A STOKVEL is not the same as money schemes that offer unusually high interest rates or returns.
Actually people must treat those promising incredibly high returns with the greatest of suspicion.
While it is tempting to run after offers that promise quick and large returns, people must understand the associated risks and that the probability of actually getting rich this way is very low to none.
Kalyani Pillay, CEO of the South African Banking Risk Information Centre, says it’s important for people to educate themselves on how to identify risky and illegal schemes upfront.
“Schemes that are prevalent in South African generally meet the criteria of either traditional Ponzi or pyramid schemes.
“What is common in both schemes, is that yields are paid to early investors from money invested by investors who joined the scheme later,” she said.
“At some point when there are more existing investors than new investors, the scheme collapses.”
Tips to spot a Ponzi scheme :
- The promoter promises high returns 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 can ever be guaranteed, however, 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:
- Promoter promises high returns over a short period and your returns increase with the number of people you recruit to the scheme.
- A fee or initial investment is required to participate in the scheme.
- The scheme has multiple levels of members, all collecting commission on a single transaction.
