self-re­liance is the so­lu­tion

Lesotho Times - - Leader -

NO doubt many Ba­sotho re­ceived news of the col­lapse of a sub­sidiary of con­victed Rus­sian fraud­ster Sergey Mavrodi’s MMM Global scheme with a sense of déjà vu. As re­ported in this edi­tion, Mr Mavrodi has al­legedly gone into hid­ing af­ter an­nounc­ing the col­lapse of his Bit­coin­based sub­sidiary which promised up to 100 per­cent re­turns.

It brings back mem­o­ries of MKM, which also promised in­vestors un­sus­tain­able re­turns un­til it went bust in 2007 and left an es­ti­mated 400 000 peo­ple stranded. While the Bit­coin-based sub­sidiary is dif­fer­ent from the scheme that has taken Le­sotho by storm, the for­mer’s col­lapse is an omi­nous sign.

The scheme’s hook is the prom­ise of high re­turns on in­vest­ments — as much as 30 per­cent per month — along with “tes­ti­mo­ni­als” from clients who claim to have achieved great suc­cess with the scheme.

How­ever, MMM Global fits the bill of a Ponzi scheme ac­cord­ing to the South African Consumer Pro­tec­tion Act which de­scribes any scheme with a re­turn than is 20 per­cent higher than the mon­e­tary pol­icy rate, which in Le­sotho is seven per­cent. In a Ponzi scheme, there is no real un­der­ly­ing busi­ness, and in­vestors are asked to buy shares in a busi­ness, or sign an “in­vest­ment con­tract”. Early in­vestors are sim­ply paid with funds re­ceived from later in­vestors. In some variations, there may be an un­der­ly­ing busi­ness used as a “front” to make the scheme seem more le­git­i­mate. Th­ese schemes can con­tinue only as long as new in­vestors pro­vide ad­di­tional funds.

Ul­ti­mately, there is one thing which al­ways holds true for Ponzi schemes? They all have to close down, and at least some of the in­vestors have to lose money.

When the scheme col­lapses, as it al­ways does, cur­rent in­vestors lose their money and the pro­mot­ers walk away rich as is now the case with Mr Mavrodi.

While the al­lure of un­re­al­is­tic re­turns gets the bet­ter of peo­ple the world over, there can be no deny­ing that acute poverty and un­em­ploy­ment in­creases the vul­ner­a­bil­ity Ba­sotho to such schemes. De­spite the con­dem­na­tion of MMM Global by the Cen­tral Bank of Le­sotho and Consumer Pro­tec­tion As­so­ci­a­tion, Ba­sotho have con­sis­tently ral­lied be­hind the scheme say­ing they had been dis­en­fran­chised by the for­mal eco­nomic struc­tures. Some of the sup­port­ers of MMM Global ar­gue that the scheme gave them a plat­form to gen­er­ate start-up cap­i­tal for their busi­nesses, since they did not qual­ify for bank loans.

The de­pos­i­tors were not even put off by the fact that Mr Mavrodi was con­victed of de­fraud­ing 10 000 in­vestors of around M520 mil­lion in a Rus­sian court in 2007.

There has been a lot of me­dia cov­er­age about MMM Global and other re­lated in­vest­ment schemes where the users were ad­e­quately warned about in­vest­ing in such schemes. Yet they went ahead know­ing all the risks. In­stead of the au­thor­i­ties dis­miss­ing the de­pos­i­tors as gullible peo­ple who are be­ing taken for a ride, they need to see the un­der­ly­ing prob­lem. In fact the pop­u­lar­ity of MMM Global is a mi­cro­cosm of the macro­cosm of very limited op­por­tu­ni­ties for the pop­u­lace to bet­ter their lives.

Re­sul­tantly, the limited op­tions are driv­ing many peo­ple to­wards such pyra­mid schemes, crime and prostitution among other vices.

That is why there is an ur­gent need for the de­vel­op­ment of an ethos for self-re­liance and hard work. In this edi­tion, we also run a story in which the Min­istry of Small Busi­ness De­vel­op­ment, Co­op­er­a­tives and Mar­ket­ing has en­gaged a Wales-based con­sul­tant as part of ef­forts to re­vive ail­ing youth co­op­er­a­tives.

Ac­cord­ing to the story, the min­istry hopes to take the cue of Wales, which has a thriv­ing co­op­er­a­tive move­ment which contributes sig­nif­i­cantly to the Euro­pean na­tion’s eco­nomic de­vel­op­ment. Re­sus­ci­tat­ing co­op­er­a­tives and re­lated en­ter­prises, as well as com­ing up with frame­works for their sus­tain­able op­er­a­tion, are among the steps that need to be made to en­sure Ba­sotho learn to be­come self-re­liant.

How­ever over the long-term, the cul­ture of self-re­liance and hard work needs to be in­cul­cated start­ing at pri­mary school.

And as much as in­vestors have to take re­spon­si­bil­ity for their ac­tions, surely reg­u­la­tors need to get more in­volved and have more fire­power to stop sit­u­a­tions like this. Pre­ven­tion is cer­tainly bet­ter than a cure.

How­ever, the govern­ment can only go so far in reg­u­lat­ing such schemes, ul­ti­mately, the in­vestors have to bear the con­se­quences of their de­ci­sions.

Newspapers in English

Newspapers from Lesotho

© PressReader. All rights reserved.