Pawns & Ponzis

The scandal of chit funds (“cheat funds” in colloquial Bengali) highlights the appalling state of personal banking. I go into hiding whenever my bank’s so-called “relationship manager” approaches because I know that he (or she) will only try to extract money for some bank scheme. The only explanation I can think of is that even grand multinational banks pay a pittance to executives who must earn commissions and bonuses by operating like foot-in-the-door sales people.

Actually, the tremendous popularity of chit funds acknowledges the thrift and industry of workers while indicting the callous negligence of our rulers. The victims are unsophisticated wage-earners who can afford to put by only a few rupees every day, week or month for a son’s education, a daughter’s marriage or old age medical treatment. It’s their insurance for the proverbial rainy day. Then, one morning, they find their savings gone because the fund managers use one man’s capital to pay another’s interest. Apart from money-laundering or hawala transactions, here isn’t any productive income-generating activity.

These scams take their name from Charles Ponzi who duped thousands of American investors and raked in $20 million in a few months while driving six banks into ruin. They could just as well have been named after Bernie Madoff who operated the largest financial fraud in US history, or our own Gopala Rao, a former clerk in princely Mysore who duped people in the 1940s with high-interest deposits. When his bank crashed, Sir C.V. Raman, the distinguished scientist, reportedly lost his Nobel Prize money with which he had planned to finance a research institute.

Greed plays a large part in persuading people to entrust their savings to groups like Saradha, the West Bengal enterprise whose founder, Sudipta Sen, was recently arrested in a Kashmir resort hotel. Few can resist the temptation of high tax-free returns on their capital. Even large reputable undertakings (especially trading houses and those in the construction business) tempt clients with high interest for their cash deposits and no tax deducted.

Nevertheless, many honest and conservative workers do seek legitimate channels of investment. Gujaratis and Punjabis put their savings into business enterprises. Less adventurous Bengalis prefer the security of savings schemes. That’s why West Bengal has always been India’s biggest mobiliser of small savings. But as the Communist Party of India (Marxist)’s Gautam Deb pointed out, the state’s small savings and post office collections were only `194 crores during the April-October period last year against the targeted `8,370 crores. Another Marxist leader, Suryakanta Mishra, claims that some marketing companies mobilised between `15,000 and `16,000 crores in the past few years and invested the money in real estate and media organisations. According to one estimate, small investors paid `9,000 crores into chit funds during 2011-12.

If the sharp drop in recorded small savings didn’t set alarm bells clanging, West Bengal Chief Minister Mamata Banerjee might have stopped to wonder how Mr Sen amassed so much wealth as to buy the 10 mobile health units that she had inaugurated for her highlypublicised campaign to win over Maoist rebels in the Jungal Mahal area. In his rambling 18page letter to the Central Bureau of Investigation (which probably concealed more than it revealed), Mr Sen called himself “a strong follower of Maa Saradha (wife of Sri Sri Ramakrishna Paramahansa (sic) Deb)” and pleaded he had always “fully dedicated” himself to her and believed himself “to be the only son of Maa Saradha”. He claimed to be in “business not for becoming a rich man but to establish the ideals and ideologies (sic) of Maa Saradha, to help poor and needy people, and to give a better life to the people of rural and semi-urban India”. Ms Banerjee may have been flattered and impressed into believing him.

Mr Sen’s letter accuses several important functionaries of the ruling Trinamul Congress of, in effect, extorting protection money from him. Whether or not his specific charges are true, such scams are never possible without at least the government’s tacit encouragement. The Maharaja of Mysore of the day conferred the title of Dharma Ratnakara on the notorious Gopala Rao. The rumour in the 1980s when thousands of small people lost all their savings in another chit fund scam run by a company called Sanchaita was that the Left Front government had delayed action until one of its important ministers had got back his family’s deposits.

Very few victims expect to get back anything this time. The Chief Minister’s grand promise of `500 crore will be a drop in the ocean of Saradha’s indebtedness, even if she can raise it. And even if anyone takes seriously her silly comment advising people to smoke more, the proposed tobacco tax isn’t expected to provide more than `150 crore. (Incidentally, many of her recent remarks sound both naïve and callous for a seasoned politician.) The feeling is that the whole affair will have been suppressed by that time.

So, where can the ordinary citizen take his savings? The gleaming air-conditioned interiors and quick and courteous efficiency of Singapore’s POSBank (short for Post Office Savings Bank) belong to another planet. There are very few banks in the interior. Even if a man trudges to the district headquarters which may have one, few can cope with the complexities of PAN card, KYC (Know Your Customer) and Form 15H. As for rural post offices, many workers prefer to queue at longdistance bus stands to send their savings home through a known villager. He is safer than the village postmaster.

That’s when smoothtalking chit fund agents promising the rainbow make their killing. It makes me feel almost kindly about relationship managers. They might be pests but, at least, they or their employers don’t vanish with deposits. The writer is a senior journalist, columnist

and author