IMA – A Page in the Book of Ponzis

Greed versus Exploitation

It takes ‘brains’ to be a swindler, but for targeting the Indian Muslim community may be no brains but only liberal use of the words ‘Halal’ and ‘Islamic’ is good enough to rob millions!

I Monetary Advisory (IMA) was till May 2019 one of the most popular financial entities for investment of savings for Muslims in Karnataka and neighbouring states. The entity had a spectacular rise, and its range of investors included the affluent and beggars, literates and illiterates, the old and the young, working and retired people, and even students. Its main attraction was the incredibly high and consistent returns for several years. The returns were puzzling for bankers and financial wizards. Its investors had become marketing men for IMA, and they got their friends, relatives and neighbours to invest. Even the pulpits of mosques were used to convince Muslims to invest in IMA as supposedly ‘Halal’ and ‘Islamic’. In June 2019, the curtains were drawn on IMA as its head Mr. Mansoor Khan went missing.
Joined the Ranks of Charles Ponzi
Is IMA a unique story of spectacular rise and disastrous fall? No, as similar stories have appeared with monotonous regularity. IMA is one among many, and Mr. Mansoor Khan is a new member who joined the ranks of Charles Ponzi (who perpetrated an infamous scheme in early 1920 and is credited with the ‘distinction’ of every such scheme named as ‘Ponzi Scheme’) and Bernard Madoff (who had administered a large Ponzi scheme of about USD 65 billion, the longest surviving Ponzi scheme for a period of 20 years and more).
Research analysts of large Ponzi schemes have listed the following indicators of a typical such scheme: Unrealistic returns being promised (ultra-high returns initially, and then toned down); the moneys to pay the investors profit being raised from new investors; as the number of investors grows, the number of new investors must grow exponentially (This is because their moneys are used to pay the previous investors). Do all the investors lose under the scheme? Not necessarily. Some investors gain together with the promoters. But most investors lose heavily in the end.
All the above features were traits of IMA. The business plans and storyline of source of profits were changing periodically (gold bullion trading to gold import from mines to gold showroom to schools to healthcare). Moreover, as no genuine business entity has earned and doled out such high profits for several years, only a Ponzi scheme can do that.
‘Religious’ Tag
Is there anything important and different in the tale of IMA? Yes indeed, there is, and it is the ‘religious’ tag of the investment being supposedly ‘Halal’ and ‘Islamic’. Inspired by IMA, many other financial entities promoted by Muslims have mushroomed especially in South India with the tag of ‘Halal’, ‘Islamic’, ‘Sharia compliant’, etc. The marketing and performance characteristics of all such entities is similar i.e., the lure of incredibly high returns, show of investment in metals, no transparent financials and disclosures, limited liability entities, management controlled by family members and money to pay the investors profit being raised from new investors who are made similar promises. Some of these entities have already met the fate of IMA and more may be in the pipeline. It takes ‘brains’ to be a swindler, but for targeting the Indian Muslim community may be no brains but only liberal use of the words ‘Halal’ and ‘Islamic’ is good enough to rob millions!
The question arises as to who is providing this so-called ‘Islamic’ certification? Do they have the adequate knowhow to analyze business models and financials? How are they ensuring that the profits are generated from risk-based investments? Is there a process in place for monitoring the business activities to confirm that they are ethical or not? In the absence of a unitary authority for such certifications the answers for these questions are obviously not available.
Moral Courage Needed
The business, political and religious leaders of the Muslim community should make efforts for establishment of an authority to arrange for the certification of entities seeking public funds for Halal, Islamic or Sharia-Compliant Investment. The authority should have moral courage to highlight and notify the public about unethical business practice of any entity doing business using the words ‘Halal’ and ‘Islamic’.
IMA is just a page in the book of Ponzis, but restoring the faith of the community in the words ‘Halal’ and ‘Islamic’ will be a long and hard effort.
(The author is Retired Head of Credit Risk Review, Dubai Islamic Bank)

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