Are finance companies safe for investments?
I would like to pose the question whether finance companies in Sri Lanka are safe places for the public to repose trust and place monies in deposits.
My own experience with finance companies points to the fact that they are not safe at all to place deposits. As a senior citizen retired from the private sector, preceded by a stint in the Middle East, I wish to highlight my predicament and utter frustration with financial institutions which are carrying on business in Sri Lanka.
I had deposited my hard-earned money and gratuity payments with finance companies, most of which were approved and subject to monitoring by the Central Bank (CB). In a few cases I had deposited with non-registered financial institutions which paid dividends on time until they were prohibited by CB. However, all of them whether registered or otherwise are in a state of bankruptcy facing difficulties to return the capital or continue with monthly interest payments.
It is well-known to the public that Golden Key depositors got only a pittance out of their deposits and there is no hope as to when they will get the balance money. Another Ceylinco group company namely CIRL, which almost collapsed due to mismanagement and large scale corruption, on being restructured at the intervention of CB, unilaterally converted 68 per cent of each deposit to stocks (though not gone to the stock market yet), and are holding the balance 32 per cent as a new deposit paying a paltry interest rate of eight per cent. Though I was one who went to court on this issue demanding that our money be returned, at the first hearing itself the court said they cannot proceed with the case due to CB’s involvement in restructuring it. Maybe the court did not want to upset the applecart, but where is justice for depositors?
Yet another registered finance company in which I had interest, namely CIFL, is on the verge of declaring insolvency as it is unable to continue operations or pay back deposits due to mismanagement and bungling, though their affairs were supposedly underthe microscope of CB. It has been reported that their real assets amount to less than 1/3rd of the deposit base, highlighting a glaring disparity. If there were proper ‘checks and balances’ exercised by CB on a regular basis could such an outcome ever come by? Here again, the CB has initiated an outside audit and begun a restructuring process, but if it is likely to yield the same result as CIRL what use would it be for the depositors?In the case of non-registered finance institutions that were in business, I can quote two companies namely Okanda Finance and Vajira Investments where I had some deposits. They were alright with their interest payments until CB threw a spanner in the works. In the case of the former, the liquidators appointed by courts find that their assets are not enough to pay back deposits and cover their fees. Every declared asset had a bloated value to match up to the deposits whilst unscrupulously stashing away depositors’ money and taking the court for a ride! Cannot our investigators find where the money had gone and whether they have properties and investments elsewhere? If at all the depositors get their money back, it could be a mere fraction of the deposit and that too may not be in the depositors’ lifetime. In the case of the latter, they remain tight-lipped as to when they can return the deposit. What a funny state of affairs with these financial institutions!
Whilst the depositors languish in misery and are despondent about the failure of their investments, there are reports that monies from the so called bankrupt finance companies had been siphoned off by violating the country’s exchange control rules and invested in companies in Singapore, Australia and elsewhere. It amounts to a highway robbery and if authorities are unable to prevent such white collar crimes recurring every now and then what can the depositors do? The long arm of the law is not long enough to catch the culprits. This could have a domino effect on all finance companies and the miscreants could go scot-free. If this is the order of finance companies in Sri Lanka, who will have faith in them to place deposits? The CB’s action in each case was not only tantamount to dereliction of duty but instances of locking the stable doors after the horse had bolted. I hope this letter would serve as an eye-opener for all potential investors in finance companies.
Nihal Fernando
Moratuwa
(The writer can be reached at nihalf@empfed.lk)