Cheaters' County

Saradha collapse is just tip of an iceberg with many more closures waiting on the cue. It is high time that RBI and SEBI are given more teeth to inspect into the books of burgeoning chit funds companies.

With the kind of financial frauds mushrooming in every nook and corner of India, it can no longer boast of having a tightly regulated financial sector. The debacle of Kolkata based Saradha Group’s chit fund business is the recent instance of how several wheeler-dealers are indulged in investment fraud undeterred and unchecked taking innocent people on ride. While capital adequacy norms, risk controls or even basic financial disclosures are thrust upon top level enterprises but the same are hardly imposed on small entities, thus a sheer anarchy prevails at bottom level. This is a matter of concern for the nation where a good chunk of population is by and large humbly resourced and financially-illiterate prone to get easily duped.

Chit fund, ponzi schemes, multilevel marketing frauds are not new to India. Saradha scam is yet another example of what Kuber, JVG, Speak Asia etc have done with the hard-earned thrifts of innocent people. They simply raise vast amount of money from innocent people luring them of high returns, special packages or foreign tours but eventually round-trip the collected money from one depositor to another instead of creating more assets. Such fraudulent business is burgeoning at faster pace with even 10-20 people opening up unregistered committees and start collecting money projecting fake investment plans as authentic.

It is ironical that despite having independent financial market regulators like RBI, SEBI, and IRDA etc for varied financial services, fraud companies devising Ponzi schemes are kept on flourishing. The problem is that regulation of chit fund business is governed by a central Chit Funds Act 1982 as well as specific Chit Fund Acts enacted by different states. As it is a State subject, RBI and SEBI exclude chit funds from the purview of their regulations for deposit-taking finance companies or collective investment schemes and only target capital market and banking frauds. It is time that financial regulators focus on financial frauds taking place at grassroots level as nearly 60% of India is still un-banked and vulnerable to be targeted by chit funds companies operating under no control or checks. Not only chit funds but almost entire grassroots financial business arbitrarily operates in seemingly no man’s land. For instance, co-operative banks and money lenders at lower level are also no less fraudulent.

It is of utmost importance that some measures are devised to keep a check over such Ponzis as in the absence of proper monitoring system; some crooked minded fellows easily acquire political clout and leverage the opportunity to give a legitimate shape to their fraud investment plans. They even enter into media and education and facilitate money-laundering, black money economy undauntedly by the virtue of political connections.

India’s financial sector is deeply crippled with corruption and hoax activities and more so at bottom level of pyramid. Saradha collapse is just tip of an iceberg with many more closures waiting on the cue. Policymakers must not forget that financial institutions are prone to ‘contagion’ and the pace at which such fraud companies are coming into vogue; it is highly significant to strictly regulate them at earliest. It is high time that RBI and SEBI are given more teeth to inspect into the books of burgeoning chit funds companies.