Central Bank lethargy helps Sakvithi bolt
Namini Wijedasa
It was the Central Bank’s September 19 raid on six unregistered financial institutions that triggered the collapse of Sakvithi Ranasinghe’s shady business, Governor Ajith Nivard Cabraal claimed last week.
“Our officers went to Sakvithi on a Friday and there was a run on the institution the following Monday,” he said.
The disclosure came amid strong criticism from the opposition that the Central Bank had done nothing to stop illegal finance companies from duping the Sri Lankan public.
Putting up a fight, Cabraal shot back that the Central Bank had done everything possible within the limits of the wholly inadequate Finance Companies Act of 1988. He also blamed the public for having ignored nearly 20 million rupees worth of press notifications (within the past year) advising them not to invest with finance companies that were not registered with the Central Bank.
Greedy
“Sakvithi fell because we acted,” Cabraal told LAKBIMAnEWS. “We raided six institutions on 19 September which triggered off a run on Sakvithi. We will do this in future also. But if the public goes and puts their money in various places, don’t blame us after that.”
“If you take today’s newspaper, how many banks are inviting the public to deposit their money with them?” Cabraal continued. “But people don’t put their money in banks or in authorised financed companies. Instead, they go to places like Sakvithi or Okanda Finance. Why? Either they have black money to conceal or they are so greedy to get the highest, most unrealistic interest rates that they take the risk.”
“The Central Bank is grappling with world financial crises,” he asserted. “But the whole day we have to answer questions about somebody who put money at 84 per cent interest with Sakvithi, ignoring repeated advice not to do so! This is distracting us from world issues.”
Sakvithi’s Ranasinghe had promised 7% interest per month, working out to an impossible 84% annual interest. To stay in business, he would have had to make a return of more than 90%.
Former COPE Chairman Wijeyadasa Rajapakshe scorned Cabraal’s claim that the Central Bank had done its job. He said the governor had promised COPE as far back as July 2006 to curb illegal finance companies functioning without Monetary Board approval.
The 2007 COPE report says: “Frequent publication of notices in newspapers indicating the illegal functioning of finance companies are the most unhealthy practice which could cause an immense effect adversely to the economy of the country. The Governor undertook to take the remedial measures within a period of two months,” it states.
Rajapakshe said Cabraal had personally appeared before the committee in July and December 2006 and promised to clamp down on finance companies within two months. COPE had recommended that the Central Bank should “take positive legal action with regard to the non functioning finance companies which amounts to about 80% of the total number of the registered companies.”
War of words
“How can you take his word?” Rajapakshe asked. “He didn’t take action. We had predicted this crisis. We knew this would happen. Pramuka, too, collapsed due to Central Bank negligence.”
Cabraal, he said, had given an undertaking to COPE - and, thereby, to parliament - that he would clamp down on illegal finance companies. “Let them call me to COPE and I can tell them what I have done,” fumed Cabraal, in response. “They think we can just go an arrest people. Most of these institutions insist that they are not doing illegal business. They say they are growing trees, sending people abroad or that they are in education.”
“We have to go through the entire process of proving that they are violating the law or they will file fundamental rights cases against us and we will be in court for the rest of our lives,” Cabraal said. “I know what these politicians are trying to do. Let them do it.”
Lethargic
According to available information, successive governments have failed to devise a suitable policy or legal framework to deal with errant finance companies. This has resulted in steep losses - at times to the state, at time to gullible depositors.
In 1990, the Central Bank acted on government instructions and advanced a sum of Rs 1.7 billion to 13 troubled registered and unregistered finance companies so that they could pay their depositors. This figure has now ballooned to Rs 7 billion with accrued interest.
Rajapakshe blasted the Central Bank for having failed to recover this money. The COPE report, drafted under his aegis, says: “The CBSL has failed, neglected and acted in a lethargic manner in relation to the recovery of a sum of Rs. 7000 million which had been granted to bankrupt financial companies.” It states that the governor had promised to take appropriate legal action with due diligence within a period of two months.
“How can we recover the money?” asked Cabaraal last week. “There are no assets. There are no debtors. The entire thing was faulty. In the first place, we should never have accrued interest. I stopped that when I became governor.” President Mahinda Rajapaksa has now appointed a presidential commission to investigate whether or not this money had been well paid out.
Unregistered institutions carry on regardless
Amendments to the Finance Companies Act of 1988 are still sitting at the Legal Draftsman’s Department with no deadline for submission to cabinet or parliament, Central Bank sources said last week.
They said the proposed changes would help authorities nail dubious institutions with more ease. At present, Central Bank sleuths have to “go behind the scenes” to extract proof that companies like Sakvithi were engaged in anything but legitimate business. They have even been forced to deploy decoys, the sources said.
“Because of weaknesses in the law, we cannot even publish the names of suspect companies as they claim they are not involved in finance business,” said an officer from the non bank supervision department, speaking on condition of anonymity.
Meanwhile, some of the finance companies that were recently listed by the Central Bank as unregistered institutions have started advertising again with the media. Among them is Sriyavi Homes, Land and Investment which advertised with some Sunday newspapers last week promising Rs 50,000 in interest for every Rs 100,000 invested with them.
Meanwhile, Okanda Finance - another finance company that had been named as unregistered - said they were now seeking registration with the Central Bank. Manager Rajiva Lokugamhewa said the company had a 20-year history and had never violated customer confidence. “It’s a good thing that people didn’t get excited over the latest developments or all finance companies would have faced a serious crisis,” he said. “I think the Central Bank wanted that.”
There were reports of many depositors telephoning finance companies around the country to inquire about the safety of their funds. However, there was no crisis in the market. Okanda said it had reassured clients that their monies were safe.
Earlier, Okanda Finance had filed fundamental rights cases against the Central Bank when the latter tried to investigate its activities. Several other companies have also gone to court.
Central Bank sources said it was not their intention to create panic but urged unregistered companies to make their business legal. They urged the public not to invest in institutions that promise unrealistic returns. “High returns means high risk,” said one official. He added that it was acceptable to invest with registered institutions which are required by law to maintain as liquid assets 15% of their fixed deposits and 20% of their savings deposits.
The number of finance companies is growing, this official said, pointing out that registered companies mostly made money through hire purchase and leasing, real estate development, the share market, through granting loans and other methods.
Frequent traveller...
Scam artiste Sakvithi Ranasinghe - who is now abroad and evading arrest - had been a frequent traveller.
“He had been going abroad all the time,” said Central Bank Governor Ajith Nivard Cabraal. “Fortunately for him, he was out of the country when we raided his place on September 19.”
Cabraal said the Central Bank was following up on various leads but could not say what action will be taken against Ranasinghe. “Sakvithi will have to be prosecuted but it is left to be seen what we will do,” he commented, vaguely.
An authoritative Central Bank officer admitted that they had prior information about Ranasinghe’s activities and that “it has to be accepted that there was a delay in our investigation”. “Beyond that, however, we are faultless because we didn’t have the powers to act more forcefully.”
It was in 2006 that the Central Bank started probing Ranasinghe’s SR Success International Institute. “We brought him here and he gave us an undertaking to stop accepting money,” the officer said. “We checked back and found that he had paid some money to depositors. Later, he started another company and we had legal issues related to taking action against it. When he accepted money, he entered into an agreement appointing the depositor as consultant. We took some time to get legal advice on this.” Asked whether the Central Bank could now recover money from Ranasinghe, he said: “I’m not sure. We need to know what his assets are and we may be able to realise those assets. For that, we must have full information. He did not provide us information. He may not have maintained proper accounts so only he knows everything.”
“Even when he advertised, he told potential depositors to come and meet him,” the official pointed out.
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