Risks related to money circulation schemes

PRECIOUS KAELA KALUSHA writes @SunZambianTHERE are several savings and investment groups that many Zambian adults have taken up to help cater for their household financial needs and to improve each other’s living conditions such a Chilimba or village banking.In the last two years we have heard and seen people speculating about the legitimacy of these groups. Earlier in the year we saw the closure of some institutions involved in money circulation schemes, which were commonly referred to as ‘Village Savings groups’ by the Bank of Zambia in collaboration with other law enforcement agencies, and the debate just heated up.In today’s write up, Bankers Association of Zambia will help you to understand some characteristics of money circulating schemes and how they differ from the types of savings and investment groups we discussed in last week’s article. According to the Banking and Financial Services Act (BFSA) No. 7 of 2017, a ‘money circulation scheme’ means a plan, arrangement, agreement or understanding between two or more persons that involves the pooling and distribution of funds by recruitment of subscribers, and which, for its continuous existence and realization of its benefits, substantially depends on the incremental recruitment of subscribers for an unspecified period. These schemes are prohibited under Section 157 of the BFSA.Here are a few pointers to help you differentiate between a money circulation scheme from savings or investment group:i) A money circulation scheme is an open group with an unlimited number of members and the recruitment of members is continuous for an unspecified period while a savings or investment group is a closed user group and has a limited number of members with a defined period of a cycle usually between 6 to 12 months.ii) With a money circulation scheme, members are enrolled by a third party who also collects and distributes pay outs while with savings or investment groups the affairs of the group are overseen by the members of the group with the help of a management or administrative team.iii) Members of a money circulation scheme often do not know each other while members of a savings or investment group are usually drawn from among friends, workmates, a church, or community.iv) In a money circulation scheme, members are promised high returns in a short period of time. These returns are dependent on payments from the new recruited members. However, savings and investment groups gain interest on the loans given to other members of the same group and from group business or investments.Generally, getting involved in a money circulation scheme is a very risky venture because there is no guarantee that all recruited members will get back their investments. Every person who has been a member of any form of a money circulation scheme has a story to tell. Others have gone away happy because they were paid out while others have been unfortunate because they woke up and the system which was being used to collect investments was no longer in existence. Then you pose to ask a question, why would one risk their hard-earned money to only lose it in such circumstances?Thoughts would be that people do not have information on such issues or that people have a strong desire to earn money easily. This brings us to some takeaways from our discussion:i) Make it a point to find out more about a scheme or group before joining. Ask friends, experts, and/or financial regulators and verify the facts.ii) Take advantage of existing savings and investment products within the financial services sector that suit your needs.iii) Any person or institution that conducts or participates in a money circulation scheme commits an offence and shall be liable upon conviction to an administrative penalty.As the saying goes, ‘if it sounds too good to be true, it probably is too good to be true’.Golden rule: Recognize, Reject, Report!!! CYBER FRAUDPREVENTION TIPSOF THE WEEKConsumers increasingly rely on computers and the Internet for everything from shopping and communicating to banking and bill payments. While the benefits of faster and more convenient “cyber” services are clear, the strategies for preventing online fraud and theft may not be as well-known by many bank customers. Customers can protect themselves from Cyber Fraud by:• Use of “strong” user IDs and passwords that will be harder for a hacker to guess.• Being careful of where and how to connect to the Internet. Always use trusted and secure internet and avoid free and public internet.• Installing security software updates when using a smartphone or tablet (including “auto lock” features and the ability to remotely remove data if a mobile device is lost or stolen).• Installing strong antivirus on computers to protect them from malicious software (“malware”) that can steal valuable personal financial information.• Always verifying calls/messages from a party purporting to be from the bank by calling the bank’s customer care line or contacting the relationship Manager.• Not storing Online Banking PIN on your computer or Apps.The author, Precious Kaela Kalusha is Bankers Association of Zambia Communication and Research Officer. Please share your comments and thoughts with us via Email: Mirriam.Zimba@baz.co.zm.