Gurubari Bhatra, a 60-year-old woman of a remote village of Nabarangpur district, has been waiting for the last six years with the hope of getting back her money deposited with the person who was introduced by the village priest as the Field Officer of a reputed financial firm.
She used to hand over Rs 200 every month for a return promise of of twice the investment after two years. She sincerely deposited Rs 4,800 during the two years and expected to receive double the amount but thereafter, the Field Officer never visited the village.
Even now she has preserved the pass book and receipts safely with the hope of getting the sum on some day. It is an example of operation of Ponzi schemes and exploitation of the gullible investors. This is not the story of Gurubari alone, around 120 more villagers tell the same story, though of course, the amount and number of installments varies. So also is the fate of several villagers in the nook and corners of the district where the people are illiterate and socially and economically backward.
The nomenclature of Ponzi Scheme is derived from Charles Ponzi, who was born in Italy, but became unpopular because of his operation of financial scheme in the USA. In 1920, he had swindled millions of dollars of investors' money by introducing an investment scheme with unusually high rate of return within short term of time.
The scheme launched by him was very attractive as he had promised 50% return in 45 days and 100% return in 90 days.
As the business is not viable, the scheme collapsed and a massive fraud related to the scheme came out in the open.Millions of people lost their hard earned money because of the notorious plan of Ponzi and in course of time such unregulated fraudulent schemes came to be known as Ponzi Schemes. Such schemes gained popularity in not only the USA, but also other developed and developing countries like India causing huge financial as well as economic loss.
Though the nature of exploiting the public luring with unrealistic returns on their investment has been practiced since ages, in India, especially in the last few decades, there have been a number of such scams related to Ponzi schemes, unregulated deposit schemes (UDS), illegal Collective Investment Schemes (CIS), etc., which have duped millions of gullible persons across the country and have fraudulently collected billions of rupees from them.
The basic premise of these scams have remained same every time and every case - collect money promising very high returns, pay the initial investors out of funds collected from subsequent investors till the schemes collapses. The modus operandi has been evolving over the years. In the last few years, scams which came in to limelight in regular print media, electronic media and the popular social media are Sahara, Saradha, Rose Valley, PACL, Bike Bot, GainBitcoin, Bitconnect, Qnet, Anubhav Plantation, Speak Asia, Hello Taxi, etc.
They garnered huge volumes of funds and downed their shutters abruptly leaving the gullible investors in the dolldrums.
These are some of the bigger scams which shook economic conditions of people across the country. There have been many smaller ones, taking place in local community, which don’t attract nation wide or State wide attention.
The State Government cracked down on 342 chit fund companies including Artha Tatwa, Sea Shore, Rose Valley and Micro Finance for defrauding the innocent investors. The Supreme Court ordered a CBI inquiry in 2014 against 42 chit fund firms who operated in Odisha which is going on still. Lakhs of people were victimised.
The Government had formed a one man Commission in 2013 to probe the multi-crore chit fund scam and identify the investors.
A corpus fund of Rs 300 crore was set up to refund the deposits of small investors. The Commission submitted its 7th interim report in 2019 and recommended refund of money to as many as 1,36,027 small investors identified. The process is yet to be completed as the Commission is seeking another extension to continue the probe.
A major reason for the success of the Ponzi schemes in India is the low financial inclusion and low financial literacy of the people.The NSSO 59 Round Survey revealed that 51.4 percent of farmer households are excluded from formal and informal financial sources. As per the World Bank’s ‘Financial Access Survey’, the financial inclusion level in the country is quite low in comparision to other developing countries. Ponzi scheme operators exploit this weakness by offering easy investment procedures, attractive and quick returns, providing doorstep facilities for collection and payment, etc.
In October, a special court in Tamluk in West Bengal sentenced eight accused in the Pincon Ponzi scheme case for life term. The State witnessed the first conviction under the West Bengal Protection of Interest of Depositors in Financial Establishments Act, 2013.
The Directorate of Economic Offenses was set up to probe Ponzi cases after the Rose Valley-Saradha scams. In Hyderabad police arrested the kingpin who duped 1,200 victims of Rs 52 crore in Ponzi Bit Coin Investment Scheme. The CBI filed charge sheet against Green India Group in Bhubaneswar for duping public of over Rs 69 crore through a Ponzi scheme. But these punishments did not deter the scam creators who are busy in the formulation of new Ponzi schemes offering lucrative returns to the vulnerable people.
The severity of the problem of Ponzi schemes is well explained by Justice SK Panigrahi who compared the modus operandi with money laundering and the offence of money laundering is nothing but an act of financial terrorism that poses a serious threat not only to the financial system of the country but also the integrity and sovereignty of the nation.
Financial education and awareness is the only alternative to check and overcome the menace of Ponzi schemes in the country. There are a number of organizations imparting financial education to the people to make them financially educated and take judicial decisions in the money matters but most of them are overlapping and not able to reach the real needy.
The wholehearted participation by all the stakeholders like financial regulators, Government both State and Central, local self Government bodies, political organization, NGOs, academia and others in the civil society is needed in this grand initiative of imparting financial education and there by empowering the less privileged by providing access to financial products and markets so that they can play a meaningful role in the sustainable growth of the society.
(Dr Biswal is Head, Department of Commerce, Nowrangpur College, Nabarangpur. Mob: 9437125286, bhaskarnathbiswal@gmail.com)