Legislation to check ponzi schemes

By | March 1, 2016

The Government of India, propose to bring in a new legislation to check ponzi schemes.

It is also encouraging that it can be expected in FY 2016-17 itself.

Ponzi Schemes

Ponzi schemes usually are a fraudulent investment model where the operator of the scheme pays returns to its investors from new capital paid to the operators by new investors.Ponzi schemes

The portion of investment  is used to pay the greedy returns promised to the old investors.

Though the legislation seems like directly beneficial to financial business like insurance, mutual funds and banks, it is also a big and important boon for the direct selling industry.

Since most of the PONZI schemes follow the MLM or direct selling model, they became a headache to the genuine direct sellers. IDSA and  its member companies are fighting  more than a decade for a separate legislation and a regulator to govern the direct selling industry.

In many instances, direct sellers like Amway were booked under the age-old Prize Chit and Money Circulation Schemes (Banning) Act 1978.  But they never  a chit company but a FMCG company operating in direct selling model.

The Dawn

In his budget speech, the FM said,

“In the recent past, there have been rising instances of people in various parts of the country being defrauded by illicit deposit taking schemes. The worst victims of these schemes are the poor and the financially illiterate. The operation of such schemes are often spread over many States.

“I, therefore, propose to bring in comprehensive Central legislation in 2016-17 to deal with the menace of such schemes,” Finance Minister Arun Jaitley said in the Budget 2016-17 speech.

As per the FICCI KPMG report, the direct selling industry accounted INR 72 Billion in 2012-13 and project it to touch INR 645 Billion by the year 2025.

The proposed new legislation will definitely uplift the face of direct selling industry in India and fuel its growth. You can see smiles in the faces of more than a million independent business owners or distributors who passionately build their own direct selling business.

 

2 thoughts on “Legislation to check ponzi schemes

    1. Vijay Post author

      They will also get the benefits like what their conventional FMCG counterparts like HUL, P&G get. Certainly positive impact because most of the companies operate from single state.

      Reply

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