How to identify pyramid schemes masquerading as genuine financial institutions -CBK, SASRA

BEWARE!

Be wary of unlicensed deposit-taking entities, they promise heaven but take you to hell!

The growing popularity of Savings and Credit Co-operative Societies (Saccos) in the country has been attracting fraudsters in the financial sector, particularly the Sacco subsector.

The Central Bank of Kenya (CBK) and Sacco Societies Regulatory Authority (SASRA) have consistently raised the alarm drawing the public’s attention to the re-emergence of unlicensed deposit-taking entities and Ponzi/pyramid schemes, yet many still fall victim to fraudsters. 

According to the authorities, such entities entice public members to place money with them and promise quick and abnormally high returns on their cash or acquisition of non-existent properties. 

Recent CBK and SASRA’s warning to the public against the unlicensed entities comes at a time when Kenyans once again reportedly made losses amounting to millions of shillings by falling prey to an online Ponzi-like scheme disguised as an e-commerce and referral app, namely Amazon Web Worker Africa.

Thousands of Kenyans reportedly opened accounts with the app and started referring friends and family members to join in.

In the past, pyramid entities fashioned as Saccos have conned co-operators their hard-earned money. 

In the wake of the Covid-19 pandemic re-emergence of fraudulent and unlicensed financial schemes seeking to take advantage of Kenyans during these challenging times has increased.

These rogue entities include online pyramid schemes, unlicensed credit and savings schemes, and unlicensed online forex brokers and traders, according to the CBK notice. 

How to identify a pyramid scheme

Some of the fraudulent entities have styled themselves as online global networking companies that seek to recruit public members to join and make cash deposits purportedly to buy shares in the company. 

The encouragement to recruit new members to receive more benefits is a characteristic of a fraudulent pyramid scheme. 

One of the major characteristics of these entities is that they promise customers huge returns and are not licensed as required, either as online forex brokers or traders by the Capital Markets Authority (CMA) or as forex dealers by the Central Bank of Kenya (CBK). 

CMA licenses and regulates online forex brokerage and trading and other capital market products, while CBK licenses and regulates all forex dealers and the Kenya Shilling component of any online forex trading and brokerage. These rogue entities seek to exploit Kenyans and pose Money Laundering and Financing of Terrorism risks to the financial sector. CBK had previously issued a Public Notice in August 2019 warning the public against unlicensed forex dealers. 

CBK urged the public against dealing with licensed financial institutions and entities to protect themselves from being defrauded and losing their money.

In addition to a business permit, regulated financial institutions are required to have a valid license issued by a financial sector regulator. 

The list of financial institutions licensed by the financial sector regulators may be accessed from the Central Bank of Kenya’s website www.centralbank.go.ke, Sacco Societies Regulatory Authority’s website www.sasra.go.ke; Capital Markets Authority’s website www.cma.or.ke; Insurance Regulatory Authority’s website www.ira.go.ke and the Retirements Benefits Authority’s website www.rba.go.ke.

Inquiries on the activities of all other cooperative societies or non–deposit-taking Saccos should be directed to the office of the Commissioner for Cooperative Development or the nearest County/Sub-County Cooperative offices. 

The Commissioner for Cooperative Development can be reached through contacts on the website www.ushirika.go.ke.