Powering the capital market through financial literacy
Financial literacy refers to the level of education and awareness about financial markets’ products, participants and processes, which is crucial for the development of any country’s economy. Unlike the money market under which short term bank products largely fall, studies have shown that the level of awareness concerning the capital market- which deals in medium to long term products — is low in Nigeria. In fact, a survey by Ernst & Young (EY), a global professional services firm, had put the capital market literacy level in the country at just 16 per cent. Little wonder retail investor participation in the market is said to be a mere 2 per cent compared to Malaysia’s 9 per cent or South Africa’s 15 per cent.
Consequently, the performance of the market seems to be tied to the apron strings of foreign portfolio investors: rising whenever significant activity is driven by foreign investors and falling following their exit.
As evidence, the positive turnaround in the fortunes of the market in the second quarter of this year is largely attributable to increased participation of foreign investors on the back of improved access to foreign exchange by foreign investors. Because these investors largely take a short term view, ever ready to flee at the slightest sign of danger, the capital market is hampered from making any significant contribution to the nation’s economic development. Therefore, the temporary nature of foreign portfolio investments, with its associated volatility, is neither in the interest of the capital market nor the Nigerian economy in general. The role of financial literacy in changing this narrative cannot be overstressed.
It goes without saying that financial literate investors are knowledgeable about opportunities in the capital market and are therefore in a better position to make informed investment decisions. So, greater awareness about the capital market is required on the part of retail investors to evaluate the choices available to them.
As part of efforts to boost capital market literacy, both the Securities and Exchange Commission and the Nigerian Stock Exchange have been organizing quiz and essay competitions for secondary school students, sponsoring Television and Radio shows as well as conducting capacity building programmes for various segments of the society including Judges, financial journalists and shareholders’ associations.
Capital market awareness campaigns have equally been taken to NYSC orientation camps across the country. There are also a number of capital market literacy activities being carried out by other stakeholders such as the Chartered Institute of Stockbrokers. In recognition of the potential of financial literacy in catalyzing Nigeria’s emergence as a top 20 global economy by the year 2020, the Capital Market Literacy Master Plan (a major part of the 10-year Capital Market Master Plan currently being implemented by the Securities and Exchange Commission) has a number of initiatives to strengthen past efforts and significantly increase the level of capital market literacy in Nigeria.
Prominent among these initiatives to be championed by the Regulators are the publication of a journal and introduction of capital market studies in the Curricula for Secondary Schools and tertiary educational institutions. In pursuit of these deliverables, the Nigerian Securities Market Journal (NSMJ), a veritable platform for disseminating research findings on the Nigerian capital market, was launched by the SEC last year.
Also, the Commission and the Nigerian Educational Research and Development Council (NERDC) have held a content selection workshop – a key step to the inclusion of capital market studies in the curriculum of Secondary Schools in Nigeria. Plans are afoot to incorporate capital market studies in the curricula of tertiary institutions.
Without a doubt, any effective strategy for ramping up retail investor participation should leverage on the current demographics in the country, which emphasize a large youthful population. According to a survey report by the committee which drew up the Capital Market Literacy Master Plan, ‘’the market has an age sensitivity element to it. While the younger generation know less, the older generation tend to be more aware of the market’’. This finding is consistent with what obtains in many other jurisdictions providing the rationale for the focus on young people.
Malaysia, for example, is currently implementing the second Capital Market Plan (2011- 2020). As envisaged in the Plan, retail participation is gaining traction. Bursa Malaysia CEO Tajuddin Atan told reporters in April that younger investors were entering the market in large numbers, which has seen the Malaysian bourse recording a 36 per cent jump in the number of Central Depository System (CDS) account holders aged 25 years and below. This age group (less than 25 years) was the fastest-growing band among CDS holders in 2016, with a total of 27,252 account holders as at Dec 30, 2016 followed by investors between the ages of 26 and 35 who accounted for a total of 192,123 CDS accounts.
Malaysia had 2.49 million CDS account holders in 2016. According to the Bursa Malaysia CEO, the increase in CDS accounts among young people was a direct result of its targeted efforts to attract young investors through various financial literacy initiatives implemented in Malaysian Universities.
Indeed, one lesson from the Malaysian experience is that the Universities can serve as veritable channels of capital market literacy.
While the plan to introduce capital market studies in the curriculum for Universities is a laudable one which may take some time to crystallize, a low hanging fruit which can guarantee rapid results is to advocate for the establishment of Institutes for Capital Market Studies in many Nigerian Universities.
The Institutes will be charged with the responsibility of conducting research, organizing seminars, conferences, symposia and workshops on the capital market. Any such University-based Institute qualifies for accommodation in TETFUND annual budgets and may also run viable post-graduate degree programmes in capital market studies.
While technical support is provided by the Nigerian Capital Market Institute (NCMI), resource persons for the Institutes can be drawn from the industry, market operators and regulators to address shortage and competency gaps in Universities. In order to increase its value-add, the NCMI should be affiliated to a University for the purpose of running programmes leading to the award of Post Graduate Diploma Certificates in Capital market Studies.
To conclude, the Capital Market Literacy Master Plan envisages increasing the literacy level from 16 per cent to 41.5 per cent and the number of investors from 4.7 million in 2015 to 44.1 million by 2025. For better outcomes, tertiary institutions are best suited as channels of capital market education which target the youths. There is a caveat though: capital market literacy should be seen as only a means to an end given that a high rate of financial literacy may not translate to a significant increase in retail participation if propensity to save is low. Investor education methodology should therefore emphasize the cultivation of a savings culture aimed at promoting greater retail participation in the capital market. Since saving is a function of income, a lot will depend on how well the Economic Recovery and Growth Plan (which targets a GDP growth of 7% by 2020) is implemented.
Uwaleke, a Chartered Stockbroker, is the Head of Banking and Finance Department at the Nasarawa State University, Keffi
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