Yes, money matters

  • Publish Date: Jul 1 2019 3:19AM
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  • Updated Date: Jul 1 2019 3:19AM
Yes, money mattersRepresentational Pic

Let me start this newly assigned column with two things about money - fact and truth. All of us have been taught about the importance of money and the fact that money brings us happiness. Money certainly affects our level of happiness. If we are having enough money, we are satisfied from the financial perspective of our lives. But the truth is  that money cannot buy contentment. 

Leaving the fact and truth aspects of money aside, it’s important to take control of your money. This way, you would be taking control of your life, too. Of course, money is not everything in life but it is part and parcel of our lives. For achieving financial prosperity, its important to keep your money in circulation, allow it to change hands and get it multiplied through investment and savings schemes.

When we talk of investment and saving schemes, we have to be very careful in terms of the safety of our money. We have two environments, regulated and unregulated, where schemes are available to multiply our money. Regulated environment is the safest zone where money can be invested in schemes which are regulated by the regulators like the Reserve Bank of India, Securities Exchange Board of India (SEBI) etc. In an unregulated zone, there are financial schemes which offer higher returns on investment. But here the money is not safe and investors are at risk to lose even their capital investment.

These unregulated schemes are mostly driven by Ponzi schemes. In a Ponzi scheme, investors are paid from money collected from new investors instead of the scheme’s earnings. The scheme runs as long as new investors keep investing in the scheme and actually yields the promised returns to earlier investors, as long as there are more new investors. But collapse when the new investments stop.

Precisely, when the Ponzi scheme stops giving the returns to the investor, it proves as a Ponzi trap and leaves the investors devastated. These are the schemes which feed on greed and are designed innovatively in such a way that they trigger endless greed in people. This greed lures them to invest in these schemes without giving a thought to the risk of losing the money.

The irony is that locally as well as globally well-educated people fall into the infallible trap of Ponzi schemes. People are so blinded by the seemingly incredible returns that they seldom think how they could possibly earn such high interest on their investments.

In the past few years, tens of thousands of UAE residents have lost their life savings in investment plans only to discover that these were outright Ponzi schemes.

Let me reproduce one such global ponzi trap where  nearly 6,000 residents lost their money invested in Sunfeast Infotech. At this company, investors looking to make extra bucks from ‘outsourced projects’ were handed a flash drive with several pages of manuscript in PDF format which they were required to type into text format and submit within 25 days.

At the end of a 30-day cycle, they were paid Dh250 for the job. They had to pay a security deposit of Dh500 for each project. In theory, they got their initial investment in two months; any extra job after that was profit.

Enticed by big returns, thousands used to queue up at Sunfeast’s office during 2013 with many taking huge loans to procure hundreds of ‘projects’ at the same time.

When that was not enough, scores sold their jewellery and homes. One enterprising man even set up a temporary typing centre at his home in India where young students were hired to do the job.

Nobody bothered to find out how anyone could make a fortune out of typing a few sheets of paper. By the time the company was shut down by the Dubai Economic Department (DED) and its owners jailed for fraud, millions had been siphoned off.

Back home in India, I Monetory Advisory (IMA) Jewels ponzi scheme fraud is the latest one which surfaced recently. If media reports are to be believed, the size of the scam is about Rs.5,000 crore, with more than 30,000 people cheated by the ponzi scheme company. The owner of the company has already fled out of the country. People not only from Bengaluru and Karnataka, but also from Hyderabad, neighbouring Tamil Nadu and New Delhi have invested in the company.

The modus operandi of this 13-year-old company was to lure Muslim investors in the name of Shariah investment. The investors were told that they won’t be getting interest, which Islam doesn’t encourage, but would be getting profits. 

So, the company made them to invest by telling them they were partners. It gave out profits which amounted to at least to 3 per cent a month (or 36 per cent annually), which is much higher than the rates given by banks on fixed deposits.

South Indian states have a history of such so called Halal Ponzi schemes where the companies like IMA Jewels, Heera Gold, Burraq etc have fooled vulnerable investors in the past many years by taking advantage of their religious beliefs. They offered investment schemes to be compliant with the Islamic law of Shariah, but ultimately duped the investors of their hard earned money.

Interestingly, Heera Gold Group, which later proved a Ponzi company, had sponsored a cricket tournament in the UAE and recently had announced Rs 10 million aid for Kerala flood victims. Who would have thought all this was a façade. The investors had even no reason to suspect anything amiss as the company gave them monthly returns.

Now the main question: How to protect against such Ponzi traps? The mantra is simple. If anyone is considering investing in a scheme that they’ve been advised or even promised will give them very high returns -- it’s probably best to avoid it because it may well be a scam. A rule of thumb of the financial market is: “What seems too good to be true, is never true. There is no other interpretation of this evergreen cliche.”