Skip to main content

HOW TO RECOGNISE A PONZI AND NOT FALL VICTIM



Another Ponzi scheme has come crashing down around the ears of hundreds of “investors”. Unsurprisingly.

In its recent reincarnation poor Ugandans were lured into a scheme where they bought computer tablets. This entitled them to a monthly pay off, $100, and a Christmas bonus for their children. In this case the unsuspecting investors -cum -victims were being given a share certificate. Meaning you accept to take the part of the risk in this project. Which was inadvertently reducing their burden of risk and liability for the issuing company. I leave that area to smart lawyers to handle.

 As is always the case with these things, it’s not quite clear where the pay-out will come from. A common characteristic of these schemes is that you might get initial payments before you starting missing a few and the stories begin.

The promoters of these schemes or scams often use the money from the latest entrants to pay the older “investors” until one of two things happen. Either the rate of new entrants cannot support the payments to all the older members or the promoter disappears into thin air with all the collections. It never ends well.

These schemes, also known as pyramid schemes, rope in many people very quickly, more so now with social media, and last no more than a few months from start to collapse, depending on the level of sophistication.

They are attractive because they promise huge returns quickly. The promoters feed on our human weakness for quick, painless success.

What pains me about these Ponzi schemes is that the authorities know about them well before they go burst – the Capital Markets Authority warned against this current scheme months ago. The police knew about their shenanigans too. And yet no one moves to stop them. And often times the promoters get away with a slap on the wrist – if at all, after separating poor Ugandans from their hard-earned cash. If my memory serves me right, the central Bank of Uganda has warned the public about similar schemes in the past, but the public collective memory is very short.

Under such circumstances clearly, we are our own keepers. And the only way to guard against falling prey to these charlatans is to gain knowledge, improve our financial literacy.

I cannot relate to people who say “Money things give me headache” or “I cannot manage those money things”. When I hear that I want to shake sense into people who say that.

When you decide that for yourself you are giving up a key responsibility. A responsibility which helps put food on your table and secures the roof over your head and ensure your kids go to school.

This is how financial success happens.

You work long and hard at an endeavour that gives you an income. You save some of that income. You learn how to invest your savings, often by starting a business. It takes years to make any business a success. If and when you do make your business a success, you become financially successful.

And how do you recognise financial success? When your business or investments, not your job, can take care of you and your family’s needs many times over.

I have over simplified of course to drive home the point
. 
But , if  someone is interesting you in a scheme that does not follow this route to financial success, run a mile away. It’s cheaper. As all Ponzi victims will tell you.

Another way to detect a Ponzi scheme is to look at the return on your money the promoters are promising, on an annual basis.

The safest investment -with almost zero associated risk- is the government treasury bills or bonds, which give in recent years up to 15 percent a year.

So, if for instance they promise to give you 20 percent on your money every month or more than triple your money in a year you should smell a rat.

 If the deal was so good wouldn’t we all be in it? The banks, the insurance companies and even me?
Don’t be fooled. If a deal is too good to be true, it normally is too good to be true.

(AUGUST 2018)

Comments

Popular posts from this blog

SPORTS AS AN ANALOGY FOR BUSINESS

Like everybody else I know, my spirit was lifted by the success of our athletes at the World Athletics Championships last week. The diminutive Halima Nakaayi showed the heart of a lion, sprinting over the last 100m of the women’s 800m event to snatch victory from a more favoured American runner. It was so uplifting to watch. Subsequent stories about the challenges she has had to overcome to get where she is now were testament to the determination of the woman. Joshua Cheptegei’s victory, while no less inspiring, had a different quality to it. Cheptegei was the man to watch going into the event. He won previously at the Commonwealth Games last year and the in the just concluded Golden League. He was a silver medalist in the 10,000m at the last World Championships in London, pipped to the tape by the now retired Mo Farah. Cheptgei still had to battle the Kenyans and the Ethiopians all the way. But as a favourite he lived up to expectations, which sometimes is more diffic...

CONGRATULATIONS ON YOUR GRADUATION, ITS NOW TIME TO WORK….

Thousands of students will be graduating from their respective universities in coming days and months. Makerere, our country’s oldest university will kick off its ceremonies on January 15th and the other universities will follow. The graduates have already had a taste of the real life, having finished their studies mid last year and tried to get employed. Many know by now that the world can be harsh and unforgiving. I hope many are tightening their belts in readiness for the struggle ahead. Some may have decided to kick the tin down the road by continuing with school. And others may have given up altogether. My prayer is that there are more of the first and less of the last kind. In talking to young people, I find that what is needed is a reorientation of their minds – a mindset change. Let me share with you certain facts to help manage their expectations of the world and how they can fulfil their potential in our context. First of all, the world owes you ...

FINANCING OUR ENTREPRENEURS, A CHALLENGE WE CANNOT IGNORE

In recent weeks the issues of financing for business has been in the news, in one form or the other. We have seen the challenge a past minister is facing with having to hang onto his home. The case is in court, so we can’t discuss its merits and demerits, just to say he may have fallen prey to some predatory practices, with the lender skirting dangerously on the edge of the law. Across the border in Kenya a cap on bank lending rates has been repealed. Three years ago Kenya’s parliament passed a law restricting lending rates to two percentage points above the rate at which the central bank lent money. In reaction banks pulled back their lending to businesses, depressing the economy and prompting the reversal. So now banks can “properly” price their loans, often to the discomfort of small and medium sized businesses. The two incidents are related and speak to the availability and cost of credit. In my business career I have benefitted immensely from credit. It is next...

WELCOME TO UGANDA AFREXIM BANK

Last week Afrexim Bank opened its regional offices here in Kampala in an event that I think should have had much more play in the media. The Afrexim Bank has as its stated mission the desire to stimulate trade, primarily within the continent but also improve Africa’s trade with the rest of the world. Worthy goals and we should sit up and take notice. The bank’s coming to Uganda is not by chance. A lot of work was done and supported by President Yoweri Museveni to win it away from neighbouring Kenya. The Ugandan businessman is bound to benefit from the proximity to the bank if we get organized. "Of course the bank will be dealing with big deals, but one can hope their expertise in trade financing and the other products they bring to the table, can trickle down through the financial sector and improve our dealings.... But just to give a perspective of what our businessmen suffer because of the gaps in trade facilitation in our economy. Say I want to import...

BEWARE OF THE CON MAN

I read with a mixture of horror and sympathy for the victims of the latest Ponzi scheme gone bad in town. Last week a company, Global Cryptocurrencies Ltd, collapsed and along with it went billions of shillings, by police estimates, of their clients’ money. The company working out of an obscure office on Namirembe road, managed to rope in all manner of clients with the promise of magical returns – 40% a week! I have been in business for most of my life, if I could be guaranteed 40% week I would sell everything I own and jump in with both feet. Or maybe not. And this is why. They say if anything is too good to be true, it is. If you can get an annual return of 40% on your investment you will be doing extremely well. So if you put in a million shillings in your business and walk away at the end of the year with sh400,000 after taxes you have found a good thing, and I would like to be your friend. I have seen my share of scam artists and con men. Below are my fast an...