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by Chandani Jayatilleke

Sri Lankans love to earn a fast buck. Come any scheme promising fast money, presto, they just fall for it. Greed and the desire to earn quick money have led many people to lose their hard earned savings in numerous inveigling schemes in the recent past.

The schemes or products that promise 'high returns' in cash plus gold coins are also of 'high risk' - this is a simple investment strategy.

Why do people take such risks to invest money in schemes whose authenticity is not certain or not very clear?

"People are greedy," says a leading investment analyst of a leading finance company in Colombo.

"They want to earn money without sweat and tears. They are driven by money and to earn a quick buck, they would do anything," he said.

Does it mean people lack better investment opportunities? "No," says a Research Analyst, Hasitha Premaratne.

"There are several safe, traditional and high-yield investment opportunities in the country. May be, they take a little time to give proper returns. But, our people want quick and easy money. And they fall for anything that sounds attractive," he said.

The recent emergence of several high risk 'investment schemes' are known as 'pyramid schemes' due to their operational system which slides down with many people joining at different stages, building it up as a structure similar to a pyramid.

The schemes had been promoted by well-established networks of people. They would approach persons with a network of influential friends, to ensure the continuity of the scheme and the people at the top of the pyramid receive their commissions and other benefits for sure. Also, the participants need to spend much time and waste energy canvassing for new members.

The promoters also conduct seminars and use electronic media such as CDs to popularise and attract people to the scheme.

We met several persons who had been approached by promoters, who in turn had invested money in pyramids and received benefits. We refrain from using their real names and companies to protect their identity. Premasiri, who runs a boutique in a village, narrowly escaped being a victim of a pyramid scheme.

Having listened to a person who was promoting a pyramid scheme in the village, he had decided to invest about Rs. 45,000 in it. When he casually mentioned this to a neighbouring family, the latter advised him not to fall prey to such schemes that promise big and quick money.

The neighbours told Premasiri that he might have to take the risk of losing both his money and friends at the end of the 'high risk' game.

The promoter had also given some books to Premasiri - alluring and well printed - which explained how the investments should be made, what gold coins could be brought and what benefits could be received if one became a member.

Referring to the person who promoted the scheme, Premasiri said, "Mahatthaya showed me the cheques he had received and it was a lot of money. He said I also could earn such big money, in US dollars, within a short time. I thought why not?. But I wanted to know more about this scheme and sought a second opinion from a neighbour who told me not to put any money in it."

Two weeks later, Premasiri came to know more about pyramid schemes as there was much exposure about them in the media. He was glad he didn't put the money in it.

Premasiri was intelligent enough to seek advice before 'investing' money in a pyramid scheme.

Ajith Perera is a senior executive in a multinational company. He was lured to invest his money in a pyramid scheme by a colleague. Along with Ajith several other colleagues joined the scheme.

However, this number was not sufficient to complete the next level, enabling Ajith and the rest to receive some gains. That's the end of their pyramid and it is being stacked at a point now.

Ajith laments that he had already lost over Rs. 50,000. "Now I realise, I made a silly decision. I have no hopes of getting the money back," he says.

Ruchira Wijesuriya is a Senior Marketing Manager in a large financial institution in Colombo. Wijesuriya's colleagues were able to rally several persons around a pyramid scheme. But, for some reason, Wijesuriya kept away from joining them.

"I didn't join them for two reasons. Firstly, I don't believe in making easy money. Secondly, I am against wasting money like that, not knowing the authenticity of the scheme. My friends even offered me a free place, provided I found 20 other people to join the scheme," he said.

Some of his friends who joined the scheme claimed that they had already got some gains. "They even showed me some cheques issued by a foreign bank. But I don't know whether they got their cheques realised," he said.

B. Merrick, a journalist attached to a leading newspaper had 'invested' Rs. 60,000 in one of the schemes. Though he hasn't received any returns as yet, he strongly believes that he will receive the money at any moment.

Indika Perera, a young executive from a company dealing with health care, said he had been approached by several people. But since he didn't want to take a risk and spend time promoting the scheme among others, because he was a married man, he opted out. "I have no time to do canvassing.

So I was not interested in them. Then again, some of my friends said they got returns, some have got up to US$ 4,000," he said. Subsequently, a colleague in office told me, he had been approached by a bank executive who worked for a leading foreign bank in Colombo, promoting this scheme.

"I couldn't believe that a banking professional could promote a so-called investment method which was not falling in line with professional banking transactions. However, my colleague said he declined to invest any money in it.

Rumours had it that several banks were involved in promoting this scheme, giving the impression to many that it had some connection with the banking system in the country.

But the Central Bank and the Bankers Association warned people and asked them not to put any money in such scams. Despite such warnings and awareness programs in the media, pyramid schemes are fast spreading throughout the island.

According to one particular scheme, a person will purchase a product which itself does not represent the value paid for it, but in the expectation that he/she will get returns through expansion in the number of participants in the scheme.The initial payment becomes more an investment in the expectation of future returns, rather than a simple trade transaction.

As the expectation of future returns is based purely on the expected expansion in the number of participants, the operation acquires the characteristics of a pyramid scheme, according to the Central Bank.

The Central Bank said that the collapse of a large pyramid scheme could affect the economy of a country in general, and its financial sector in particular if the scheme was financed by participants using money borrowed from financial institutions. This situation has arisen in other countries in the past.

Also, widespread operation of pyramid schemes can have an adverse impact on the growth of an economy, as such operations are not related to the creation of any real goods or services.

Research Analyst, Premaratne, added these schemes had already taken a large slice of our money abroad. "This is a negative situation as it could lead to depreciation of our own currency."

"Such schemes will not contribute anything to the GDP. From an economic point of view, these schemes are not healthy," Premaratne said.

"Though people claim to have already received large amounts of money, someone is going to suffer at the end of the day", he added.

Some countries have enacted special legislation to prohibit Pyramid Schemes. Sri Lanka does not have such legislation as yet. The Central Bank has recommended to the government that such legislation be enacted, a Central Bank official said."

It was also known that many people have used their credit cards to transfer money into these schemes.

Referring to this, the Central Bank said it had issued instructions to authorised dealers (commercial banks) in terms of the Exchange Control Act, that undertakings should be obtained from persons, to whom electronic fund transfer cards were issued with global access, that such cards would be utilised in foreign exchange transactions only for personal expenses such as travel, hotel charges, incidental expenses, medical expenses and purchase of goods for personal use, and would not be used for capital transactions or for purchase of goods in commercial quantities.

A person to whom an electronic fund transfer card is issued gives such an undertaking to his/her bank.

The use of cards for making payment in foreign exchange on behalf of others, except on a personal basis, is, therefore, unauthorised and is an offence under the Exchange Control Act, the CB has said in a statement.

The CB believes that hundreds of people have already violated this Act. And the CB has started sending 'show cause' letters to a segment of the cardholders who have used cards for such purposes.

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