With markets regulator Sebi planning to pass an order banning the West Bengal-based Saradha Group from collecting any more deposits and the state government asking for firm action, future investors in the state may be saved from such chit-funds in the future. Indeed, Sebi also plans to handle other such chit funds in the same manner.
The problem, however, is that the regulatory system always seems to be playing catch up. There have been equally large sums collected by teak and other plantation schemes in the past; several tens of thousand crore of investor funds were lost when unscrupulous promoters found there was no one monitoring the end use of the IPO proceeds in the 1980s and 1990s. Similarly, in the case of some multi-level marketing schemes, it has only been after investors have lost money that the authorities have stepped in. While Sebi had come up with the concept of collective investment schemes many years ago, there are many escape clauses that allow firms like Saradha to escape Sebi’s attention. Unless all such schemes that raise funds are brought under either Sebi or RBI, there’s another Saradha waiting to happen.