Duping With Freebies

At the Visudha Agrotech office on Mount Road, Chennai, about 20 to 25 angry depositors are clustered around the sole employee manning the office. Give us our money, we cannot waste all morning standing here, shouts a middle-aged gentleman. As the employee gazes implacably forward, a lady pleads, Why are you making us come and beg for our own money like pichakaras (beggars).

Visudha Agrotech is a small firm which opened shop last year with great fanfare, announcing a scheme which offered 20 kg of rice every quarter for five years on an investment of Rs 6,000. Besides this, the firm also had fixed deposit schemes offering interest at nearly 30 per cent. For the last six months however, neither has the company delivered any rice to its depositors nor paid up any interest. At the office entrance, stuck to the notice-board is a two-page note signed by the owner stating that he is unwell and thus unable to attend office, and a promise to the effect that he would return the depositors money within three months, by which time he hopes to raise money by selling some property.

 

The peon who is bearing the brunt of the publics wrath disclaims all knowledge of his masters whereabouts or his residence number. Angered, the depositors huddle together sharing their misery and threatening to go to court if their principal is not returned to them. Says Leta Menezes, a depositor, Our family has Rs 28,000 invested in

this company. Now all I want is to get my principal back somehow.

I dont care any more about the interest.

Its an all too familiar situation in Chennai these days. In the last six months, at least 15 small to medium sized financial firms offering exorbitantly high rates of interest have gone bust. In many cases the owners are absconding. Among others the companies which have collapsed under the weight of their extravagant promises are Sncham, Ramesh Car Finance, Maxima, Raghavan Cars, Oriental Finance and Trimurga Investments.

I predicted this would happen at least two years ago. At that time I was fighting a lone battle against this practice of offering exorbitant interest rates, says P S Balasubramaniam, chief executive, the Investment Trust of India, a Kothari group company and one of the oldest firms in the business. In his capacity as president of the Indian Hire Purchase Association, Balasubramaniam had also pleaded with the RBI to release an advertisement warning investors against such outfits. At that time the RBI did release such an ad, naming some 31 companies. However firms like Eshwari Finance merely released a counter ad claiming they were complying with all the RBI guidelines, he says.

Balasubramaniam traces the history of these fly-by-night outfits to Maxima Investments, which started operations about three years ago. Offering a 30 per cent interest rate, Maxima lured hundreds of small investors eager to make a quick buck. Within no time, the company diversified into several ventures travel, tourism and properties.

Spurred by the success of Maxima, several other entrepreneurs followed suit, vying with each other to offer innovative fixed deposit schemes, teak plantations and the like. Overnight hundreds of hoardings advertising the birth of yet another finance firm came up. So much so that Balasubramaniam claims that the price of outdoor advertising shot up from Rs 4 per sq ft to Rs 15 per sq ft. Now, an indication that times are no longer so good, is the fact that every hoarding owner is offering a 25 per cent discount and yet few have availed of this offer.

The soft-spoken investment expert analyses that there could be three reasons behind these financial disasters. For one, most of these companies put their money on films which bombed. Secondly, some of the money

is supposed to have been utilised in hawala. A third factor is the alleged involvement of ministers in the Jayalalitha government, who are rumoured to run

the companies under benami names, and the minute the government collapsed, the outfits too collapsed.

Each of these outfits outdid one another in offering attractive incentives. A free silver lamp, silver coins and reimbursement of train fare from small towns were some of the incentives. Although all over the country, investors have burnt their fingers, as the

CRB Capital Market fiasco shows, investors in Chennai perhaps have been taken for the biggest ride. Balasubramaniam feels its because people in the southern metro have been lured so badly by the free gift and incentive schemes. No item in Chennai is sold without either a free gift or an incentive offer. Things have come to such a pass that even Life Insurance Corporation (LIC) agents in the city volunteer to pay up three months premium as an incentive if somebody takes a policy. Even public provident funds have incentives attached.

According to Balasubramani-am, most of the depositors in the fixed deposit schemes are housewives. Its a characteristic peculiar to the south Indian Hindu housewife that if somebody offers a silver lamp as a free gift with a scheme, she credulously believes in its worth, he says. Similarly, he claims that many of the depositors he spoke to said they had believed in a company just because the advertisement had appeared in The Hindu, which continues to be regarded as a Bible in Chennai. Its true that the paper verifies every obituary before printing it, but obviously they cannot check every advertisements credibility, exclaims Balasubramaniam.

Besides the incentives, the finance firms also succeeded in tapping the publics pulse in devising innovative schemes. For instance, Nataraja Karikai has a scheme whereby on an investment of Rs 5,000, farm fresh vegetables are delivered at your doorstep every week. However, the scheme has run into rough weather with the company unable to provide the vegetables. But depositors say that the company has been giving them interest in cash and the marketing manager has assured that the money will be returned.

Similarly, there are schemes where the company delivers milk and oil at your doorstep for an investment of Rs 10,000 each. There are similar schemes for poultry, pork and meat. Says a retired defence officer, I subscribed to these schemes with the idea of getting all the family rations at home. While most are making a hash of their promises, Kamadhenu is the one company which has been keeping its promise of a litre of milk free every day. Says M Hemalatha, I have subscribed to both the milk as well as the oil scheme and for the last four years I have been getting it with no hitch.

Meanwhile, the thousands who invested in Sncham, Eshwari, Ramesh Car Finance and others, seem to have bid goodbye to their capital. Most of the depositors have now formed associations of sorts and filed court cases. The Tamil Nadu government has promised to seize the assets of the owners, liquidate these and restore the losses. However all this is bound to take many years.