Spread of Ponzi Schemes

Apropos to the article, “Do Social Networks Facilitate the Spread of Ponzi Schemes? Evidence from a Primary Survey” by Souvik Dutta and Abhirup Sarkar (EPW, 14 September 2019), at the outset, the authors deserve gratitude for their concern relating to the heavy loss of investors’ money and the loss of several human lives. It is a matter of distress that Ponzi schemes continue to operate in several states with political patronage even after seven decades of independence and over two decades of economic reform through new economic policy measures. The available legal provisions are inadequate to control such open fraud and practices to loot the people through different false promises of high return. These schemes usually spread through friends, relatives and known persons of the agents who may be termed as “Bansamara Dahuka,” a colloquial slang in Odia (meaning a person who invites self-destruction or death along with the destruction of relatives and friends). These schemes not only spread among illiterates or rural folk, but also among the highly educated people, basically due to two reasons: (i) ignorance about the financial market/product and available avenue of investment/savings, and (ii) greed towards high return. It is also a by-product of reformation in the banking sector in terms of considerable decline in interest rate during the post-reform period. In this process, hundreds of crores of rupees have been lost in Odisha, West Bengal, etc, through different Ponzi schemes or chit funds. People, usually, never make a mistake in buying potatoes or tomatoes, but most of the people often fail to buy the right financial products. It is only knowledge that can guide towards a better way of buying financial products.

The Government of Odisha has set up a commission (Justice M M Das Commission of Enquiry, 2015) to look into the cases of chit funds. But as it is well known how the judicial process works in our country, the victims of chit funds are yet to get justice. They have failed to meet their objectives for which such investments/savings were done. The banning of Unregulated Deposit Schemes Bill, 2018 is a welcome step to check such fraudulent practices. But unless and until people are educated/made aware, the effectiveness of such laws may be far away from the desired result. If gullibility continues among the investors, illegal Ponzi schemes will continue to crop up and swindle money from such investors. The Securities and Exchange Board of India (SEBI) provides free of cost workshops to different groups of people regarding the right way of savings and investment. As a resource person of SEBI, I know that there is a lack of financial education among a host of rural and urban population as well. SEBI in its novice attempt engages hundreds of resource persons to spread financial education/awareness among different groups/sections of people. The investor awareness programme (with certain changes) needs vigorous implementation right from the grass-roots level, to minimise the baneful effect of Ponzi schemes and online fraud practices prevailing in the country. There should be stringent punishment for the individuals/groups who are engaged in such activities.