Beware of swindlers

In a startling revelation concerning the Golden Key fiasco, Deputy Solicitor General Yasantha Kodagoda told Court on Friday that the failed finance companies of the Ceylinco Group continued to accept deposits even after they became insolvent way back in March 2008.

According to him, the depositors and creditors were not told of their liquidity problems and no action has been taken by the directors to liquidate the company.

This is indeed is a wilful defrauding of public that carries criminal liability. It shows the extent to which the Companies in question had been confident in the magic name of their parent establishment while accepting deposits they knew they were not going to return. This amounts to daylight robbery - keeping unsuspecting depositors in the dark of the true position while continuing to accept their money.

Today, hardly a day passes without a media report of an arrest of some swindler who had fleeced the public by accepting deposits promising high interest. This it appears had been the easy road for some to riches.

The Sakvithis, Danduwam Mudalalies may well be only the tip of the iceberg. It appears that the racket had taken deep root in the financial system fuelled by greed of a section of the public. Bogus finance companies had been mushrooming while the authorities had been asleep and unsuspecting people taken for a jolly good ride.

True, finance companies did play a supplementary role to the established banks and was a vital cog in the economic wheel particularly in the early days of the open economy. Many of the finance companies offered even better terms than Banks and in most instances garnered the lions share of the business and a bigger stake in the commercial ventures. The best example was the financing offered to the nascent private bus service in the country.

The booming business made them offer better interest to depositors with the money being shovelled into still more enterprises. However, the demand made more and more players enter the field making it a crowded marketplace. A majority of them were shady individuals which were subsequently proved when they fled the country with the loot.

The cracks first appeared with the collapse of the HPT in the late 80s which for the first time in Sri Lanka saw depositors stranded. Then too the Central Bank was blamed for not having in place a proper regulatory mechanism. But from the Golden Key fiasco it appears that the public had failed to learn their lessons.

True, the solidity behind the names of certain Finance Companies would have more than assured the depositors of the safety of their money. But given the astronomical sums deposited it seems they have certainly thrown all caution to the wind. The collapse of well-known finance companies have already jolted the financial system with a heavy run on deposits.

True, the Central Bank has taken measures to overcome the immediate problem. But not before public confidence in the entire Banking system had been dealt a huge dent. Should people stop investing in the financial markets the economy could grind to a halt, for it goes without saying that it is the continued flow of financial resources through the Banking system that keeps the economy ticking.

The Central Bank should take steps to arrest this crisis of confidence not just by streamlining administration of the failed Finance Companies but also allaying the fears of prospective depositors. According to reports the jailed Directors of the two Finance companies are to hold an extraordinary general meeting to establish an independent trust to facilitate repayment of some 5,600 depositors. It is believed that 30 percent of the deposited money could be raised by the sale of F&G assets alone.

On top of this, Ceylinco Chairman Lalith Kotalawela, according to media reports, had been taken during the weekend from prison to the Central Bank for an evaluation of his assets to be disposed of in order to pay back depositors of Golden Key Credit.

Hopefully the long wait of the traumatized depositors would end soon. Hopefully their plight would act as a deterrent to other would-be depositors not to be consumed by greed and moreover not to be taken in by attractive commercials of finance companies that are intended to hoodwink the customers.