The Certainty Tax

PenCom loosened the mandate. N31 trillion in pension money still hasn’t moved

PenCom spent the first half of 2026 loosening the rules. A waiver for pension funds to buy into the Dangote refinery IPO. A roadmap promising deeper pension participation in the capital market. The regulator that spent two decades essentially telling PFAs to stay in government paper is now actively inviting them out of it.

The money mostly stayed put. As of the May 2026 PenCom data released in late June, Nigeria’s pension industry held N31.3 trillion, and more than half of it, N17.48 trillion, sat in Federal Government securities, with the rules doing far less of that work than the numbers suggest. At a Monetary Policy Rate of 26.5% and OMO stop rates running 20 to 22% across tenors this year, government paper is still simply the best risk-adjusted trade available to anyone managing other people’s retirement savings. The gate opened. Most of the traffic just didn’t change direction.

The Mop-Up Is the Real Story

The mechanics sitting underneath that OMO stop rate start with oil money. The Central Bank takes in oil dollars, converts them to newly created naira at its own rate to pay government, and holds the dollars back, releasing them in small doses through its FX auctions. That pumps naira into the system faster than it releases the dollars that would balance it out. So the CBN mops up the excess naira by selling OMO bills. To get banks and pension funds to absorb that much paper, it has to pay for it: 20%, sometimes 22%, for instruments as short as eight days. Henry Boyo tracked this printing-and-mop-up cycle for years before he passed, and Samson Esemuede at Zrosk Investment Management has tracked the same money-supply mechanics more recently, though neither focuses on pension funds specifically.

That OMO rate isn’t what PFAs earn on their government paper, and the distinction matters. OMO bills are a Central Bank instrument, sold mainly to banks and authorized dealers to sterilize the naira the CBN prints. Pension funds hold FGN Bonds and Nigerian Treasury Bills instead, issued through the Debt Management Office on a separate track. Those yields have been easing all year as inflation cools: 91-day NTBs closed July at 16.3%, 182-day at 16.5%, the 364-day at around 17.4%. With headline inflation at 15.9% in June, that leaves PFAs earning a real return of about 0.4% on the paper making up more than half their book.

Structured venture debt at 16 to 18% is no longer the clearly lower-yielding option next to that. On a pure return basis the two trades are close to a wash. PFAs holding government paper anyway are now paying for certainty directly, in yield given up, rather than collecting a premium for taking the safer trade.

It helps to size how far downhill Nigeria has rolled. The OECD’s 2025 Africa Capital Markets Report, using end-2023 data, puts the regional pension average at 44.4% in bills and bonds, and Nigeria already sat above that average. A more balanced mix, the kind Kenyan and Canadian pension reformers cite, runs closer to 20 to 40% in government bonds, with real weight in equities, infrastructure, and private credit too. Nigeria’s PFAs, at 55.8%, aren’t just skewed by regional standards. They’re skewed against an already-skewed region.

PFAs have started diversifying this year, just not in the direction that matters here. Domestic equity holdings jumped as the Nigerian Exchange rallied through 2025 into 2026, a genuine shift in the portfolio. But buying more NGX-listed blue chips is still a bet on liquid, exit-any-day paper, not the same decision as writing a venture debt facility or a structured SME credit line, where the fund is locked in for years against a single borrower’s outcome. The diversification story holds up. It just hasn’t reached the part of the market that needs patient, illiquid capital to grow.

It’s also the shape you’d expect if compressing yields on safe paper were pushing PFAs toward risk generally. Money moves into the most liquid risk asset available first, and equities are exactly that. A real NTB return of 0.4% hasn’t been enough to send PFAs any further down that road, into the illiquid end, yet.

Run the numbers on what certainty is costing right now. A pension fund holding N100 billion in 91-day NTBs at 16.3% earns about N16.3 billion a year, nominally. Set against June’s inflation print of 15.9%, that’s a real return of roughly N400 million, about 0.4% of the position. Move the same N100 billion into structured venture debt at a comparable 17% instead, and the nominal return is nearly identical, but the money is also financing companies that hire people, build products, and eventually generate the tax receipts and FX earnings that ease the mop-up pressure in the first place. Treat this as a scenario, not a forecast: no PFA holds this much in a single instrument, and real allocation decisions weigh liquidity, tenor, and regulatory limits the illustration skips over. What the scenario highlights is that PFAs aren’t collecting a meaningful yield premium for choosing certainty anymore. But they’re still choosing it anyway.

Diaspora Nigerians sent home $21.8 billion in 2025, flat against the year before, stable enough now to plan around. Still, almost none of it finds its way into equity or venture debt for a Nigerian business. It goes to households and obligations, the same social capital channel that pension funds mirror at the institutional level. More capital in the loop, a bigger diaspora flow, a bigger pension pool, doesn’t escape the pattern. It merely gives the pattern more fuel.

Certainty Has a Price, and Nigerians Pay It at Every Level

Step down from the trillions to a single household, and the same instinct shows up in different clothes. Nigerian money moves fast for a wedding levy, a burial contribution, a milestone birthday. It moves slowly, reluctantly, and suspiciously for a friend’s business idea, even when that friend is closer than most people getting an envelope at an owambe.

The usual explanation is trust radius: people give to family because they know them, and refuse strangers because they don’t. That doesn’t survive contact with how hard it still is to raise money from family too. Ask any founder who’s tried to raise a seed round from an uncle. The friction shows up after the money changes hands, in what the backer worries happens next, not in how far it travelled to get there.

Give N2,000,000 to a burial levy and the return is instant and guaranteed. Gratitude, social standing, a debt repaid in kind when it’s your turn. Even the deferred version, the owambe reciprocity of attending everyone’s party so they’ll attend yours, runs on an unbroken social contract. Give the same N2,000,000 to a cousin’s business and the payout is uncertain, binary, and deferred on every side of it. If it works, you get your money back, maybe with pride at having spotted talent early. If it fails, you lose the money and your social standing, because a failed business reads as bad judgment on someone’s part, and no cultural script turns that loss into social credit the way a funeral levy does. No rational person makes that trade at the margin without unusual conviction in the specific person standing in front of them.

This runs on mental accounting: two ledgers, two different rules for what counts as a safe bet. It’s the same ledger a pension fund’s investment committee runs when it picks a 20% OMO bill over a 17% venture debt facility with a founder attached. Certain and immediate beats uncertain and deferred, whether the actor is a village elder or a fund manager with a Bloomberg terminal.

The Position

Nigeria doesn’t have a capital shortage. N31 trillion in pension assets and $21.8 billion a year in remittances say otherwise, loudly. It has a system where the certain, extractive-adjacent choice keeps beating the productive, uncertain one at every level, from the household to the regulator. Deregulating the rulebook can’t address that, because the rulebook was never the only thing holding the money in place.

My view is that two things would move the needle, both with working models to build from already.

The first is changing the risk math on productive lending itself, so venture debt and structured credit can compete with government paper on certainty, not just yield, since the yield gap has already mostly closed. DFI-backed first-loss facilities do exactly this. A development finance institution absorbs the first tranche of default risk, so a commercial PFA only takes exposure once that cushion is used up, and picking the productive trade stops requiring a leap of faith. It’s a term sheet mechanic, not a policy speech, and it’s the difference between a fund manager saying no and saying yes.

The second solution sits closer to home, in a system Nigerians already use every week. Esusu and ajo run on a guarantee, not a gamble. A rotating contribution society works because your turn is guaranteed, just delayed, and the group enforces the rotation so the deferral never turns into a loss. That’s a working example of turning a deferred payout into a certain one through structure instead of personal relationship. The lesson worth porting to entrepreneurial capital isn’t asking people to tolerate more risk. It’s building the rotation calendar’s equivalent for a business investment, something that makes the process certain even though the business outcome can’t be.

Picture a $50,000 diaspora cheque, pooled from ten diaspora executives contributing $5,000 each, routed through a designated representative drawn from the pool rather than straight into a founder’s personal account. The funding terms get papered upfront in a standardized agreement, with schedules that flex to the specifics of the deal, not settled over a phone call. Standardizing the template this way keeps drafting friction low and is what eventually lets disbursement run on automation instead of someone checking each condition by hand. The money sits in a wallet with joint signatories, representative and founder, both required to authorize a release, so no single party can move it alone. Payment conditions, a revenue milestone, a delivery date, an expense verified against invoice or receipt, trigger each disbursement, so the founder isn’t asking on goodwill and the backers aren’t withholding out of suspicion. Every trigger and transfer sits on an auditable, immutable record any backer can check without asking permission. None of this removes the business risk. The venture can still fail. What it removes is the procedural uncertainty, whether the money was spent as agreed and whether any record exists if it wasn’t, and with it the sting that makes failure so costly: if the venture doesn’t work out, a backer can point to a documented process instead of a private judgment call, and that record keeps the loss from curdling into a story about their own foolishness for trusting a stranger, or a relative, with money. It’s the same logic as the DFI first-loss facility, running at retail scale for a $50,000 pooled cheque instead of a N100 billion pension allocation, minus the administrator the pension version needs at that size.

None of these require Nigerians to trust strangers more, just mechanisms good enough that trust becomes less necessary. Until the return math changes or the trust mechanics catch up, PenCom can loosen the mandate all it wants and the money will keep finding its way back to the safest trade in the room.

The next time someone points to N31 trillion in pension assets or $21.8 billion in remittances as proof Nigeria’s capital problem is nearly solved, ask a sharper question: solved for whom, moving toward what. The money was never missing. It was always exactly where its incentives told it to be.