How about non-financial investment? (2)

By Babajide Komolafe

Some readers requested for non financial investments. They want to invest but not in financial instruments like shares, bonds, bank deposits etc.

Before delving into the alternatives to these financial instruments, it is pertinent to understand that investment is basically lending your money to somebody that needs it and is ready to pay for borrowing or renting it. The borrower may use the money to start a new business, expand an existing one, and finance an urgent business or personal need.

The financial institutions like banks finance companies etc play the critical role of linking those who want to lend (or invest) their money with those who want to borrow that money. The financial instruments (shares, bonds, bank deposits) are the formal means or methods of how the money is lent and borrowed.

To ensure the safety and interests of the lender (investor) and the borrower, the financial institutions and financial instruments are heavily regulated by agents of governments such as the Central bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC). Thus there are rules and laws that guide how money is lent (invested) and borrowed and any aggrieved party (lender, borrower or operator) can have recourse.

So with financial instruments, you are spared (to a large extent) the stress and time of looking for who is willing to borrow your money, and the fear or possibility of being cheated or duped. The laws and regulations also provide confidence, certainty and assurance that there is an authority in charge of the transactions.

Now while there are other forms of investment outside the financial market described above, they are also about lending your money in the form of savings to somebody that needs it or use it and return it to you with increased value. But because they are not as regulated as the financial institutions and instruments, they don’t provide the same level of security and confidence.

Note also that saving money is not investing it. For example, you may choose to save specific amount of money and keep it under your pillow. The money will remain there provided it is not stolen. However what you saved or kept is what you will get. The case of Esusu is even worse. In this case somebody comes around every day or week and collects the saving from you for safe keeping. However, the saving of the first day belongs to the Esusu man, to cover for his cost of collecting and keeping the money for you.

Meanwhile there is the risk that the Esuse man/women may bolt away with your money.  If you save that money and lend it to a bank, you are spared the risk of losing your money and in the process you earn some interest on your money.

Furthermore, you may also decide not to lend the money to anybody or institution, but decide to invest it yourself in a business activity. In this case, in addition to the money you are investing, you would also have to devote time and effort to the business to manage it, so as to make profit. This of course is if you even have the time to do so. Meanwhile there is always the risk that your projections and assumption may not work, leading to failure of the business and loss of your money.

- Culled from: http://www.vanguardngr.com