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by S. Selvakumar

The Central Bank warned would-be depositors to beware of 'investments' and 'loans' promoted by finance companies, saying that 'investments' and 'loans' were the latest ruse adopted by a majority of finance companies to circumvent banking laws and hoodwink gullible and innocent people into depositing with their institutions. In a bid to circumvent this ruse, the Central Bank has declared certain suspect finance companies as institutions that have no authority to accept investments and the latter have filed action in courts to get a ruling.

A spokesman for a finance company said they have openly stated that they are not accepting deposits but only loans also known as credit investments, since there is no restriction whatsoever, under the existing law to accept loans from any quarters. The spokesman further said that according to the interpretation given in the Finance Companies Act, No. 78 of 1988, Finance Business means acceptance of money by way of deposit. "No mention has been made about the acceptance of money by other means, such as loans, borrowings or investments.

However according to the interpretation given by the Central Bank, loans, borrowings and investments taken on an undertaking to repay in cash or kind are illegal activities. This interpretation is certainly a joke. According to this interpretation, an institution or individual cannot borrow money from somebody also even for a personal need", the spokesman of the finance company further said.

However, authoritative Central Bank sources warned would-be depositors not to look for higher interest rates and not to fall prey to various ruses adopted by unscrupulous financial institutions. "We don't say that all financial institutions are out to cheat you but we are prepared to advise would-be depositors if they need our assistance", sources further said.

A spokesman for a finance company said an interpretation in respect of a controversial issue should be given by a court of law and not by the Central Bank. "We do not think the Central Bank is competent enough to give such a verdict on its own", the spokesman added.

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