How to recognise a Ponzi and not fall victim

OPINION

By Patrick Biature

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.

The writer is a businessman and investor of longstanding and chairman of the Private Sector Foundation of Uganda