The question Saradha raises: Are India's poor unknowingly funding terror outfits?

The ills of an illegal finance (chit funds, ponzi schemes) market are written enough, so are the reasons that gave birth to ponzi schemes in every nook and corner of the country and nurtured them to multi-crore establishments.

Certain illegal financiers are even bigger than some of the smaller commercial banks and most of the co-operative banks in the country. There have been attempts by regulators and state, central governments to identify and terminate such entities for public good.

But the larger question is whether the funds illegally raised from thousands of depositors, often from poor households, are being used to feed terror outfits? Were India’s poor indirectly contributing to terror funding from their hard earned money?

The Rs 2,000 crore Saradha scam, which broke out in April last year, defrauding about 1.7 million small depositors in the eastern part of India, has taken an entirely different, more disturbing turn with investigators looking at incriminating evidences of Saradha’s links to Muslim fundamentalist organisations across the eastern border.

Going by a report in The New Indian Express, Sudipto Sen, the prime accused and chief executive of Saradha, diverted funds raised from Indian citizens to Islamic fundamentalists in Bangladesh through Trinamool Congress’ Rajya Sabha MP, Ahmed Hasan Imran.

These funds, investigators say, were transferred to Bangladesh and converted into foreign currencies, before they got transferred to different locations on Indo-Bangla border, to fund anti-India radical Islamic groups.

Imran was also interrogated by the Enforcement Directorate for over seven hours in the Saradha scam. Various media reports had earlier linked him to the Students’ Islamic Movement of India (Simi), which is banned in India, and other such organisations.

Thus, the case no longer confines to the notions of a typical Ponzi schemes, where the money manager runs off one fine morning, leaving hundreds of defrauded depositors before the closed cash counters of its branches.

Threescenarios arise here.

First, if the investigations indeed confirm the allegations related to Saradha’s terror links, that means deposits raisedfrom the unsuspecting public were in turn used to destabilise the nation and its citizens, including the very people who gave the deposits.

Second, the origin of the funds needs to be ascertained. If indeed the funds were transferred to Bangladesh and European banks, there is a possibility of huge chunks of blackmoney from India being transacted to tax havens through this channel.

Third, Saradha is not the only firm that has mobilised thousands of crores through illegal schemes/ investment plans. The bigger concern is where did all the money raised by Saharas and PACLs- bydefrauding the poor-go?

Even in the case of Sahara, where the company raised about Rs 24,000 crore, the regulators haven’t been able to find/ verify the original investors mentioned on paper. These could be benami investors or people who never lived on earth, in the first place.

The court and regulators are putting pressure on Sahara to refund the money with its interest to investors to the extent that its chief Subrato Roy is hard pressed to sell his family silver to comply with the court’s order. However, it is doubtful whether any serious investigations have been done on where Sahara has deployed the funds raised from the so-called public investors.

Sahara is not alone. There may be several other firms, yet to be uncovered by regulators, who continue to raise huge sums of money from the public even now.

In the recent past, both the Reserve Bank of India and the government had initiated a probe to unearth the details of financial firms running lending/ deposit taking business without the necessary clearance from the RBI.

Besides the firms running Ponzi schemes, there are thousands of private chit funds too operating illegally. The illegal chit fund market is worth trillions of rupees and poses major threats to the common investors and the financial system.

In the light of the developments unfolding at Saradha and given the involvement of influential politicians in the matter, there is need for a serious re-look at the current pace at which regulators approach illegal financiers and deposit takers, whether big or small.

To be sure, in August, the government gave more teeth to market regulator, Securities and exchange board of India to act against illegal money-pooling schemes involving Rs 100 crore or more. Under this, Sebi was empowered to launch recovery proceedings, pass disgorgement orders for ill-gotten money and facilitate its return to identifiable investors, among others.

The market watchdog will also have powers to seek call data records and other information from any person, company, bank, authority or organisation during its probes.

The earlier the regulators act, the better.