The Financial Sector And State Powers
The growth of the financial sector depends on trust and confidence. These two elements are guaranteed in properly regulated financial sectors in many economies. Ponzi scheme practices and other fraudulent activities in the sector are eroding the confidence and trust of the local and foreign investors.
A weak financial sector indicates a weakening economy. In order to develop a resilient sector capable of meeting the funding needs of corporations and individual business owners, the State needs to be tough with the use of its powers.
There are laws governing the conduct of businesses and other activities in every State. The authorities with regulatory powers within the financial sector have been laidback in the past. This has wreaked a lot of havoc on the people who invested their monies in these institutions. The loss of funds due to the negligence of the investors cannot be blamed on the state. Even so, the state can always use its powers to intervene to save the depositors and the public purse.
The dividends to be received by the State in the liquidation of the defunct microfinance institutions in the country may not match the cost involved in the process. With this likelihood, the State should always be strict with its regulatory powers. The “false entrepreneurs” who use tricky schemes to accumulate wealth find a void in the regulatory regime. The owners of such ventures are fake because they do not act like entrepreneurs in their operations. Genuine entrepreneurs operate businesses that are regulated with appropriate laws.
The political parties contribute woefully to the development and growth of these schemes. If State authorities want to strictly apply the laws of the land, main opposition parties find a niche to gain political capital out of that. Instead of supporting the proper regulations of such units, they always capitalise on it to paint the picture as though the ruling party has the desire to kill businesses. In fact, if all the parties concur on plugging fraudulent financial institutions in their budding stages, it will help prevent many of these challenges in the sector.
The state should not create a conducive environment for moral hazards such that business owners will fail to cautiously operate their businesses and finally fall back on government for bail out. Some weeks back, MenzGold customers in a presser called on the government to bail the company as DKM customers were paid portions of their deposits. The State should not venture into bailing institutions created haphazardly, without proper legal operations. It should not pay attention to the pressures of the public to do an illegality by using state funds to pay them.
The State can use its powers to retrieve the funds deposited with those institutions from the owners. The individual depositors may not have the ability, financially and legally, to retrieve their monies. It seems there is a veil for the owners of these fraudulent institutions and other business owners to act behind with impunity. The immunity in the system should be curtailed by the use of the laws of the land. The government, currently, can enforce the laws of the land by compelling the owners of these businesses to pay back the monies taken in deposits from the public.
There is no reason for the State to relax in dealing with such matters. The various warnings to the public concerning the risky nature of these businesses are not enough. The State should be determined in its efforts to retrieve the funds for the depositors. From the current happenings, the owners of these Ponzi schemes are protected than the investing public. If this continues, there will be a conducive environment created for this type of business to thrive.
Nevertheless, the investing public should not continue to take extremely risky financial decisions with the expectation that the state will always come to their aid. In developing the savings and investment culture of the people, the investors need to evaluate and understand their choices. Taking on risky investments will result in heavy losses. There are many investment opportunities ranging from farming, real estate, retail, wholesale to financial products.
The State has unlimited powers to control businesses. There should not be a situation where businesses are operated without appropriate regulations. Well, there are unregulated industries but every business must fall under the regulation of a recognised agency.
Powers that be, many people are suffering for their negligence but there are avenues to help them retrieve their locked up funds. Without effective use of these powers, the owners of these institutions are shielded even with their fraudulent activities.
Emmanuel Kwabena Wucharey
Economics Tutor, A growing Activist and Religion Enthusiast.
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