Sacco investors beware Ponzi schemes are coming to eat your lunch: CS Munya

The Ponzi scheme or pyramid schemes in Savings and Credit Cooperative Societies (Saccos) industry is alive and well, and investors should beware. That is the message from Kenya’s trade and Industries Minister Peter Munya, players and regulators who are calling on the prevalence of this infamous fraud.

Munya was speaking Wednesday at a Stakeholders forum for the validation of the draft regulations for specified non-deposit taking Sacco businesses in the country, where he called for a hastier formulation and adoptions of rules and regulations to restore sanity in the multi-billion sector.

“The policy is responding to public outcry. We have inadequate laws and regulations as well as weak policies. If these are properly put in place we should then have a Sessional Paper on the same later in an effort to restore confidence in the sector that has been eroding,” said the CS.

This comes in the wake of increasing cases of fraudsters that are milking Kenyans dry of their hard earned money. Such cases are fast taking root in the budding sector and as a result pushing away investors and straining the sector alike.

“We want these individuals to be vetted, the likes of Ekeza Sacco, the Ponzi schemes that are coming back through Saccos. This is meant to restore investor confidence and the earlier this is done the better for the sector,” he said.

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.

Named after Charles Ponzi, an early 20th century swindler, the ruse works like this: operators promise victims high returns on their investments — but instead of investing their funds, the perpetrator uses their commitments to pay off earlier backers and takes a cut for themselves. As the scheme progresses, the number of victims and the size of their combined losses grow exponentially.

Ironically, the government through Commissioner of Cooperatives Mary Mungai in a Kenya Gazette notice published in February this year announced the reinstatement of the Sacco’s registration which had been cancelled last year – saying that “the lifting of the ban was effected after it met set conditions.”

“Whereas the cancellation/liquidation order was invoked and on conditions set out in the Cabinet Secretary for Industry in a letter dated June 25, 2018 which has been complied with. I now in powers conferred to me revoke the cancellation/liquidation order dated March 26, 2018 and reinstate registration of Ekeza Sacco,” read parts of gazette notice by Ms Mungai.

The Sacco in question had been dogged by controversy since last year when the government announced it had cancelled its license for flouting Sacco laws.

The permit was therefore revoked after complaints members that Ekeza was sharing office space and bank accounts with Gakuyo Real Estate Company, also owned by televangelist-turned-politician David Kariuki Ngare alias Gakuyo.

The society had 26 branches and Sh2.56 billion in deposits at the time. Ms Mungai cancelled the Ekeza Sacco’s license through a gazette notice on March 23, 2018.