How to stay away from Ponzi Schemes – Ahamed Hasan

I am keeping the title of this article pretty straight and simple so that the message can be delivered quite sound and clear to it’s audience. Since last two months the gruesome murder of Mr. Jamal Khashoggi in Turkey is shaking the entire world. During the same period a similar grave issue is shaking the hearts of many people of the south Indian states. The issue is many modest middle and lower middle class families have lost their hard earned money to many investment companies that have come up with very attractive schemes luring investors of exorbitant returns.

Initially I did not want to write an article on this matter. But as things grew serious, being a responsible citizen and social activist, I did not want to remain a silent spectator. Many of our well wishers have also requested me to come up with an article coupled with a critical analysis so that at least in the coming days people become more aware of the ponzi schemes and stay away from becoming a prey for the lucrative trap these investment companies unfold for luring innocent investors. Out of caution and political reasons I will not take the names of any speculative investment company that are either defunct or still surviving.

The Background

In the last six months or so, many companies that raised money from middle class investors have either went bankrupt or their founders went underground. Also heard that some have also left the country and leading a lavish aristocratic life in some foreign countries with whatever money they have swindled from the public. I wanted to mention the names of those companies here. Then I thought it is not even worth to mention their names and more important now is how to help the investors identify similar companies in the future and take the right investment decision.

The modus operandi of all these investment companies are invariably the same. They come out with an attractive scheme, raise the money left, right and center, start paying monthly payouts. After receiving the dividends for few months, the investor become greedy and starts investing more. After few months the fund raisers pack their bags. This trend has to stop…stop immediately. The public has to become aware and alert. These companies have pushed the economic conditions of a specific community by at least a quarter century. Crores of rupees was swindled in the name of Halal Investments. Ponzi scheme firms have made the Community much more financially backward, insecure and completely demoralized.

Before I dive deep into the subject let me quote one beautiful saying of our beloved prophet that emphasize the position of an honest business man who has taken care of his investors and customers like his own eyes safeguarding their investment and ensuring highest quality.

The truthful and trustworthy businessman will be in the company of Prophets, saints and martyrs on the Day of Judgment.Darimi & Tirmidhi]

There are two very important attributes of a good businessman – Truthfulness (Sadiq) and Trustworthiness (Ameen) that will elevate him to the highest level. I will write a separate article outlining the guidelines for the investment companies that intend to raise investment from public. Here, in this episode I will elaborate more on the responsibilities of an investor before he/she invests into any business or schemes.

Investor? Know your Duties & Responsibilities

I have come up with a simple 7 points agenda (rules) for any one that would like to invest his/her hard earned money into any business or schemes. Before investing a person should think and take an informed decision. Money getting into the right hands will make itself grow and flourish. On the contrary if it gets into the wrong hands it will not only incur loss to the investor but the one who raised it will also not enjoy it happily for a long time.

Rule 1 – Prevention is better than cure

There is a saying, “If there are people to get cheated, there will be people to cheat“. In the last days of the world, cheating is considered as a business strategy. In this world one should learn how to live a simple and modest life. This is the beginning of getting saved from the traps of these investment firms. If we start living for ourselves, life is very simple. But when we start living for others (show off), life becomes very expensive and complicated. This is what will force anyone to find out ways to invest money to earn more.

Money saved is money earned. If we plan things and our expenses properly we can easily save 15-20% on monthly bills. If the average monthly expenses of a family is 40K, with proper planning of expenses you can save up to 8k. This is a huge earning in itself. In the industry, we call this as lean processes. Not just in work place. Lean practices have to be applied in our day to day life, within our family. Henry Ford defined the lean concept in one sentence: “We will not put into our establishment anything that is useless.”. Our Creator puts it very simply, (إِنَّ الْمُبَذِّرِينَ كَانُوا إِخْوَانَ الشَّيَاطِينِ ۖ وَكَانَ الشَّيْطَانُ لِرَبِّهِ كَفُورًا – 17:27), Indeed, the wasteful are brothers of the devils.

Rule 2 – Get guided Divinely & Humanly

Any financial investment involves lot of hard work and sweat. It is not easy to just invest into an establishment just like that. Lot of forethought and planning has to go into it. The moment you come across any investment opportunity, the first thing you have to do is to seek the guidance of your Creator by way of praying and doing Istikhara. Another thing that you have to do in parallel is to get advice from people who are experts in the financial domain. We have been informed by the most truthful of men (peace be upon him) in one of his gems of wisdom: “He who resorts to Istikhara will not be at a loss; and he who resorts to Mashwara (consultation) will never regret.“.

Rule 3 – Don’t get Carried away

Have complete peace of mind about a particular investment opportunity and then move forward investing. You need to be extremely cautious and careful about the firm, scheme or business on which you are investing your hard earned money. Any scheme that is giving you an annualized return of more than 15% then you have to be extra careful. Now-a-days, ponzi schemes are promising returns that are far beyond anyone’s normal imagination. These companies systematically target poor people of the society that includes widows without any financial, elderly people who need some money for monthly medical expenses, etc.

Rule 4 – De-Risk your investment

This is a very important rule while making investments. Never put all apples into the same bucket. Distribute the risk wisely and proactively. Say for example, if you want to invest 10 lakhs, put the money into 5 different businesses. Two may fail and three succeed. If you put the entire lot into one bucket then the chances of salvation are very little. But, unfortunately, the ponzi scheme companies are also very smart. They start giving the dividends with your own money. The investor thinks that he has started getting the profits. Then he invests more money into the same business and also recommends to his friends and relatives. Eventually everyone falls into the trap. It’s quite painful.

I was so far thinking only uneducated illiterate people become victims of these scams. But I was shocked to know that even educated people like doctors, engineers and NRI’s are not left behind. The other day I was talking to our Architect, Saqib Khan. He was telling me the story of some of this architect friends who invested huge amount of money with one of the companies that became infamous recently. They are now struggling to get their money back and the company has given some assets not even half the value of the investment they have originally made.

So, you have to take a wise decision of how to de-risk your investment. It’s always good idea to seek for principal security. Though in true sense it’s not right when it comes to a business, but this is just to give some peace of mind. If something goes wrong with the business that you are investing you should be able to recover either at least the principal or some part of the principal if not the profits. Another very important point is whenever you refer someone for a particular investment opportunity, tell that person to do the complete due diligence before investing. Tomorrow, God forbid, if something goes wrong, you should not be in trouble just because you have referred.

Rule 5 – Business is all about profit & loss

As an investor, one should be aware that any business is all about profits and losses. Unfortunately, today’s investment firms lure the individuals only telling about profits and they never sensitize the public about the risk factors of investing. As an investor one should be mentally prepared to incur losses. Always plan for the worst and take steps to the extent of one can tolerate. If an investment firm is not giving proper insights about profit and losses then there is something wrong. You need to become even more careful. Unfortunately our investors also think an investment is all about profits. But it’s not true. Historically the chances of the ratio of profit and loss has always been 50:50. If someone tries to change that ratio, then you have to be alert.

Rule 6 – Be part of the business

Another biggest problem with today’s investors is they want quick and easy money. They want to remain blind folded as if they are not willing to know anything about the business they have invested the money. All they want is to get the monthly returns, no matter what. Its exactly the same thing putting money in a bank and getting fixed interest every month. The members of the community trying to imitate the same thing investing into “Halal Investment companies” and expecting a monthly fixed returns. This is absolutely nothing but interest but they want to call it with a different name. This mentality has to change.

These companies are also smart enough to generate a random number every month and disburse the returns every month based on the random number instead of giving a fixed percentage just to create a feeling that the monthly dividends are purely based on some profits.It is important for the investor to keep a close eye on the companies financials. It is his right to know the balance sheet. He should ask for it. Any company that is not transparent to show the financials then there is something fishy. We have recently come up with some humble investment schemes in the organic farming space and we publish the financials to our investors on a monthly basis.

Any business or company that is running on public funds should make it a point that it should function like a public limited company which means the accounts should be published periodically. But ironically, these investment companies in spite of raising huge capital through public funding function like a private limited or a family run business with no accountability or transparency. Whenever any investor asks them to share certain financial details, they simply decline telling that it’s our business secret. We can never do this in a company that is running through public funds. It is denial of basic and fundamental right of an investor.

Rule 7 – Be better informed than remorseful

This is a quite sensitive rule. I have kept this rule in the last because it is very important. Never invest into a scheme or a business just because some respectful scholars have given a favorable opinion about the business/scheme. I have all respect for religious scholars. But we need to see if they are experts on the financial domain that includes Islamic Finance.

There is one more thing related with this rule. Before investing, you should also assess the technical expertise, educational background, family background, required skills and the financial domain understanding of the people who are behind the business or a particular scheme. You also have to see how was their track record in the previous business they have ventured into. Without these basic due diligence one should not invest.

Every Tom, Dick and Harry can not start a investment company. There has to be a very strong business and financial model behind it. The team should possess solid understanding, expertise and competency of the financial domain. Not just the expertise, there has to be solid processes to run and succeed the business. The business should be based on values, integrity, social responsibility and above all, the business ethics. As I mentioned earlier, transparency is the key. Though the company may not be a public limited company listed in the stock exchange, but since the company runs on public money they have to function like a public limited company.


Hope I have fully conveyed whatever I wanted to convey in order to save the hard earned money of people from getting into the wrong hands. Though the article turned out to be little lengthy than originally thought, I feel it is worth to be read fully and the rules understood thoroughly. Through this article if at least 1000 people get benefited then I have done my social duty and met the conscious objective. Imagine how much money of the community has already went into the drains. It’s our responsibility to safe guard the hard earned money of everyone irrespective of religion or caste. At the end of the day, money invested in the right place will boost the country’s GDP and economic growth.

Yours Sincerely,

Ahamed Hasan, Bangalore, India

+91 9880 800 488 ([email protected])