Why Nigeria’s current financial system favors the rich against the poor
Against the backdrop of surging inflation, the financial market’s response has indicated that low-income earners are now at the receiving end while high net-worth individuals (HNIs) and big corporate organizations are reaping the benefits of investment income.
Recall that the National Bureau of Statistics, NBS, this week’s figures on inflation show 27.33 percent Year on Year (YoY) for October 2023, the 10th consecutive monthly rise and also the highest inflation rate in 18 years.
You May Also Like:
Opinion: We Need Leaders Like Pitapwa F. Vokito
Tinubu’s Independence Speech
The Central Bank of Nigeria, CBN, in response to the development this year, has triggered its inflation-targeting monetary policy strategy which includes raising the Monetary Policy Rate (MPR).
Consequently, interest rates have been on a steady rise in the money market while liquidity remained high.
Vanguard findings, however, revealed that the HNIs and highly liquid corporate organizations have been cashing in on the development to invest huge resources in financial assets especially in the fixed-income market as well as equities, raking huge returns since this year.
Fixed deposit rates have gone up on record highs averaging at 15 percent in the third quarter of this year while many fixed-income securities are trending at 17 percent.
These are coming at the backdrop of CBN’s high MPR rate which hit 18.75 percent in the third quarter with the likelihood of a further rise in the next Monetary Policy Committee, MPC, meeting scheduled for next week.
Also returns on equity investments as of the third quarter are at a record high of 35 percent, one of the best worldwide, a development which appears strange because rising fixed-income returns usually lead to a declining return in equities.
However, the low-income earners have been constrained by the rising inflation which sapped their purchasing power and hindered their ability to save or invest.
Vanguard findings also show that while the HNIs and big businesses get higher interest rates on their huge cash deposits they also get the lowest interest rates on loans and almost unlimited access to credit.
On the other hand, low-income earners and small businesses get low interest rates on their little savings and in some cases, the interest is wiped out into negative by bank charges.
Moreover, they have little or no access to loans and the ones that could have some loan considerations are burdened with lending rates far higher than the prime rate the HNIs and big businesses get.
Consequently, economists warn about the looming danger of escalating poverty amidst huge financial returns in the economy, with the institutionalization of the poor getting poorer while the rich get richer syndrome.
However, analysts who spoke to Vanguard explained the situation, giving diverse reasons why the situation emerged and is likely to remain or even worsen shortly.