The South African Banking Risk Information Centre (Sabric) has warned South Africans to beware of money schemes that offer unusually high interest rates and returns.
The organization has warned that consumers need to understand the associated risks before accepting offers that promise quick and large returns, and that the probability of actually getting rich this way, is very low to none.
CEO Kalyani Pillay said: “It is important for consumers to educate themselves on how to identify risky and illegal schemes upfront. Whilst banks do warn their clients when they detect such schemes, promoters are deploying more clandestine approaches to avoid detection by banks.”
At some point when there are more existing investors than new investors, the scheme collapses and all moneys invested, could be lost.
Here are tips to identify a Ponzi scheme;
– The promoter promises high returns, which could not be achieved through normal conventional investment opportunities, within a short period.
– Often high returns are paid initially and then investors are lured into investing even more money.
– They often promise guaranteed returns – no return is ever guaranteed, all investments carry some risk.
– Promoters are usually quite secretive about the actual business model.
– The promoter becomes unavailable and returns dry up.
– Usually the scheme collapses soon thereafter.
Tips to spot a pyramid scheme are:
– Promoter promise high returns over a short period and your returns increase with the number of people that you recruit to the scheme.
– A fee or initial investment is required to participate in the scheme.
– Participants are asked to recruit more investors and rewarded for bringing them into the scheme.
– The scheme has multiple levels of members, all collecting commission on a single transaction.
– There is no underpinning financial investment that generates growth.
– Participants are sometimes taught how to circumvent detection methods.
– They are often disguised as stokvels and may even use virtual currencies like bitcoins to sidestep the formal banking sector where they could be detected.