclusiveness in governance, saying that with the new bond, both the rich and low income earners would contribute to the nation’s economy.

    “With only N5, 000 one can benefit from the new bond. This is an opportunity for all and sundry to participate. It is designed to touch the lives of the grassroots,” he said.

    The workshop featured teachings on the workings of bond, and how to purchase them. DMO’s Director of Portfolio management, Oladele Afolabi, took participants through a lecture on the bonds, while listing   accredited stockbrokers.

    Niger Bridgehead Market Chairman, Emmanuel Anagu, who spoke on behalf of other market leaders at the event, stated that he was truly convinced that the DMO meant well for the poor by taking the workshop to traders in Onitsha.

    He said: “Before now, we hear of sales of federal government bond, but it is usually for the very rich, but today the federal government has brought it down to us, but what we ask is that we must make this workshop a regular one to drum it into the minds of our people.” The DG also reiterated the importance of the purchase of the savings bond, saying that it could serve as means of saying for the future.

    Over 20 associations, including Academic Staff Union of Universities (ASUU), Academic Staff Union of Polytechnics (ASUP), Market Women Association, Trade Union Congress (TUC), Nigerian Union of Road Transport Workers (NURTW) and Butchers Association, among others, had participated in the Kano workshop.

    According to the debt office, issuance of the bond will sustain the development of other segments of the bond market and support government’s financing needs in the years ahead.

     

    Benefits to investors

    Before now, bond issuance, like the monthly domestically auctioned Federal Government of Nigeria (FGN) Bond and the just concluded $1 billion Eurobond, were restricted to institutional investors and high net-worth individuals.

    The savings bond is expected to help develop  and introduce new debt instruments into the fixed income securities’ market to accommodate low income individuals and groups. The debt office is expected to announce the bond rate on the first day of every month.

    Managing Director, Cowry Assets Limited, Johnson Chukwu, said the bond will stimulate savings and encourage economic growth, adding that the savings bond has zero risk of default. He added that savings bond remains low cost funds to be borrowed by the government at cheaper rates. He praised the success of the two previous offers, stating that it has enjoyed widespread acceptance.

    “The savings bonds will stimulate savings and give the government the opportunity to fund critical projects with cheaper funds. The funds will also be risk free, but could make government compete for savings deposits with commercial banks,” he said.

    On his part, the Managing Director, CRC Credit Bureau Limited, Tunde Popoola, said the government was in dire need of funds to stimulate and get the economy out of recession, stating that domestic debts do not react to exchange rates, and the loan repayment is always in naira.

    “The bond is capable of boosting savings culture among Nigerians. And it has been brought down to between N5,000 and N50 million, which is affordable to many Nigerians. The funds raised can be deployed into infrastructure funding. We are going to be interested in the next phase of the offer to determine its modalities of implementation. We need to see detailed guidelines for its implementation,” he said.

    For the government, the savings bond will help to increase access to funds available for investment in the economy, thereby facilitating gross capital formation and economic growth. It equally enables the individual to enjoy those benefits which accrue to big investors in the capital market.

    Besides, in more developed economies, savings bonds are protected because they are secured by the government. The tax on the interest is usually waived while the principal and earned interest is registered with the Treasury Office, in the case of Nigeria, the DMO.

    Analysts praised the DMO for introducing the savings bond into the securities’ market and taking the investment plan to the grassroots.

    Nwankwo lauded the Federal Executive Council’s approval of the Debt Management Strategy (2016 – 2019), assuring that the strategy would be implemented with a guide against unsustainable foreign exchange exposure.

    For him, the country’s ability to borrow from a domestic debt market also has some strategic values. Besides, domestic debt reduces the exposure of the country to exchange rate risks and the limitations of size of foreign reserves. The independence, he said, lies in the country having the option to exercise the choice to borrow from internal and external sources, or from a mixture of both.

    “Sovereign borrowing from the domestic debt market encourages the development of a functional bond market, with the scope to introduce different instruments, which will encourage the habit of domestic saving, intermediation and investment. Such a functional domestic bond market will be tapped by the private sector to raise long-term funds for investment in the real sector and infrastructure projects. Nigeria has developed a deep and liquid domestic bond market where funds of up to 20 years tenor can be raised,” he said.

    Nwankwo, said the country’s low debt to GDP ratio has cleared the road for the country to borrow more to fund its budget, infrastructure and other essential projects that will stimulate the economy and create jobs for the citizenry.

    The Senate has also called for more advocacy on debt management and servicing to enable Nigerians understand the benefits and impacts of government’s plans to raise funds from the capital and bonds’ markets for development purposes.

    Currencies Analyst, Ecobank Nigeria, Olakunle Ezun, said there is need for Nigerians to invest in local bonds. “It is not advisable for government to print money to meet developmental needs. And it is advisable that the citizens invest in FGN bonds, which are safe, profitable and deepens the local bond market,” he said.

    For him, although funds from the domestic bond market are more expensive than the international bond market, investing in the local bond market is in the best interest of the economy.

     

     

  • DMO to Nigerians: invest in Fed Govt’s savings bond

    DMO to Nigerians: invest in Fed Govt’s savings bond

    The Director-General, Debt Management Office (DMO) Abraham Nwankwo yesterday in Kano stated that the newly introduced Federal Government of Nigeria Savings Bond is designed to empower Nigerians across board with the financial capacity to acquire and live better lives.

    Nwankwo who spoke to representatives of business groups and trade unions during a workshop to sensitise people on the programme, said statistics have shown that Nigeria is witnessing economic growth, but regretted that the growth,  “does not truly reflect in the quality of lives of majority of Nigerian citizens.

    “This prompted the Federal Government to introduce the FGN Savings Bond, which could be afforded by barbers, water vendors, beans cake sellers and petty trader.” He added that before now, the existing FGN Bond is  of benefits to solely  cooperate institutions and wealthy individuals.

    He said it was against this backdrop that the Federal Government came up with its avings bond aimed at achieving  an all inclusive economic growth.

    “The savings bond is targeted at low income earners, artisan, and rural dwellers, with the view that they lend money to the Federal Government from which the government can resort to the provision of infrastructural development and address various public demands with resorting to borrowing,” he added.

    He said the bond was designed in a manner wherein rural communities could key into it, without going through the rigours.

    He pointed out that the savings bond will be traded on the floor of the Nigeria Stock Exchange (NSE).

    On the differences between the newly introduced savings bond and ponzi schemes, he said people’s investment are secured, pointing out that the bond is secured by the Federal Government.

     

    He added that the saving bond cannot default owing to the guaranty that it is backed by the Federal Government.

    He dismissed the perception in certain quarters,  that the Federal Government introduced the bond to bully other  players in the sector, adding that the aim of the government is to enable Nigerians to plan and execute  their  intended future projects by investing in the bond to accumulate whatever amount they require to carry their spelt out project.

  • Fed Govt launches second tranche of savings bond

    The Federal Government has opened application for subscription to the second tranche of its Federal Government of Nigeria Savings Bond (FGNSB). The application list for the second tranche will run till close of business on Friday, April 7, 2017.

    GTI Securities Limited, one of the authorised distribution agents for the FGNSB, stated that mobilisation has started for the second tranche, after the successful listing of the first tranche at the Nigerian Stock Exchange (NSE) last week.

    The Federal Government had listed the maiden tranche of the FGNSB on the NSE with a promise that the government would continue to issue the savings bond as a regular instrument in the Nigerian capital market.

    In the maiden offer of the FGNSB which ran between March 13 and March 17, 2017, total number of subscription was 2,577 bids with total size of N2.067 billion.

    The minimum subscription for the FGNSB has been fixed at N5, 000 while the maximum subscription for the new security is fixed at N50 million. The coupon will be paid quarterly while there will be a bullet repayment of the principal at the end of the tenor, otherwise known as maturity date or redemption date.

    Speaking at the listing of the 13.01 per cent N2.067 billion Series 1 FGN Savings Bonds 2019 at the NSE in Lagos, Director General, Debt Management Office (DMO), Dr. Abraham Nwankwo, said the FGNSB will become a perpetual instrument of the government with the overreaching aim of opening up the benefits from the national economic development to the generality of Nigerians.

    Nwankwo described the maiden offer as successful citing the spread of the bids with about 95 per cent of the bids from individual Nigerians of average means ranging from artisans to low-income earners across the various geopolitical zones of the country.

    He said the maiden offer had successfully achieved the aim of opening up the debt capital market to the retail investors in furtherance of the commitment of the government to ensure inclusive growth.

    He reiterated that the FGNSB will be issued every month adding that the listing on the Exchange has provided additional opportunities in terms of ability of the retail investors to recoup their savings whenever they want.

    Nwankwo outlined that the FGNSB would help to enhance the savings culture among Nigerians as well as provide all citizens irrespective of income level, an opportunity to contribute to national development while earning decent returns.

    Executive director, Nigerian Stock Exchange (NSE), Mr. Haruna Jalo-Waziri, said the FGNSB was an innovative investment offering that caters to the retail segment of the Nigerian capital market.

    He said the successful launching of the first tranche underpinned the efforts by the Federal Government to continue to work with stakeholders to deepen the capital market while delivering value to investors at all income levels.

    “We look forward to continue the collaboration with DMO to list subsequent series of the savings bond,” Jalo-Waziri said.

  • Funding projects with savings bond

    Funding projects with savings bond

    The Federal Government, through the Debt Management Office (DMO), will float a savings bond which comes with competitive fixed interest. It’s part of a strategic initiative to broaden the securities market and help government finance developmental projects, writes COLLINS NWEZE.

    Savings is at the heart of every thriving economy. It is in the interest of both the government and citizenry that a consistent and sustainable savings culture is instituted. Hence, the Federal Government, through the Debt Management Office (DMO) announced last week that it would float a savings bond to encourage low income earners and groups to invest between N5,000 and N5 million. It will come with a two to three-year tenor at competitive fixed interest.
    Savings bonds in Nigeria as elsewhere, are debt securities issued by the government to help fund development projects.
    They are debt instruments offered by sovereigns to mobilise resources from the general public, especially individuals and small savers. It offers guarantees that help to stimulate and deepen the savings culture among households, assists in the diversification of funding sources for the government and establishes benchmarks for other issuers. It equally encourages financial inclusion across the social and economic strata.
    The interest rate, which will be paid quarterly, is yet to be announced, but the debt office paid 16.5 per cent on a five-year bond sold to institutional investors last month.
    The bonds will be “good for savings towards retirement, marriage, school fees, house projects,” the DMO said.
    According to the debt office, issuance of the bond will sustain the development of other segments of the bond market and support government’s financing needs in the years ahead.
    The bond offer will open on March 13 and end after five days, the DMO said.The government depends on local borrowing to fund more than half its budget deficit, which is expected to reach N2.36 trillion this year.
    Before now, bond issuance, like the monthly domestically auctioned Federal Government of Nigeria (FGN) Bond and the just concluded $1 billion Eurobond, were restricted to institutional investors and high networth individuals.
    The savings bond is expected to help develop and introduce new debt instruments into the fixed income securities’ market to accommodate low income individuals and groups. The debt office is expected to announce the bond rate on the first day of every month.
    The bond will be issued monthly, subscription will open the same day the price is announced, while subscribers will go through agents and subscribe within five working days. Already, over 100 stockbroking firms have been accredited to serve as distribution agents for the investors.
    Managing Director, Cowry Assets Limited, Johnson Chukwu, said the bond will stimulate savings and encourage economic growth, saying the savings bond has zero risk of default. He added that savings bond remains low cost funds to be borrowed by government at cheaper rates.
    “The savings bonds will stimulate savings and give government the opportunity to fund critical projects with cheaper funds. The funds will also be risk free, but could make government compete for savings deposits with commercial banks,” he said.
    On his part, the Managing Director, CRC Credit Bureau Limited, Tunde Popoola said government is in dire need of funds to stimulate and get the economy out of recession, stating that domestic debts do not react to exchange rates, and the loan repayment is always in naira.
    “The bond is capable of boosting savings culture among Nigerians. And it has been brought down to between N5,000 and N50 million which is affordable to many Nigerians. The funds raised can be deployed into infrastructure funding. We are going to be interested in the next phase of the offer to determine its modalities of implementation. We need to see detailed guidelines for its implementation,” he said.
    For the government, the savings bond will help to increase access to funds available for investment in the economy thereby facilitating gross capital formation and economic growth. It equally enables the individual to enjoy those benefits which accrue to big investors in the capital market.
    Besides, in more developed economies, savings bonds are protected because they are secured by the government. The tax on the interest is usually waived while the principal and earned interest is registered with the Treasury Office, in the case of Nigeria, the DMO.
    Analysts praised the DMO for introducing the savings bond into the securities’ market and taking the investment plan to the grassroots.
    Director-General, DMO, Abraham Nwankwo lauded the Federal Executive Council’s approval of the Debt Management Strategy (2016 – 2019), assuring that the strategy would be implemented with a guide against unsustainable foreign exchange exposure.
    For him, the country’s ability to borrow from a domestic debt market also has some strategic values. Besides, domestic debt reduces the exposure of the country to exchange rate risks and the limitations of size of foreign reserves. The independence, he says, lies in the country having the option to exercise the choice to borrow from internal sources, from external sources, or from a mixture of both.
    “Sovereign borrowing from the domestic debt market encourages the development of a functional bond market, with the scope to introduce different instruments which will encourage the habit of domestic saving, intermediation and investment. Such a functional domestic bond market will be tapped by the private sector to raise long-term funds for investment in real sector and infrastructure projects. Nigeria has developed a deep and liquid domestic bond market where funds of up to 20 years tenor can be raised,” he said.
    Nwankwo, said the country’s low debt to GDP ratio has cleared the road for the country to borrow more to fund its budget, infrastructure and other essential projects that will stimulate the economy and create jobs for the citizenry.
    The Senate has also called for more advocacy on debt management and servicing to enable Nigerians understand the benefits and impact of government’s plans to raise funds from the capital and bonds’ market for development purposes.
    The Chairman, Senate Committee on Local and Foreign Debts, Senator Shehu Sani, spoke during a three-day retreat organised for members of the committee by the DMO in Minna, Niger State.
    He said if there was aggressive advocacy on what such debts were taken for, Nigerians would support such initiative aimed at driving development and engendering development.
    According to him, it was imperative for the DMO to develop a framework in the major languages in the country to get the citizens to understand why debts are taken, for what purpose and what the society stands to benefit from such borrowing.
    He said: “There is need for strategy mix anchored on proper advocacy on what debt management is all about. Nigerians want to know why governments borrow, to what purpose such debts are taken and I can say that once it is well explained, the people will key into the programme.
    Overall, Nwankwo was upbeat that there will be significant improvement in employment generation, poverty reduction and living standard of the people, adding that as part of the new strategy, the DMO will continue to develop new products and diversify the sources of raising funds domestically.
    Currencies Analyst, Ecobank Nigeria, Olakunle Ezun, said there is need for Nigerians to invest in local bonds.
    “It is not advisable for government to print money to meet developmental needs. And it is advisable that the citizens invest in FGN bonds, which are safe, profitable and deepens the local bond market,” he said.
    For him, although funds from the domestic bond market are more expensive than the international bond market, investing in the local bond market is in the best interest of the economy.
    The government bonds, he added, help the government funds its deficits in a non-inflationary manner while providing benchmark yield-curve for pricing other securities/bonds. It also engenders rational management of government’s fiscal and monetary operations.
    The DMO explained that a bond is a loan and the investor or holder of the bond is the lender. “When you purchase a bond, you are lending money to a government, local government council, state government, federal agency or a corporation, known as the issuer. The government uses it to fund budget deficit, for instance, or to build roads, electric power stations, finance factories, among others,” it said.
    “When you purchase a bond, in return the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it ‘matures’.
    The debt office said when investors buy government bonds they are lending funds to the federal government for a specified period of time. It said that government bond is considered as the safest of all the investments because it is backed by the ‘full faith and credit’ of the government.

  • Fed Govt to sell N5,000 savings bond to public

    Fed Govt to sell N5,000 savings bond to public

    The Federal Government has concluded arrangements to launch its first-ever savings bonds into the domestic bond market next month, providing the retail  investing public opportunity to invest in sovereign bond issue for as low as N5,000.

    Market sources and parties to the savings bonds, to be known as Federal Government of Nigeria Savings Bond (FGNSCB), said the issuance of the savings bond could start next month as the government and its professional parties have concluded the pre-offer process for the bond.

    The savings bond will bear all the regular features of a national bond, including the zero default rate of a sovereign issuance, fixed coupon or interest rate, privileges and exemptions from certain taxes and levies, as outlined by the Central Bank of Nigeria (CBN), Federal Inland Revenue Services (FIRS) and other government ministries, departments and agencies (MDAs).

    The Debt Management Office (DMO), which oversees issuance of Federal Government bonds, will be issuing the savings bonds on behalf of national government.

    A copy of the issuance documents obtained at the weekend by The Nation indicated that the FGNSB is deliberately targeted at the lower income earners as part of government’s plan to encourage savings and also earn more income from their savings compared with savings accounts with banks.

    The bonds will be issued with a tenor (period) of between two to three years and a minimum size (amount that can be purchased) of investment of N5,000 and maximum of N50 million.

    The interest rate, which will be fixed, will be paid quarterly, enhancing the attraction of the savings bond as grassroots instrument for the general public.

    The attractions of the savings bonds, according to the issuance documents, included guaranteed returns, competitive fixed interest rate, tax exemption for the interest incomes and collateral for loans.

    The retail savings bonds will, in addition, encourage financial inclusion among low income households and enable the public to enjoy those benefits which accrue to high net-worth investors in the capital market.

    With the collateralisation of the bond certificate, subscribers can use the bond certificate as guarantee and collaterals where such are required in transactions with the MDAs, financial institutions and private organisations.

    Investors will also be able to purchase the savings bond in small units through physical offices and several online platforms. After the closure of the primary issue for the savings bond, retail investors will be able to buy and sell the bonds through the Nigerian Stock Exchange (NSE).

    Already, DMO has reached a Memorandum of Understanding (MoU) with the stockbroking community on the marketing and distribution of the savings bond.

    The savings bonds will be traded like quoted equities and other securities on the NSE with stockbrokers expected to make two-way quotes for the FGNSB in order to provide secondary market liquidity for the savings bond.

    The stockbrokers will act as agents to the DMO for the marketing and distribution of the FGN Savings Bond to retail investors, including selling the FGN Savings Bond to existing clients using their retail investor base and attracting new ones in order to deepen the retail market for FGN securities.