Discussing this kind of business operation, the CB says eliminating UFBs is further complicated by the fact that a segment of the ‘public voraciously pursues high gains, even though they know the potential adverse consequences of their decisions’.
Given the importance of creating awareness and preventing people from becoming victims of UFBs, the CB issued several notices last year in newspapers listing banks and non-bank financial institutions that are licensed by the Central Bank to accept deposits from the public have been published to raise public awareness. An intensive public awareness campaign which included telecasts and broadcasts on various television and radio channels, was carried out highlighting the negative implications of placing funds with UFBs.
The CB said these businesses are promoted primarily by offering or guaranteeing very high returns when compared with those offered by formal financial institutions.
“In many instances, a majority of the investors attracted to such UFBs are not aware of the illegality and/or the inherent risks in investing in these institutions. In addition to attractive returns, the possibility of evading taxes and the opportunity to engage in money laundering are identified as some of the other factors that tempted investors to invest in these UFBs,” it said. As a result of the faulty and unviable nature of the business models of the UFBs as well as the mismanagement of funds by them, these entities finally collapse, and the investors lose their hard-earned money, sometimes their lifetime savings. At the same time, the failure of UFBs tends to affect public confidence in regulated financial institutions and therefore impacts on financial system stability, as well, the CB said.
Has already initiated legal action against several companies, under the Finance Companies Act, for non-submission of information and conduct of finance business without authority. Further, the Central Bank directed some companies to repay the funds mobilised and such repayments are being monitored.