AWOOF

Nigerians are getting caught up by the promise of “money doubling” ponzi schemes

Quartz africa
Quartz africa

Last November, after Femi Pelumi, an 18-year old security guard at a media firm in Lagos, realized he needed some extra cash for shopping in the run-up to the Christmas holiday period. Pelumi put nearly half of his 15,000 naira ($48) monthly salary into an online ponzi scheme which promised 50% returns in one week. But the returns never came. The online scheme shut up shop days later and Femi was left worse off than when he made what he saw as a reasonable investment.

Amid Nigeria’s first recession in two decades, millions of Nigerians like Pelumi sign up to ponzi schemes daily, fully aware of the risks. With inflation rising over the past year, many of these people are just desperate for avenues to make extra cash to help them meet basic commitments from rent and food to children’s school fees.

The slowdown in the economy has meant fewer jobs while inflation has been exacerbated by a foreign exchange crisis, which has seen the value of the naira tumble. Taking advantage of the downturn, a crop of online ponzi schemes have popped up promising Nigerians irrationally high returns over very short return periods.

 It’s not a get-rich-quick scheme. “It’s “get-rich-quicker” through systematic, effort and the compounding of effort through groups of people.” The best known of these, Mavrodi Mondial Moneybox (MMM), a scheme with roots in Russia, became popular last year garnering up to three million participants before it suspended operations last December. It left hundreds of thousands of Nigerians with major losses. MMM’s appeal for the millions who put money into the scheme was its regular 30% monthly returns, until the bubble burst. Following its closure, authorities say Nigerians lost about 18 billion naira ($58.6 million) to the scheme.

But in the wake of the Russian scheme, these new online ponzi schemes with names like TwinKas, Elite Pay and SureNaira have cropped up. They’ve all promised much better returns than MMM ever dared to do. Some have already disappeared, almost as quickly as they emerged. Where MMM promised an impressive but unsustainable return of 30% in a month, these schemes are promising to double the money Nigerians “invest”—and some schemes promise to do this in less than 24 hours.

Young Nigerians, many of whom struggle to find jobs spend much of their time online. They are especially vulnerable to the promise of web-based ponzi schemes.

Nigeria’s newspaper websites and blogs are full of advice pages on the newest best-paying schemes. In Nigeria, banks hardly ever lend money to individuals, and if they do, only at eye-watering rates of around 30%. This is in part why ponzi schemes promising 50% to 100% returns don’t seem so far-fetched.

 “I can’t say the schemes are entirely bad, because lots of people made good money.” The collapse of MMM made national news late last year. Before it happened, there were warnings from the Central Bank of Nigeria and the national anti-financial crimes commission got involved. Indeed, almost everyone knows someone who lost money. And sure, the economy’s tough—but why would anyone risk their money now, after everything that’s happened?

Well, here’s the dirty little secret about these quick turnaround money-doubling Nigerian ponzi schemes: they actually work.

Well, they do, until they don’t.

Good money

Chidinma, 26, a federal tax agent, was among the lucky ones who has made money off ponzi schemes. “I can’t say the schemes are entirely bad, because lots of people made good money,” she tells Quartz. “People put in big money to make a one-time profit and then wait for the next scheme to come around.” Chidinma says she’s made a 200% profit over the past year putting money into several schemes.

The key to making money from ponzi schemes in the current environment is be proactive about getting money in and out of them. Perhaps most important is to be early in finding the newest schemes before too many people do. Once in, the trick is to get the returns out as quickly as possible and move on to the next scheme. “Early entry, before the scheme gets weighed down by lots of people, is good,”Emmanuel, 27, an Abuja-based HR manager, tells Quartz. (Both Chidinma and Emmanuel asked for their last names not to be used because they’re civil servants without permission to talk to media.)

Chidinma shares similar sentiments. “People who lost cash to MMM are the ones who joined just before it crashed. The people who usually make the most money are those who start early before it gets crowded.” The risk of overcrowding is much higher these days as Chidinma says newer schemes promising enticing 100% returns in 24 hours “aren’t built to last.”

It would seem as long as a few people at the top of the scheme make some money with incredible returns in no time at all, there will always many more “investors” who are willing to take the risk against what would normally be poor odds.

The platform

Many of the new sites appear to be built on fairly basic web technology. Lagos-based developer Martin Ifodo, who’s looked at several of these sites, says they’re using similar standard templates which can be purchased online. That might imply many of these sites are being built and run by the same people. Further to that point, TwinKas, one of the newer schemes, lists a United Arab Emirates’ address as its office location. Here’s where it gets interesting: several other schemes like SureNaira and CheckBillz also list the same address.

TwinKas has grown to become the 13th most visited website in Nigeria, according to rankings by Alexa, a web traffic data and analytics company. At it’s peak, one of MMM’s websites ranked as the fifth most visited website, only behind Google’s global and Nigerian sites, YouTube and Yahoo.

Local administrators of the schemes likely don’t require sophisticated tech skills to run the schemes. Instead, online marketing and confidence skills often prove enough to earn the trust of the users. For example, the home page usually includes compelling testimonies from users or advice from administrators of the scheme warning that the investments are “not a get-rich quick” plan.

As one supposed user testimony puts it: “It’s “get-rich-quicker” through systematic, effort and the compounding of effort through groups of people.” Some schemes also set out caveats which ought to serve as red flags. A popular one is telling investors to only put in “spare money” they can afford to lose.

Tunji Andrews, a Lagos-based economist, attributes the rise of these schemes primarily to a lack of understanding of “how financial systems work” among ordinary Nigerians. But there’s another reason these schemes often thrive in Nigeria. As local banks are “comfortable with rent-seeking and looking for big ticket deals,” Andrews says, the retail banking needs of many Nigerians are not catered to.

“The few banks that offer loans make you jump through ridiculous hoops to get them,” Andrews tells Quartz. With local banks charging up to 30% rates on loans, regular Nigerians are left with few avenues to access capital and may be forced to turn to ponzi schemes. “The banking system has created the scenario,” Andrews says. “It’s not structured for the average Nigerian to make headway because the economy is built for the rich.”

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