MBABANE, 18 December 2008 (IRIN) - Inhlanhla is a common male name in Swaziland, meaning "Lucky", because parents considered the arrival of their baby boy a fortunate addition to the family. Driven by the need to support his toddler son, Inhlanhla, a gardener, decided to find out if he was indeed lucky by investing half his wages in a now outlawed "get rich quick" scheme.

As the already sputtering economy worsened in 2008, such schemes proliferated. "I heard I could make a lot of money investing in a money plan with Qhawe Mamba, the TV star," said Inhlanhla. "I met a woman who doubled her investment. I have given half my wages for some months to Qhawe, but I fear I will never see even that money again," he told IRIN.

Alarmed that Swazis were parting with what little income they had, the Central Bank of Swaziland stepped in to shut down the Channel S Club of Qhawe Mamba, director of television station Channel S, as well as two other "funds" the bank classified as illegal.

Ordering "all promoters of these initiatives to stop their activities immediately", the Central Bank said in a statement, "These organisations or individuals appear to be promising members of the public extraordinary high returns on short investments."

The bank came down hard on Channel S and two other entities - the Aloe Fund and a scheme called Diamond Africa, which had promised to give diamonds to fee-paying members - freezing their bank accounts after investigators found them in violation of rules governing financial institutions.

It is illegal to solicit and receive deposits from the public "or pretend to be a financial institution without being registered as a banking institution" in Swaziland.

In the case of the Channel S Club, bank investigators found that members' fees had been channelled into the bank accounts of two of Mamba's companies, a television station and a video production studio.

A warning against pyramid schemes

Central bank sources told IRIN that with economic conditions becoming worse, the fear that more people would lose money to "pyramid schemes" had prompted the crackdown, as well as an advertising campaign to warn the public.

A pyramid scheme is where a participant collects money from 'friends' and instructs them to collect more money from other 'friends', with a promise of better returns on the initial deposit based on the number of new recruits.

"As the pyramid grows, the number of people involved becomes too large to sustain the pyramid. Most people end at the 'bottom' of the pyramid and inevitably lose their initial 'investment', which is enjoyed by the top few 'fat cats', usually those who started the scheme," the bank cautioned.

The bank's warning described Inhlanhla's situation. "I am glad I did not recruit anyone into this scheme, but I am not happy with my cousin, who got me involved. But it is too hard to be very angry with him because he also lost everything," he said, discounting the assurances of the "fund" managers that his "investment" was safe.

NGOs and others have applauded the central bank for taking action against pyramid schemes. "Many people have lost what little they have. What is worse is the people who borrowed money to invest in the schemes, and they [now have to] pay the people [who] lent them," said Thandi Ndzinisa, who runs a women's cooperative in Manzini, the country's commercial hub.

She contrasted her cooperative with a pyramid scheme. "Every woman invests in our cooperative and works on projects; investments capitalise the projects, like agriculture and sewing. In the end we make a small profit, which we share, but it is a lot of hard work. We don't tell our members, 'You can earn money for nothing'," Ndzinisa said.

More public awareness

Eric Shongwe, an economist at a local bank, said the urge to invest is a good sign. "From advertising that's all over, people see messages about investing their money, and it's good that they wish to have their money work for them," but consumer education was necessary.

"The differing plans and interest rates offered by banks, brokerage houses, investment firms – it's confusing, and unscrupulous entrepreneurs move in to take advantage of people's desire to invest," he said.

The challenge is to teach people that investing is good, but there are risks with some types of legitimate investment like equities - stocks and bonds - whose values fluctuate, and that returns on any legitimate investments are never instantaneous or "sky high".

"Returns for legitimate financial investments are reasonable and often long-term. People must know that when someone tells you they can double your money in a short time, you must turn and run away from them as fast as you can," Shongwe said.

The need to educate the public about investment and borrowing was driven home this week in a report by the Swaziland Credit Bureau, which noted that over 40 percent of the population – 400,000 in a total of less than one million – was on its database.

Given that over 60 percent of people live in chronic poverty, the bureau wondered how so many could access credit; most of those on the national credit database are in the low-income bracket.

"This makes one wonder how many people are economically active in the country, and how all these people access credit. There is definitely an element of reckless lending in our credit and financial markets because some of these people do not even know how they will repay their debts," said Bheki Dlamini, a managing partner of the credit bureau.

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