Dangers lurking in the vast informal money market
Monday, 3 August 2009
Md Asaduzzaman
Jubok, a non-government organisation (NGO), pretended as a bank, took money from its depositors with the lure of interest rates high above the market rate and then failed to keep its commitments. The arrest of the chief executive of Jubok should draw the attention of the government at its highest level to this kind of illegal activities that have been going on in the country for a long time with apparent impunity.
After the arrest of the Jubok chairman, many aggrieved depositors met the media and described to them their agonising experiences with Jubok and how they were swindled out of their life's savings. But this was not the first time that the people have heard about such unauthorised bank-like operations which get away with the hard-earned savings and earnings of people, pushing many of the latter to a state of almost penury.
It appears from the media reports that there are many such fraudulent organisations which have created a vast informal money market. These bodies are drawing deposits from the people and lending money to business organisations and individuals in the same manner as the banks do. But there is a fundamental difference between the banks and them. They do not have any legal sanction for running their operations as the banks have. However, such illegality has not prevented them from drawing substantial deposits. The number of depositors with them has been rising as the government took steps to lower rates of return on its own savings schemes and the banks also lowered their deposit rate.
The fraudulent organisations collect huge sums as deposits with the promise of giving their clients relatively higher rates of interest against such deposits. The depositors, however, do not know that at some point they run the high risk of getting deceived and cheated and becoming financially ruined. The pensioners, the middle- and low-income savers, who keep their money or other resources with such organisations, stand to lose all if the government does not take drastic actions against the illegal banking activities of these organisations or if these bodies themselves do not close down their business for whatever reasons.
Most of these organisations are known to be facing a difficult situation with their classified loan burden which is no less formidable than the one faced by the regular commercial banks. So, if many of these organisations start closing down in quick succession, this should not come as a surprise. But the closure of a recognised or authorised commercial bank would cushion the depositors somewhat due to the intervention from the central bank on behalf of the depositors and other helpful policies taken for the depositors. The government or the central bank would do nothing like that for an unauthorised bank-type body on the event of its collapse. Such a development may create a much greater awareness about these organisations among the people who may then rethink their decision to keep their money with them. But before the occurrence of such traumatic incidents, the government has a duty to warn the people adequately in time about the dangerous gamble of saving with such bodies. It is imperative that the people should be warned, through regular publicities in the mass media, not to keep their monies with any fraudulent organisations.
The government should also take tough regulatory measures in respect to these bank-like organisations. Such a move from the government may lead many of them turning into full-fledged banks adhering to banking regulations or force many of them to close down their operation after taking full responsibility of returning the depositors' money under a framework to be supervised, by the central bank.
Jubok, a non-government organisation (NGO), pretended as a bank, took money from its depositors with the lure of interest rates high above the market rate and then failed to keep its commitments. The arrest of the chief executive of Jubok should draw the attention of the government at its highest level to this kind of illegal activities that have been going on in the country for a long time with apparent impunity.
After the arrest of the Jubok chairman, many aggrieved depositors met the media and described to them their agonising experiences with Jubok and how they were swindled out of their life's savings. But this was not the first time that the people have heard about such unauthorised bank-like operations which get away with the hard-earned savings and earnings of people, pushing many of the latter to a state of almost penury.
It appears from the media reports that there are many such fraudulent organisations which have created a vast informal money market. These bodies are drawing deposits from the people and lending money to business organisations and individuals in the same manner as the banks do. But there is a fundamental difference between the banks and them. They do not have any legal sanction for running their operations as the banks have. However, such illegality has not prevented them from drawing substantial deposits. The number of depositors with them has been rising as the government took steps to lower rates of return on its own savings schemes and the banks also lowered their deposit rate.
The fraudulent organisations collect huge sums as deposits with the promise of giving their clients relatively higher rates of interest against such deposits. The depositors, however, do not know that at some point they run the high risk of getting deceived and cheated and becoming financially ruined. The pensioners, the middle- and low-income savers, who keep their money or other resources with such organisations, stand to lose all if the government does not take drastic actions against the illegal banking activities of these organisations or if these bodies themselves do not close down their business for whatever reasons.
Most of these organisations are known to be facing a difficult situation with their classified loan burden which is no less formidable than the one faced by the regular commercial banks. So, if many of these organisations start closing down in quick succession, this should not come as a surprise. But the closure of a recognised or authorised commercial bank would cushion the depositors somewhat due to the intervention from the central bank on behalf of the depositors and other helpful policies taken for the depositors. The government or the central bank would do nothing like that for an unauthorised bank-type body on the event of its collapse. Such a development may create a much greater awareness about these organisations among the people who may then rethink their decision to keep their money with them. But before the occurrence of such traumatic incidents, the government has a duty to warn the people adequately in time about the dangerous gamble of saving with such bodies. It is imperative that the people should be warned, through regular publicities in the mass media, not to keep their monies with any fraudulent organisations.
The government should also take tough regulatory measures in respect to these bank-like organisations. Such a move from the government may lead many of them turning into full-fledged banks adhering to banking regulations or force many of them to close down their operation after taking full responsibility of returning the depositors' money under a framework to be supervised, by the central bank.