The government is said to be in the process of putting into place a mechanism for preventing Ponzi schemes. No doubt, the immediate provocation behind this is the collapse of a scheme run by an outfit called SpeakAsia, which is said to have duped lakhs of people around the country. Apparently, there are a large number of smaller schemes of this sort that are going on in different parts of the country. According to the news, one idea is that a regulatory or investigatory agency will examine the economic viability of such schemes to decide whether they are real businesses or whether they are just moving money from newer victims to older ones in order to keep the illusion going.
In a country where the mass of people have poor levels of financial literacy, there are plenty of other types of questionable financial products that are being sold. Many of them appear to slip between regulatory cracks. The biggest such case was that of the plantation outfits in the 90s, which went on for way too long because no particular regulator was specifically responsible for plantation schemes at the time.
Even today, there are some widely advertised schemes that appear to be financial products masquerading as something else. For example, a number of real estate developers advertise ‘assured returns’ from people ‘investing’ in their projects. The language of the advertising and the marketing material is that of a financial product. The pitch compares it to other financial products. And yet, to all appearances, it can’t be regulated by the RBI or SEBI because the financial product is packaged in a curious real estate wrapper.
Perhaps financial regulation too should be based on a ‘negative list’ concept. Whether they are disguised as trees or as real estate, and investment promising returns is a financial product and ought to be regulated as such.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
