Regulators asked to take notice of sharp rise in grey market for investments

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A senior Member/broker of Islamabad Stock Exchange (ISE) has expressed serious concern over the sharp rise in grey market for investments and requested the authorities/regulators including the law enforcement agencies to cap the growing business of collecting money in the name of investments. Zahid Latif, Member Director ISE, said that the illegal deposit being taken by some religious preachers in the name of Shariat complaint profit loss sharing business transactions, Musharika, may surface as a new financial scam in the country. "We have received reports that a large number of religious elements even in Islamabad are taking deposits from investors and offering huge returns," Director ISE said.

"This illegal deposit taking is being done by some religious preachers even Muftis of mosques in the name of Shariat complaint profit/loss sharing business transactions 'Musharika', Zahid Latif disclosed. The group of directors led by the MD ISE Mian Ayyaz Afzal observed that the new phenomenon could turn to be a huge financial scam in future.

Islamabad's seasoned broker shared some vital information about the ongoing illegal deposit taking in the name of "Musharika". Despite public notices this business is flourishing and huge deposits have been obtained from innocent general public and they are likely to lose their money, if regulators like Securities and Exchange Commission of Pakistan did not timely intervene to check the situation. Zahid Latif noted that the estimated amount in circulation in these illegal investments businesses could exceed Rs 40-50 billion - but the estimates were based on figures from informal sources.

"Such deposit taking is spreading rapidly in the major cities of the country without any legal justification and a hefty and un-realistic profit up to 120 percent is shared between depositors," he said. He said that something had to be done because such scams not only cause loss to the general public but discourages them from investment too. "We, other two stock exchanges and even the SECP are striving hard to broaden the investor base by inviting the midlevel persons of society in the capital markets," he said, adding, "Scams encourage people to make investments in unproductive ventures like gold or real estate."

The ISE director said that apart from the regulators and law enforcements - there was a need for awareness among the general public too so that they should not get trapped in such lucrative offers either in the name of Islam or anything else. Zahid Latif, said that the latest mode of financing being adopted by some religious segment was in the form of 'Musharika' deposit was spreading rapidly in major cities of the country. "This is being done without any legal justification and a hefty but un-realistic profit up to 120 percent is shown and the depositor is offered either 60 percent or 50 percent of that, as per the profit/loss sharing agreement.

"But the main issue is that it is impossible to generate 120 percent profit from any business and it is likely that depositors may lose their savings," Zahid Latif said. However, on their part the ISE is set to launch Sharia-compliant products and increase its outreach after the second phase of IT up-gradation is completed. "After that ISE members would be able to establish trading platforms in remote areas and different districts of Northern Punjab, KPK and Gilgit -Balitstan." Zahid Latif said, and expressed confidence that the illegal investment houses would be discouraged after the implementation of the outreach programmes by stock exchanges as the general public would have investment options and greater awareness in this regard.

He informed that in Haripur general public had been deprived of nearly Rs 2 billion. In a similar case in Jhang, the general public has already lost Rs 30 million. He advised the general public that they should seek legal backing of these deposit taking by the religious preachers and in case no legal instrument is provided to them, they should refrain from depositing their savings in Musharika transactions.

Zahid Latif added that the general public should know that under which law and authority the investment has been collected for giving lucrative profits. The investors should have full knowledge about such laws and legal authority used for investment in specific scheme or Islamic products.

Courtesy: Business Recorder

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