More than 1 million non-registered chit fund companies across the country
However, it is not possible to assess how many non-registered chit fund companies are active in the country, but according to an estimate of the All India Association of Chit Funds, more than 10 lakh such chit fund companies are active in the country. According to a report published in the Business Standard’s January 20, 2013, issue, the size of the non-registered chit fund companies is more than Rs 30 lakh crore, whereas the size of registered chit fund companies is Rs 30,000 crore. According to the Ministry of Corporate Affairs, till October 31, 2014, a total of 5,000 chit fund companies were registered in India.
What is Ponzi scheme?
This scheme was named after the name of a person named Charles Ponzi, whose full name was Carlos Giannion Givovani Guglimle Tombaldo Ponzi. Ponzi took advantage of monetary and exchange disorder in Europe after the end of World War (I) and started a scheme called Ponzi in America. He cheated people by enticing more returns on an investment in countries like Italy, Canada, and America. Under this, he lured every investor to give a 50 percent return in 45 days. Ponzi later formed a company named “The Securities Exchange”, in which huge crowds of people came to invest and thousands of investors invested in it. Later the money of the investors was lost. In the year 1964, the Oxford English Dictionary included the word “Ponzi”. This shows that how much this scheme was infamous.
Method of cheating
Under the Ponzi scheme, people are cheated by tempting attractive returns on investment. Companies work vigilantly to execute the fraud by deposit schemes. For this, firstly the local person is selected, who is unemployed for a long time, but his image is good in the area. Usually, 85 per cent of the people invests in such schemes due to trust or on the insistence of any member of the family or friends. These kinds of cases of investing in such schemes have normally seen. Commonly, such deposits are promoted by the famous people of the society, which makes the trust of the common people unbounded on the scheme. In the beginning, investors are given a good return on investment. When people are completely confident about the company’s activities, then companies wind up their business.
Presently, the network of Ponzi schemes is spread to the far-flung areas of the country. Mostly, small and medium farmers and laborers come under the scanner of such schemes. Farmers of Andhra Pradesh, Tamil Nadu, Maharashtra, Goa, Uttarakhand, and Punjab had lost their investment in large numbers in the name of Emu farming. In some states of the northeast, in the name of goat rearing scheme, common people were cheated. People are also being cheated in the name of giving ownership of tea gardens. For luring of investors, fraudulent companies are also offering a free foreign tour to them.
How to identify Ponzi schemes
Identifying the Ponzi scheme is not easy, because there is no definite form of it. However, by using vigilance and discretion in such investment schemes, the fraud can be avoided. If any scheme is tempted to give more returns then there needs to be cautious before investing. If a company is repeatedly claiming a scheme under government rules, then there may be scope for fraud. If a scheme is being promoted more or if it is claimed to pay more than 15 per cent, then it may be bogus! In such a situation, it is necessary to invest only after thorough investigation.
Investor is also guilty
It is legally wrong to deposit money in companies that run Chit Fund or Ponzi scheme. This provision has been made in Section 3 of the Prize Chit and Money Circulation Schemes (Banning) Act, 1978. It is a crime to be a member of money circulation or chit fund companies. That’s why people should stay away from such companies, because if anybody has filled the form of such company for investing money, then the police may consider it a criminal. Provision for punishment is the same for those who invest the money or run such companies.
Most policemen do not know the law
There is a provision to take action against companies running chit fund and Ponzi scheme for cheating investors under the Prize Chit and Money Circulation Schemes (Banning) Act, 1978. If action is taken against chit fund companies under this act, then the possibility of come out from the clutches of laws will be reduced, but most of the police do not do this in the absence of information.
At present, people are being cheated by chit fund companies, Ponzi schemes, and other irregular schemes. By taking advantage of corporate governance deficiencies and regulatory shortcomings, such companies are executing fraudulent schemes. They are fooling people through fake schemes like investments in land, gold, goat rearing, etc. True, it is a business of robbery — not by intimidation, but by showing lovely dreams. Ultimately, the government has passed an ordinance on February 21, 2019, to curb irregular deposits, Ponzi and chit fund schemes. It is believed that due to its stringent provisions, millions of people will be saved from being cheated.
By Satish Singh
(Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of AFTERNOON VOICE and AFTERNOON VOICE does not assume any responsibility or liability for the same.)