Dear Readers,
A few months ago I had a conversation with a taxi driver in Delhi. His name was Prakash Yadav and he was originally from Jharkhand. During our conversation, he told me that he had invested in Sahara Group’s investment schemes and he was now struggling to get his money back. His investments were in the range of Rs 2-3 lakhs, which was the total wealth of his family then. He said no one in his village had received their refunds yet. The Sahara Group investment scheme owned by Subrata Roy was a seed fund that had millions of investors from all over India. Roy, who started with the small investment schemes, went on to own airlines, hotels and a cricket team. He passed away this week after a long illness. Whether the taxi driver will get his money back or not, we don’t know. But I think there is a bigger learning here for the policy makers, regulators and financial institutions. Let me share.
The Sahara story
In 1978, Subrato Roy started Sahara Finance, which allowed people to make small investments. The product became very attractive to those at the lower end of the economic pyramid such as rickshaw drivers, small shopkeepers and laborers as they could invest any money and receive an assured return that was higher than the fixed deposit offered by many banks. Sahara’s investment schemes became very famous and millions of people became customers in a very short time. Back then, Sahara’s investor base was equivalent to a medium-sized bank’s customer base.
Why did people trust Subrata Roy? Why did they invest in Sahara Finance, which was neither a bank nor a well-known financial institution? Yadav said that Sahara’s agents used to come home to collect cash and also to redeem funds. Also, the agent was from his own village and he never thought that they would lose money. More importantly, the agent would also transfer money to whoever chose withdrawal.
This was a unique service back then, way before bankers could even think of door service.
In his early days, Subrata Roy himself used to go on a scooter and collect funds. His agents will go door to door on bicycles. No bank or financial institution even thought about it then. Opening a bank account became seamless only in the last 10 years after the advent of the JAM (Jan Dhan, Aadhaar, and Mobile) trinity. It was a nightmare earlier, and therefore tapping into the formal way of saving and investing meant a great effort for people in general. On the one hand, the politicians would talk about financial inclusion. On the other hand, the banks would not allow anyone to open an account without strict KYC, minimum balance and mandatory recommendation of two account holders from the same branch. Such pervasive issues have kept millions of eligible customers away from the formal banking system for years. And when someone offered these people services at their doorstep, they trusted blindly.
Roy and his “finance business”
Roy continued to raise funds from such investors and build his empire. When regulators realized he was raising huge funds, millions of investors were locked out. Roy ventured into education, media, hotels and airlines, and also bought IPL cricket and Formula One racing teams. Sahara cleverly created their products, which were slightly missed by the regulations. When regulators found his plans, it was too difficult for them to track down his activities due to jurisdictional issues. But the complaints piled up and they had to get into it. YV Reddy, then governor of RBI and CB Bhave, then Chairman of SEBI, faced Sahara and Roy. But more than the regulators, the Supreme Court bulldozed Sahara. In fact, the Supreme Court has dismissed SEBI for going slowly towards the Sahara.
The history of the Sahara shows that there is greater potential in small villagers who had no alternative to deposit their funds. They found faith and solace in the Sahara because the formal institutions were neither there nor interested in serving the interests of the poor. I strongly believe that this is also one of the reasons why many people in the country fall prey to various chit funds and fake investment schemes, greed could be the second reason. But access to the financial system was a first, which otherwise people like Yadav would not have found.
Roy lost the battle long back. He has deposited over Rs 25,000 crore with SEBI, but there are many like Yadav who are still waiting for their refunds. The Union Home Ministry has launched a portal to resolve the claims but it is not as easy as a collection of Roy’s agents.
As always, here are the top 5 stories of the week. Hope you find it meaningful.
Happy Reading,
Amol Dethe
Editor
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