The million dollar question!

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Gamini Wickramasinghe - Chairman, Bank of Ceylon	Financial swindles sent shock waves through the society even in the past and may be continuing in the future as well. What has gone wrong? Is the question on which two expert economists express their views.	Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo Pix: Kavindra Perera
* People go for easy money and lose at the end * It is unfair to blame the CB alone for the mess		* Formal banking system still far away from people * Best remedy: Keeping the public well-informed

The recent financial scam caused a shock wave in the society. How do you see the situation?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

After this shock wave the Central Bank identified six other organizations and told them to register through the proper channels under the financial regulators. Central Bank is the country's financial regulator and it is fair by them to direct these so called 'banks' to register as Central Bank-regulated companies. If they come then they will be Central Bank regulated financial companies; otherwise people's deposits will be with illegal organizations and the Central Bank will have to take action against such organizations. If these organization do not get registered then the Central Bank cannot protect the public from such frauds and also cannot be held responsible.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

This situation is not very surprising. This had been there in the society at different times. May be this time it is a bit of a large scale. It got a huge publicity from the media and the person involved was a well-known figure who had received much popularity again through the media. That was a main cause in attracting such a lot of money as people did tend to trust him simply because he is a popular figure! This informal money market existed in the country as well as the informal methods of earning money. Though we have a high literacy rate still the knowledge about the banking sector is very low among the people. Still people trust these informal financial institutions some of them were just individuals only!

How were the people taken for a ride by the culprit?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

It is very easy. There is even the simplest form of deposits called 'seettu' among a group of people. Those are not of great interest. If an organization, tagged as a 'bank', come forward to offer 7% interest a month, where we, the commercial banks find greatly difficult to offer, then people tend to go for those. Since these will run for a couple of years people think this is prim and proper until some major disaster takes place. Then it is too late. Some people when they have a lump sum which they can not declare - may be since those must have been earned improperly, tend to invest in such organizations. People think that if they can get along for 15 months with a 7% interest per month they recover their capital. In a way it is correct.Anything else is considered as a bonus. Then people are happy. Even if the Company gets busted people are satisfied since they can recover their capital in and around fifteen months. It is a massive profit. I strongly believe these criminals' modus operendi is to silence the law enforcement and "strong" people of the society by giving them the impression that their system is highly profitable and make them enjoy the benefits as well. It works because, they have satisfied a group that would cause problems to them in their professional level. Then they can with less trouble handle the small man! At the end of the day the small man gets hammered as he is at the bottom of the heap.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

In this case it was an organized racked of an individual. It is unbelievable how these people promise such high interest rates. I am personally attached to Boards of two merchant banks and I find funding is the main problem the bankers' have to face. This person has given the impression that he was investing the money in the construction industry. But at present the construction industry is a bit slowed down. But the education and health sectors have become very promising fields. So these were used as coverups for him to gain people's trust. Even educated people as well as some senior police officers were alleged to be involved in the scandal. This Sakvithi Ranasinghe put up International Schools, construction companies etc. Central Bank failed to publish notices warning the public on these unauthorized organizations.

What are the conditions favourable to such people engaged in fraudulent activities?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

Since some people prefer these types of fraud banks, for short term benefits, the information coming from people is at a very low level.People tend to believe in the trust they can have on these people. If their relatives, friends say that there is no problem in investing in these institutions then people don't care for what the Central Bank says. These fraudulent businessmen tend to disappear when they fail to fulfil what they have promised. The Million dollar question is as to how they are paying this much of high interest to the people. If found then we, the commercial banks can flourish! Depending on the individuals and their way of earning at times they may fear of being monitored. Such people go for these fraud banks. They think finding more easy money through the easy money they own.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

Still I find there is a considerable gap existing between banks and people.The entire financial mechanism itself abuses the general public. When these people see a small loophole they are smart enough to creep through it. This person noticed it and started abusing it. He did it with the assistance from officials in those relevant authorities, famous people, intellectuals etc. We still have this fault when there is no friendly system for investments specially for people who get a lump sum through foreign employment, businesses. People with businesses they end up with a large fortune.Today though the banking system has become much simpler it remains still rigid. People must be enlightened on financial institutions where secure investments can be made with a comfortable interest. These failures weaken investments in reliable business ventures.

Do you think law enforcement mechanisms are strong enough to protect the people?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

Personally my answer is yes and no. I have experienced in other parts of the country. These people gain a very trustworthy position in the society and start their businesses. They change their areas of operation from time to time. In most of the towns in Sri Lanka have these types of fraud organizations. Our President himself is the Finance Minister. The Central Bank has immense authority over country's finance's and no one can play with it. But the problem is there are thousands of such people running fraud investment organizations around the country. The other factor is their fluidity in action. They are using the term 'Bank'. At times I have seen, particularly in certain villages, people tend to protect these people because of the faith they have in them.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

We have a very good law enforcement system but when it comes to practice it is found to be rather weak. I think the financial authorities are aware that weakness are existing. If we take Sakwithi Ranasinghe's case he was running the business in the heart of the City. As I see, the Central Bank got interested in the issue only at a later stage. Another example can be the Okanda Finance. They were also running business in broad daylight.

Is there possibility of paying compensation to the victims?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

When everything is running smoothly people are satisfied and silent.But the moment things go wrong they want the Central Bank to come and rescue them. This is unfair. I do not know whether the Government has the capacity to do anything. When sometime back one person in a commercial bank created somewhat similar issue the Government had a responsibility to protect the investors. But in these cases many of the investors don't even give their real names.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

Now there is a case at High Court filed by a depositor against the Central Bank alleging that his rights were violated as a result of not being properly informed. Yet, people willingly invested money and they also received a certificate which has no validity! There is no other way of settling these matters than taking recourse to law!.
 

The culprit is still at large. How best can we get the international support to track him down?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

These people are master blasters! They know how to play with the law and how to charm people. The Police have the capacity to inform the Interpol and get their assistance. And the pacts and agreements between the countries will be in favour as well.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

Sometime back there was the famous private commercial Bank Case where the big man who ran the institute, a well-known senior banker, suddenly vanished after the detection of his malpractices and until today the law enforcement authorities couldn't trace him. With the modern technology people have the possibility of changing their physical appearance etc. - and they can spend a lot since they have the money. These culprits will certainly disappear. Unless the authorities put more effort in tracing their whereabouts these offenders will easily vanish into thin air.

Are you happy with the measures taken so far to track down the culprit?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

I know what I read in the press. The man is not yet traced. So still there is lot of room left in the investigations. It has to go on further.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

We see it is happening but rather slow. But, on top of these I feel very sorry for those ordinary people getting hammered because of these criminals. There are disabled people as well and some have taken loans from banks having mortgaged their property. The fates of many of these people are pathetic.

Are such situations unique to only developing countries? How would you compare them with developed countries?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

In developed countries people are more suspicious about most of these "quick returns". But even in Colombo and outstations like Katharagama unofficial money exchanges take place. In USA with the mafia the same thing can happen.

But as I see in a country like ours people with a high literacy rate should be able to understand these trends and keep out of trouble.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

In developing countries, yes there is the possibility. But in developed countries the chances are almost at zero level. The reason is the developing world has a huge informal sector in the society. But in the developed world it is not so. In the developed world every citizen is counted. They have a social security number and tax file. Our systems are not as developed as those of developed countries. We have to have a system where every citizen is counted and registered. Though it seems to be rather radical we must take appropriate actions to safeguard the community interest.

What advice can you give to the people when investing their hard earned money?

Gamini Wickramasinghe - Chairman, Bank of Ceylon

I think all these investors who were with these financial institutions knew what they were really doing. Banks are all over the country and people know all about the interest rates etc. So suddenly if some one emerges and states that he can pay a higher interest rate they must first think over how he is going to do so! The stability of the institution matters very much.

People go for easy money and they lose at the end of the day. One has to think twice before one invests one's hard-earned money. Invest money with a solid institution. If people are knowledgeable enough they can contact the Central Bank and get the information particularly on these newly established institutions. Central Bank has all the information ready with them to help the investors.

Dr. Ranjith Bandara - Senior Economist/Lecturer, University of Colombo

The responsibility lies more with the financial authorities and regulators. If you go to those predominantly agricultural areas one can see dozens of such institutes operating. Our system has failed to reach ordinary people at the grass roots level. The formal banking system is still far from people. Hence, there is room for these unauthorized money lenders and investors to make easy money. On the other hand, people must also realize that they should invest their money, their fortune at safe recognized institutions. This also must be a part of the school curricula. Therefore even the education authorities must take the responsibility of educating the society on investments. People must be aware and familiar with the financial system in the country. We must first see whether these organizations have legitimacy to attract money and carry out transactions. The banking sector must, at least now, pass the message across to the people to deposit their hard-earned money in secure investments. Keeping the general public informed, can be one of the effective remedies. Even in this high literate society still there are possibilities for unscrupulous elements to cheat people.