By Mohamed Ashrafulla, Dubai Islamic Bank
I Monetary Advisory (IMA) was till the May 2019, the most popular financial entity for investment of savings especially for the Muslims in Karnataka and neighboring states. The entity had a spectacular rise and the range of investors included the affluent and beggars, literates and illiterates, old and young, working and retired and even the students. The main attraction was the incredibly high and consistent returns for several years. The returns were puzzling for the bankers and financial wizards and even the financial regulators tried to analyze the sources but their inaction is an indicator that even they had failed to find any major irregularity to nail the IMA. The investors had become the marketmen for IMA and got their friends, relatives and neighbors to invest. Even the pulpits of mosques were used to convince the Muslims to invest in IMA as Halal and Islamic. In June 2019 curtains are drawn on IMA as the head Mr. Mansoor Khan has gone missing and he has left only a message to the investors to hunt for the invisible treasure.
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 small and new member who joined the ranks of Charles Ponzi (who perpetrated a scheme in early 1920 and is credited the distinction of every such infamous scheme named as ‘Ponzi Scheme’) and Bernard Madoff who had administered a largest Ponzi scheme of about USD 65 billion and also it was the longest surviving Ponzi scheme for a record period of 20 years and more.
IMA, was it a Ponzi scheme or a genuine business entity. The research analysts of large Ponzi schemes have listed the following indicators of a typical Ponzi scheme: Unrealistic returns being promised (Ultra-high returns initially, toned down to very high returns); The moneys to pay the investors profit is raised from the 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 the traits of IMA and moreover 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 other genuine business entity has earned and doled out such high profits for several years, only a Ponzi scheme can do that.
After the closure of IMA, will similar stories stop from recurring again and will the tragic stories of the investors in IMA shown on TV as an opera make the people wiser. May be not! As there are already many books, articles, so many warnings and constant advices, yet they seem to do little good. The fascinating power of persuasion and deception of con artists and their stories will continue to recur regularly and IMA will just be a page in a boundless massive book of Ponzis. Greed and gullibility has and will continue to make people dumber and more careless about their investment and they are endlessly caught in the net of Ponzis.
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 ‘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 and sharia compliant etc. The marketing and performance characteristics of all such entities is similar i.e., Lure of incredibly high returns, Show of investment in metals, No transparent financials and disclosures, Limited liability entities, Management controlled by family members and the money to pay the investors profit is raised from the new investors who are made similar promises. Some of these entities have already met the fate of IMA and more are in the pipeline. It takes brains to be a swindler but, for targeting the Indian Muslim community no brains but only liberal use of the words ‘Halal’ and ‘Islamic’ is good enough to rob millions.
The questions arise as to who is providing this Islamic certification? Do they have the adequate knowhow to analyze the business models and financials? How are they ensuring that the profits are generated from the 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.
The Business, Political and Religious leaders of the Muslim community should see this as a red flag. They should make efforts for establishment of a Unitary Sharia Authority similar to All India Muslim Personal Law Board. The process of certification of entities seeking public funds for Halal, Islamic or Sharia Compliant Investment should be centralized, formalized and monitored. The authority should have moral courage to highlight and notify public about unethical business practice of any entity doing its business using the words ‘Halal’ and ‘Islamic’.
IMA is just a page in the book of Ponzis and it will be turned over but restoring the faith of the community in the words ‘Halal’ and ‘Islamic’ will be a long and hard effort.
Mohamed Ashrafulla is based in Bangalore and Retired Head of Credit Risk Review, Dubai Islamic Bank.