Zimbabwe’s pyramid schemes

The greatest investors into these social financial communities that promise high returns on investments have been civil servants and vendors. Although many have fallen victim to large losses of cash, most people want to keep trying their luck with the money making ventures.

According to Investopedia, a pyramid scheme is an “illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, the earlier investors/recruits above them receive. A pyramid scheme does not involve the selling of products. Rather, it relies on the constant inflow of money from additional investors that works its way to the top of the pyramid”.

Most Zimbabweans have joined the online moneytrading pyramid schemes in a bid to cash in on the highprofits. These pyramid schemes promise huge interests within 24 hours to 30 days afterone makes a pledge.

Whatsapp-based pyramid schemes offer profits of up to 60 percent in twenty-four hours while the popular MMM, also known as Triple M, offers a thirty percent return per month.

Philani Ncube, a chartered financial analyst noted that all the schemes are “dubious schemes meant to rob people of their hard-earned money. While the people who run these schemes claim that they are not pyramid schemes, an analysis of their operations shows that they rely on recruiting new members in order to pay old ones”.

The pyramid schemes eventually collapsewith people’s money and there is no way people can recover their investments.

In order to get more detail on how these groups operate, this reporter was added to one of the Whatsapp-based schemes called Success Community Zimbabwe. The group claims to be a “mutual fund community. [In which] we are here to help each other”.

In one of its rules the scheme states that, “If you provide help you will receive help with 60% increment on your help. People receiving and providing help shall appear on a list with the amount stated, whom you are paying and who is paying you”.

The scheme states further that “NOTE THAT: To ensure that all payments are made in time and that the system is always running smoothly, you are to send 10% of the amount you are pledging to admin”.

FarirayiMasunda, a secondary school teacher from Harare, narrated how she joined the Success Community Zimbabwe pyramid scheme and lost her investments.

“I was introduced to the group by a colleague of mine who had joined before me. The interest rates sounded so good and tempting so I could not resist joining,” said Masunda.

The schemes thrive on word of mouth advertising and replicate members by appealing to the general public through enticing the ordinary person to believe that it is possible to get rich quickly, if only they take a risk.

“The first time I pledged $50.00 and I got my $75.00 the next morning. I felt very encouraged by the higher profits, I then pledged $200.00 but unfortunately the scheme collapsed before I was paid. I lost all my money and I do not have any idea how to recover the money,” explained Masunda.

After the schemes collapse, the group administrators delete the Whatsappgroups and change their numbers so that no one can trace them.

Natalia Ndou, a nurse from Bulawayo who also lost her money bemoaned the reason why she even joined in the first place.

“The profits promised were attractive and I took the last $100.00 that I had in the house without my husband’s knowledge. Unfortunately, the scheme collapsed and the group administrators are nowhere to be found. Their phones are no longer reachable. Now I have accepted that I was conned."

Another version of the pyramid schemes is the internet-based MMM Global multi-level marketing group. The way it operates is exactly the same way as the so-called Whatsappstokvel in Zimbabwe. People who join MMM Global are promised a joining bonus and 30% interest in 30 days.

MMM stands for MavrodiMondial Moneybox and was founded in 1989 by a Russian named Sergey Mavrodi who was declared bankrupt in 1992.

“Actually the idea is the same, these are all pyramid schemes. What people do not realise is that MMM Global takes longer to collapse because it pays out the 30% after 30 days. So it has a longer time span compared to the 24-hour Whatsapp schemes. In the end, MMM Global will collapse and people will lose their money except a few who got in earlier. If you are to check with countries where MMM Global was introduced years back, it has already collapsed,” explained Ncube.

MMM Global is under investigation in South Africa for contravening the Consumer Protection Act and also operating without registration either as an investment firm or stokvel. HangwaniMulaudzi, a spokesperson for the Anti-Fraud unit Hawks confirmed in an interview with City Press in April that they had opened an investigation against MMM Global.

TavongaDube, an MMM Global guider in Zimbabwe argued that MMM Global is not a pyramid scheme but rather a platform where members assist each other and receive interest after thirty days.

“For example if you pledge $50.00 on MMM Global today, you will get $20.00 as a bonus and your 30% monthly interest.Members invite their friends and relatives to join. This gives them bonuses as well. Over time more people are introduced into the network,” saidDube.

However, Dube could not explain howMMM Global managed to pay the 30% and the bonuses considering that the monies are not invested into any money making project.

Both users of the Whatsappstokvel and MMM Global conduct their money transactions through EcoCash, a mobile money transfer facility offered by Zimbabwe’s largest telecommunications company, Econet Wireless Zimbabwe.

In 2015, Econet Wireless Zimbabwe and Ecocash issued a message to their subscriberswarning them against joining the blossoming pyramid schemes. The message read, “Econet advises customers against participating in pyramid money schemes. Econet will not be held liable for any losses incurred from such schemes”.

Economists have pinpointed the harsh economic environment prevailing in Zimbabwe as the main reason why people join these fraudulent schemes.

An economist, Patmore Zhou, argued that Zimbabweans were desperate and would join any scheme that promised to alleviate their economic problems.

“We are in a desperate economic environment. Unemployment is over 90%, there is no money in the banks, and companies are closing. People become poorer as each day passes. People take a risk by investing in these pyramid schemes hoping to get better returns, only to lose the little they had”.

Civil servants say that they have been forced to join these schemes to try and supplement their meagre salaries which are no longer predictable due to continuous shifting of pay dates as the Zimbabwean government struggles to pay its workforce.

“With our pay dates now highly unpredictable, I thought investing in these schemes would increase my disposable income,” said Ndou.

The Zimbabwe government has for two months in a row, June and July postponed the salary of its workers due to cash flow challenges. While addressing a rally in Mashonaland Central province, the Zimbabwean president Robert Mugabe blamed the economic problems on sanctions from the European Union and the Unites States of America, encouraging government workers to be patient.

A circular statement issued to government departments from the ministry of Finance’s permanent secretary Willard Manungo, acknowledged that the economy is nose-diving. The circular noted, “You are aware that against the background of severe revenue underperformance and related cash flow challenges, Government has been honouring its monthly wage bill obligations, albeit, through the continuous shifting of pay dates”.

Pyramid schemes are not new to Zimbabweans but have been around since the 1990s with all of them having collapsed and people losing large amounts of money. Notwithstanding the high risks involved Zimbabweans continue to risk their hard-earned money.

Notable pyramid schemes that were widespread in Zimbabwe are the Geozing and Perfect Shot Investments which both collapsed while owing people thousands of dollars. The hundreds of people that lost money through these schemes have yet to recover their money despite efforts made to take the matters to both the civil and criminal courts.