Finance Houses Association of Nigeria (FHAN) recently embarked on a campaign to sensitise the public on the re-emergence of fake finance companies. In this interview President of the Association, Mr. Eddy Osarenkhoe, explains the operations of these fake finance companies and how members of the public can distinguish between genuine and fake finance companies.
What informed the recent campaign of FHAN on fake finance companies
The issue is a very simple one, you will recall that around the 1990s towards 1993, there was a crash in finance houses and a lot of those who caused the crash were these fake finance houses. You recall names like Forum, Umana Umana and Money Tree and some other funny names we heard all over the country. When people just set up finance companies not to do any business but just to take money from people, deceiving the unsuspecting members of the public. The way it works is simple. It is like what we call teaming and lending in accounting. That means, in the general parlance the way cashiers use to defraud people. They take money from people today to cover up the one they took yesterday and they will hope that the whole thing will continue to go on for a long time.
More people will continue to come. So they take money from this people to settle those people they are owing. Such thing will go on for a long time unchecked until there is a halt in the system. That was what happened during the era of June 12. when there was this June 12, we were able to then see immediately when they could not meet their liabilities that some of them were not really doing business. They come promising fantastic interest rates and funny enough because of the poverty level of this country, people are usually tempted by such high interest rate and they believe that their messiah has come. A lot of people put their life savings, even some people who retired, their pension savings were all put in there, and some even died in the process when the crash occurred.
So recently the Finance Houses Association of Nigeria, as the self regulatory body for finance houses, registered by the Corporate Affairs Commission (CAC), and approved by the Central Bank of Nigeria (CBN) to regulate the activities of finance houses in this country, started seeing these companies coming up again, a lot of them started rearing their ugly head again all over the country. Even some of them as bold as putting up billboards, distributing fliers, deceiving people that they are going to help them manage their investment, they will help them to create wealth. And Nigerians, as gullible as we are, we have forgotten so soon what happened to us in the 1990s, when people died in the process of having lost all their life savings. And a lot of them are now patronizing them.
We have a host of them. In Lagos Island alone even along Abibu Oki street here, I was surprised, I saw a lot of people lining up with some of these people. And they are all located near the markets, people line up to put their collection with these people who promised them heaven and earth. And because they are able to pay one or two, they go on spreading the news that these guys are performing. And because they are using this teaming and leading method, that is what has kept them on.
And the more people they get they are able to service the ones they got yesterday, hoping to get more people. And some of these poor people would even leave back their money, because they have been paid, so they put it back again. And so they continue to work on that principle and people continue to give them money.
And you know they don’t have any meaningful business. At least this country is in the midst of deregulation, we equally can now see genuine business what they do. And if you are doing genuine business it must be you borrow money somewhere to also do a business venture. And it is from the returns from that venture that you pay your overhead and you also pay the cost of funds which you borrow.
And so we saw it as a threat to our image because when there is trouble the people of this country will say finance houses unknown to them that they are not among our list at all. As we speak we have a list of 59 finance house that are registered by the Central Bank and members of FHAN. Like we told you earlier on this body is undergoing a rebirth. Because of what happened before the new executives came up recently and in an attempt to carve a niche for ourselves, we believe there is a need to discipline ourselves. Create some ethical standards and code of behaviour, to help us operate well and to also have a way too to monitor ourselves to ensure that we are on course, that we are actually giving the best service to members of the public. So that is why we are even calling on the press, to help us in this war, to enlighten people on the need to look properly, like we say in law , “Caveat Emptor”, that is Buyer Beware, the need for people to watch properly before they do any business with anybody, to be sure that they are within the recognized people.
What is the business of a finance house as stated in the law.
That is a very good question. It is very easy and that is one of the reasons we would be going through the campaign. A lot of people in this country are not quite conversant with the role of finance companies. And we are out to educate and enlighten people on our role and who we are so that people can differentiate between the good and the bad and be guided in the way they do their business transactions. Finance companies are registered under the Banks and Other Financial Institutions Act (BOFIA). And BOFIA is under the supervision of the CBN. The same act that empowers them to register banks also empowers them to register finance companies.
And so finance companies by their nature are registered by CBN to carry out these activities with a view to providing financial intermediation services, consultancy services to Nigerians. And the way we operate, you can classify the main functions into two broad business focus which are deposit mobilization which is to raise your funds from the surplus unit of the economy, and provide credit to the deficit units of the economy. A third function which is very critical is consultancy, financial consultancy. You recall that some times ago that we observe that a lot of financial illiterates are around the country. People don’t know where to go for the kind of finance they need. So a lot of them have fallen prey to some of these people who provide the finance. So instead of looking for short term funds to finance what is short term transaction most times they go looking for long term. And this continues for some time.
Also instead of looking for long term equity fund to start their business most people go for short term. And short term as we all know is very expensive and it could cause problems. So those businesses don’t succeed because of mismatch of funding structure. So finance companies by rendering financial consultancy tend to fill that gap for financial adversary. We have seen that that aspect of financial consultancy is missing, a big gap created there. And there are a lot of financial institutions coming into the market with this reforms. There are a lot of sources both local and foreign where people can now source their funds. All these are coming to the market but Nigerians are not aware. So we are in a position, structured to be able to provide opportunities for these our customers to access these funds. One of such funds is the SMEEIS fund.
Though people claim that the banks don’t disburse, they do disburse but you must package your project professionally to go through the test, and pass the test before the banks disburse their funds. So if you are not well packaged, that is why most of them fail. So finance companies are in a position to package the business in a bankable manner so that your project can scale through the hurdles especially the banks. Don’t forget that finance companies, some of them are ex-bankers and both of them are professional chartered accountants.
So that is why I said there are three main areas that finance companies operate. If you look at these three areas there are a lot of opportunities in the market. So for you to look at a finance company that is legitimate and genuine, you must be seen to be structured along this line, not just collecting money and not putting the money in viable business. Most of these fake people if you go to them to finance your project they may not be able to finance your project and if they do it will be unusual.
But what we are saying is that we have clear ways to identify these registered finance companies. Like I said we are 59 as at today. These companies have been licensed by the CBN and they are equally members of Finance Houses Association of Nigeria. So they have both licenses and we have asked our members to display those licenses in their offices. So if you want to deal with a finance company you must be sure it is a licensed financed company and it is also a member of FHAN. Because this is the umbrella body that can enforce discipline and control within our members.
If you find them guilty of any malpractices, you report to us and we will find a way of dealing with them. So we are using this medium to call on people to look properly and check if they fall within the 59 on the list. We will soon be coming out with a publication of this list in some of the papers. But first the finance company you deal with first should be among the ones on this list and for them to be among it means they are not illegal. They are accountable for their actions. The board of directors is known, the management is known, their offices are known, the CBN goes every quarter to monitor their activities like they also do with the banks. They carry out examination on their operations and they give out warnings for them to correct or else they withdraw their license. So those are control measures in place to prevent what happened in the 1990s. so that we can have genuine finance houses operating with global best practices.
What are the major activities of the fake finance companies different from the activities of genuine ones.
What they do from our own investigations, they are not interested in those things that I told you now.It is registered finance houses that play those roles, and they are helping in economic development. They are helping the customers who need money, they can give them money. They also provide a place where they can save, they are vehicle for savings.
They also provide professional advisory services for people in times of their need. So these are things the registered finance houses offer to develop the economy and also help the customers. Whereas these illegal finance organisations are out to defraud. That is their corporate objectives but unknown to the people they give you interest rate that is watering and attractive in nature especially because of the poverty level of this country. People get attracted by such things and so they go for them.
And these guys keep on collecting their money. Like I said earlier on, its like digging a new hole to fill an existing hole. One hole remains unfilled. So they are just there collecting people’s money to pay those who will come to ask and thereby create confidence, so that they can bring in more money. So what they do is residence. Some of them say they deal in oil business and whatever but you can’t continue to raise money everyday to do oil business.
If you want to raise equity, there are known rules of raising equity. Either you go through SEC or through private placement. And equity is raised within a period of one month. So if you want to raise equity to finance your business do it in line with the law, that is what we are saying. You don’t do it everyday. Do it within a period, if you have people who want to subscribe to your business and they also share in your profit at the end of the year. But aside from that if you now want to operate as finance companies, you want to be collecting money, go register with the body that monitor people who collect money from unsuspecting members of the public. Because the idea of registration is to protect members of the public from falling into the hands of fraudsters.
And we have since communicated with Central Bank. They have replied us that they are keeping a tab, they are also on the look out and we should dig out more names. They are interested in what we are doing, they are very happy with it. And we will get more names of such people and forward to them and the EFCC. And very soon you will hear they are been rounded up.
So I will appeal to members of the public and the press anywhere we now find such people, write and report their names to us, to our secretariat, and we will forward the names to the authorities who will deal with them and clear them out of the market.
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