Bank of Botswana (BoB) Governor Moses Pelaelo has issued a caution to the public to be vigilant on the mushrooming of illegal deposit taking activities which are in the form of pyramid schemes. Pelaelo said this on Tuesday as the guest speaker at the official opening of an FNBB branch in Mochudi. Using the platform, the governor appealed to the public to neither participate in nor peddle these schemes which he said can only lead to financial ruin, leading to loss of money and source of livelihood. “The general guide is that, in any country, returns or rate of profit on any investment should be around the general level of interest rates, the growth rate of the economy or the average return of the companies listed on the stock exchange,” Pelaelo said. Anything substantially higher, Pelaelo said, is either too risky to be worthwhile or fraud. According to the central bank governor, many including the educated, professionals and in some cases even those in the financial sector are gullible and fall prey to these illegal and unfair trading schemes. Pelaelo said a formal, sound and well-regulated financial sector is the foundation of effective intermediation, productive use of financial resources and, in turn, reasonable returns for savers and investors. “In this respect, successful and sustainable banks are essential for the development of well-functioning money and capital markets. This is particularly so in Botswana where the banking sector is a substantial component of the financial system,” he said.
Moreover, he said banks also benefit as deeper and more efficient markets provide alternatives for sources and placement of funds as well as more effective liquidity management. The governor said this includes the interbank market, through which banks lend to one another, typically on a short-term basis which in turn improves the overall allocation of financial resources, including real returns to depositors and investors, and the channelling of funds to productive use in diverse areas of economic activity. In this context, Pelaelo said it is a matter of public policy concern that money and capital markets in Botswana are in a rudimentary state of development. “As a result, there is a limited range of instruments and relatively low turnover and activity in the various markets, more so in relation to instruments for risk-sharing, distribution and mitigation,” he said. The governor said this tends to result in volatility of both prices and volumes, and limits the choice of instruments necessary for efficient financial and business management.