Business

Reinforcing measures to curb unclaimed dividend

Strengthening regulatory measures to reduce the rising wave of unclaimed dividend will help resolve the knotty issues in the local bourse, writes CHRIS UGWU

The e-dividend Mandate Management System allows investors’ accounts to be credited immediately they are mandated with the registrars and the relevant banks. Within 24 hours, dividends hits investors’ account and even the backlog that were not paid for years also hits the account. The essence of the system is to eradicate or reduce to the barest minimum the incidence of unclaimed dividend. Unclaimed dividend is an undesirable feature of the Nigerian capital market, which denies investors/ shareholders the gains of participating in the capital market. It denies the economy access to the huge amount of money, which should have accrued to shareholders and would have gone into circulation to oil the wheel of the economy. It is a consequence of the bottlenecks, which are inherent in the erstwhile paper dividend warrant regime such as postal system inefficiency, change in investors’ addresses, poor fidelity and human fallibility in dividend payment processes, amongst others. The e–dividend regime bypasses these limitations by ensuring that dividends, which do not exceed 12 years of issue, are credited directly to an investors’ account after declaration by the paying company and within a stipulated payment period through simple interbank transfer. That is why market regulators have continued to implore Nigerian investors to key into the e-dividend registration exercise by visiting the nearest bank branch or registrar. However, aside the ineptitude of investors to embrace e-dividend system of payment, the unresolved issue of multiple subscription has continued to dampen the regulators’ commitment to finally stem the tide of unclaimed dividend. Following the slow pace of compliance, SEC, last week, again urged investors in the capital market to register for edividend so that they can receive the benefits of their investments in the capital market.

Reasons for high rate of unclaimed dividends

Reasons responsible for the growth of unclaimed dividend include issues of shareholders, who have died and without information on next of kin, multiple applications by applicants during the investment process and deliberate actions to deny investors their benefits through various schemes by some registrars and companies who lack liquidity to pay. Other factors are loss of dividend warrants following poor postal system, change of mailing addresses without notifying the registrars and lack of awareness on the part of some investors. The Managing Director, Crane Securities Limited, Mr. Mike Eze, while speaking to New Telegraph, traced the genesis of the rising wave of unclaimed dividend to indigenisation era of the administration of General Yakubu Gowon. According to him, “during this exercise, those in position of authority who had the wherewithal acquired shares in the privatised companies with fictitious names of their drivers, cooks, gardeners, dead brothers, dead fathers etc in such a way that when the dividends came, they were not able to claim them why because there is no such persons to claim such.” Speaking in the same vein, the Managing Director, Highcap Securities Limited, Mr. David Adnori, explained that unclaimed dividends were increasing every year due to several factors. According to him, the problem started several years ago during the indigenisation exercises when several shareholders made multiple subscriptions in fictitious names whose signatures they cannot remember. He noted that the affected shareholders were also unable to open bank accounts in these fictitious names for the purpose of e-dividend collection. He added that most of the unclaimed dividends were statute barred and forfeited to the companies in which case recovery by the affected shareholders may not be possible in the absence of means of identification.

State of unclaimed dividends/edividend mandate

The total number unclaimed dividend figure in the Nigerian capital market stood at N170 billion as of December 2020 from N158 billion recorded in December 2019. This is just as total number of mandated and approved accounts from its inception in 2016 to July 2021 stood at 1,144,970. Mr. Lamido Yuguda, Director General, Securities and Exchange Commission (SEC), who made the disclosure at the second Capital Market Committee Meeting (CMC) press briefing last week, said COVID-19 prevented more people from keying into the edividend mandate.

Current measures

Yuguda noted that as part of measures to increase the number of mandated investors on the e- DMMS and reduce the quantum of unclaimed dividends, members of the CMC adopted the following measures automation for mandating to e-DMMS, increase monitoring of adherence to procedures and increase awareness campaigns on the initiative. Others, according to him, include a training session to be organiseed by the Central Securities Clearing System (CSCS), to be supported by the e-DMMS technical committee, institute of Capital Market Registrars (ICMR) and Association of Securities Dealing Houses of Nigeria (ASHON) and conduct of a study to determine the suitability of the CSCS to process dividends of investors in unlisted companies.

Investors urged to step up efforts on compliance

The Securities and Exchange Commission again urged investors in the capital market to register for e-dividend so that they can receive the benefits of their investments in the capital market. This was stated by Executive Commissioner Operations of SEC, Mr. Dayo Obisan, during an interview in Abuja recently. Obisan said the registration was necessary to reduce the unclaimed dividends profile as well as increase liquidity in the capital market and the economy. He disclosed that the e-dividend mandate forms were available on the websites of SEC, registrars and even in some banking halls and therefore enjoined investors to download the forms, fill them out and submit to be mandated for e-dividend. “The forms are readily available on the SEC website, the registrars also have the forms on their websites, even some banks have them in their banking halls. We therefore enjoin investors to download the forms, fill them out and submit. If they have any problems, they can readily reach SEC through our various contacts. Once we receive such complaints, we will be able to put them in the right part of what to do to ensure they are mandated for e-dividend. “Remember that they are not only going to receive their current dividend. Once they are successfully mandated, past dividends will be paid as well. We want in vestors to be able to get the benefits of their investments as that would also help to attract more investors to the market as well as deepen the market,” he said. The executive commissioner also said it was the quest by the Commission to protect investors that necessitated the directive on Know Your Customer Update to capital market operators. SEC recently reminded capital market operators of the Commission’s directives on update of investors’ Know Your customer information, which it said is still in effect describing the exercise as critical to deepening the participation of retail investors and therefore directed all CMOs to accord it the highest level of priority. According to Obisan, “it is quite important to let the public know that all these details the Commission is requesting them to complete is for their own benefit. “As a regulator, yours is to create an enabling environment and to protect the investor, and you can only direct the operators i.e. the registrars, brokers or every other person that falls under your regulation to ensure that they don’t frustrate that process, which is why at the capital market committee meeting, one of the resolutions was that any operator that actually frustrates the unclaimed dividend process will be heavily sanctioned. “In a couple of weeks we will start seeing some vivid steps taken towards that direction because these are benefits directly attributed to people that have carved out of their income and decided to invest in the capital market. They must directly get the benefit of that investment. Every person’s activity must be seen to complement the effort of the regulator to ensure that they reap the fruit of their own labor. “I will use this medium to appeal to investors to complete this KYC as it is for their own benefit. We have spoken with the leadership of the Trade Groups and they have gone ahead to do adverts on this issue just to be able to reach a large number of investors. If you are in doubt, speak to your broker or call the SEC and we will be able to guide you.”

Operators’ view

The current initiative as observed by stakeholders is laudable as its implementation would move the market to the next level of transparency and efficiency in dividend payment. Eze said the development is expected to mark an era of drastic decline in the volume of unclaimed dividends in the country. He added that SEC had further shown serious commitment to removing some constraints in dividend payments in the areas of eliminating unclaimed dividends, physical dividend warrants, delays in depositing dividend warrants into current or savings account, dividend warrants lost due to change of address, incomplete address, poor and inefficient dispatch procedures and delays in receipt of dividend warrants. An independent shareholder, Mr. Johnson Adewale, said the idea of addressing the issue of multiple subscriptions would bring about the transparency required in the payment of dividends.

 

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