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The Rise of Ponzi Schemes in Nigeria - the Pros and Cons

Ponzi scheme in Nigeria

In recent years, Ponzi schemes have become a national anthem, a lingua franca among millions of people in the country, regardless of their social, cultural, educational, or religious background. 

Before I proceed, what is a Ponzi scheme?
Wikipedia defines a Ponzi scheme thus: “A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.”

This year alone, the country has witnessed the influx of many Ponzi Schemes such as the Mavrodi Mundial Movement, known in the local parlance as MMM, Ultimate Cycler, iCharity, Zarfund, Crowd rising, MELIFSON, and more. These six are the most influential Ponzi Schemes in the country as millions of participants have invested hundreds of millions of Naira in the schemes. And on a daily basis, people are still investing in either of the schemes mentioned above. You may begin to wonder why such schemes are so popular in the country. Let’s consider this.

Why Are People Investing In These Ponzi Schemes?


Ponzi schemes are not a new entrant in Nigeria; they have been in existence in the country for years. Nigerians have invested in many Ponzi schemes in the past. Some of the predecessors of the current Ponzi schemes are Pyramid, Green World, and the rest.
The popularity and reach of those schemes are insignificant compared to the rush and affinity for the present schemes as evidenced by the number of investors and the passion for those schemes as exhibited by their participants. Some factors that are responsible for this are:
  • Bad Economy: When some of the “investors” in these schemes are interviewed, one of the reasons they give for “investing” in these schemes is the economy of the country that is nothing to write home about. They give the inability of most people to live on their meager income as a perfect excuse for joining those schemes.
  • High return on investment: These schemes promise their participants high interests that are irresistible. For instance, MMM promises investors 30% interest on their investment. And that is within 30 days! That is higher than the interest rates of any financial institution in the country.
  • High unemployment rate: It is ironic that some of the investors in the schemes are unemployed graduates. Tempted by the allure of a high interest, some take loans from friends and family with the hope of repaying the loans within a month. They consider it as a form of investment that will pay their bills.
  • Greediness: Some financial experts point accusing finger at greed as one of the culprits that play on people’s quest for quick money to lure many people into investing their money in these schemes.

Many people blindly buy the idea of getting quick money, and as a result, play along with these schemes without any knowledge of how the schemes are run and the potential benefits and shortcomings that are inherent in investing in them. Therefore, some of the pros and cons of these schemes are discussed extensively here, starting with the pros.

The Pros Of Investing In Ponzi Schemes

While some people, financial institutions, and the government have expended much effort through the news media and the social media to discourage people from participating in these schemes, their efforts have achieved little success due to some benefits that these schemes offer. Some of these offers are:
  • Financial succor: As pointed out earlier, Ponzi schemes offer people interest rates that are far above what government-owned financial institutions offer. This comes handy in view of the high cost of living in the country. A 30% interest on investment once in a month gives investors enough financial power to take care of their bills.
  • They offer people easy money: You can’t take this from Ponzi scheme. All you need to do is sign up on their website, register with them, and make your investment. Within a month, you will receive interest on your investment. This process is so easy that many people can’t just let such a golden opportunity to make easy money pass them by.
  • It reduces poverty rate: During the dormant stage of Ponzi schemes in Nigeria, there was an unprecedented poverty rate in the country. This was attributed to high unemployment rates, mass laying off workers in the corporate world, especially the banking sector. The dependants on these laid off workers had no source of income, aggravating their poor financial status. The advent of Ponzi schemes reduced this as participants can render financial assistance for each other, as in the case of MMM, or make some extra income from other Ponzi schemes such as iCharity or ULTIMATE Cycler.
  • It increases investors’ investment skills: The basic principles of investment would have been beyond some people if there are no Ponzi schemes. Some schemes, like iCharity, Coolnaira, and Ultimate Cycler also teach marketing skills in addition to the investment skills.

The Cons Of Investing In Ponzi Schemes

Conforming to the general norms, Ponzi schemes have some cons too. What are these cons? Here are a few of them:
  • Ignorance: Most of the investors in Ponzi schemes are not informed enough about the risks and rewards of these schemes. This may lead to poor investment decisions with serious negative consequences.
  • The tendency to crash: This is a big disadvantage of Ponzi schemes. They have the propensity to crash. According to a research, the lifespan of a Ponzi scheme is between 12 to 18 months. This is a big disadvantage that requires serious consideration.

In view of these benefits, can Ponzi schemes really be called a “fraudulent investment?” While this is a personal decision, a good look at the pros and cons of investing in Ponzi schemes will be crucial to your assessment of Ponzi schemes.

It is important to note that the brains behind MMM, the most popular Ponzi scheme in Nigeria at the moment, claim that MMM is not a Ponzi scheme but a pyramid scheme. This raises the question: what is the difference between a Ponzi scheme and a pyramid scheme? A good understanding of these two terms will be of immense benefit to the investors in the two schemes.

Pyramid Scheme vs. Ponzi Scheme


Both pyramid schemes and Ponzi schemes share some similarities. Both of them depend on the continuous contributions of the investors for sustained existence. This is due to the mode of payment; existing investors are paid with the money of new investors.

However, there is a thin line between the two. Here are just few differences between these two popular schemes in Nigeria:
  • The source of payments: The contributions of new members are used to pay the existing members. While the participants in Ponzi scheme entertain the belief that their earnings are returns on their investments, Pyramid scheme participants know their earnings are from the investments of new recruits.
  • The level of involvement: Pyramid scheme participants are generally more involved in the sustenance of the scheme as they must keep recruiting new members to keep the scheme running, while Ponzi scheme participants are passively involved in the scheme after their initial registration. They are not directly involved in getting new members to the scheme.
  • Legality: If a pyramid scheme is well structured, it may be practiced legally. It is not out of place to see some companies with legitimate activities take advantage of a pyramid scheme to enhance their performances to a reasonable degree. On the other hand, a Ponzi scheme is absolutely illegal.
  • Duration of existence: There is a little difference in their duration of existence. Since new members need to be recruited for a pyramid scheme to gain immunity to sudden death, the scheme is still open to premature death if new members are difficult to come by to make their financial contributions to support the flow of money to the upper levels of the pyramid. In contrast, the existing members of a Ponzi scheme can continue to sustain the scheme until it is discovered to be fraudulent by the participants or the government. At times, though, the investors in a Ponzi scheme may panic due to some signs of collapse or lack of satisfaction with the scheme. This may lead to the collapse of the scheme as the people running the schemes may have insufficient funds to meet their financial obligations towards the investors.

Although the organizers of MMM are of the opinion that the scheme is more of a pyramid than a Ponzi, the thin line between the two has been discussed, giving investors the unique opportunity to make their decision based on accurate information about these two popular schemes with millions of followers in the country.

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