Ponzi Or Regulators Negligence – My Take On DKM & Co

I spent Christmas and the beginning of this new year in the Brong Ahafo region. A very busy, business friendly region populated by a cross section of development minded and traditionally oriented individuals.

While jollying and moving to the rhythms of the holidays in the beautiful township of Nkoranza, my attention got drowned in the most topical issue within that part of Ghana - a ponzi scheme which had found concerted ways to rob its unwary and vulnerable victims of assorted monetary amounts ranging from hundreds to thousands of Ghana Cedis.

Each day when I strolled through the town, I experienced a very calm setting of a township which has at least three out of every ten random sampled humans as victims of the ponzi. Shops had been closed, stories of poor holidaying euphoria hit my eardrums from many angles of private and public conversations. The people of Nkoranza, fell prey to the swindling schemes of Jaster Motors and Investment Company, God is Love Fan Club and the most controversial and popular among the group - DKM Diamond Micro-finance Ltd.

My interest on the subject hit roof when I heard the news of the kidnapping of a three year old daughter of a staff of Jaster Motors' corporate sister - Jerryson FM (a local radio station with huge listenership in the town) by a victim to demand as ransom, his entire deposits in the vaults of Jaster. I was met by the reality that this saga had potents to devolve into a security mess. Though the police had the young girl rescued, the truth is, every staffer past or present of Jaster Motors, God is Love Fan Club and DKM continues to live under a dark cloud of fear, unknowing when he or she will be attacked by the irate victims whom are rummaging and exploring for means regardless of legality to claw back their funds.

The closest circle of my host has a woman in her forties who discloses that she has over sixty thousand cedis locked with Jaster Motors. Several other friends and associates of my host have more bizarre stories that if I chose would fit a concept for writing a sizzling novel, but the consideration of that will be dealt with on another fine day as this.

On my return journey from Nkoranza via the economically relative super-active town of Techiman, I encountered a gentleman estimated to be in his thirties who sat across the aisle on the row I was seated in the VIP Bus destined Accra. Our discussion revealed he stayed in Techiman but has travelled and stayed across the Brong Ahafo region within the last five years and has deep knowledge of the business setting of the area.

By the time we had cross Offinso into the realm of the Ashanti Region, we were deeply engrossed in the subject of what seemed to be the way out of this saga. His quality insights against my curios queries carried the conversation through.

For the characteristic reason that Jaster Motors and God is love functioned differently from DKM, I will restrict this to the talks on the Microfinance firm - DKM Diamond which begun operations in 2006 when the concept of microfinance begun to geminate on the beds of our economic landscape. The entity, duly licensed throughout its valid operations by the Central Bank has offices in Wa, Bolgatanga, Wenchi, Techiman, Sunyani, Nkoranza and other economically active towns within that belt. It is estimated to have engaged over a million Ghanaians in the wheeling of their business. The nucleus of their operations is an insanely attractive depository product which entice customers with hefty and trans-standard returns package.

Reports indicate that directors had sustained interest packages of 80% ninety days fixed deposit products through to the recent 50% return package on same time space across these years of their operations. How they managed to maintain that until the eleventh day of May 2015 when the Central bank disrupted their business have unknown explanations that many ears are waiting to consume. I gathered that the firm has customers who have worked with them for over three years and have fond testimonies of their relationship. Many have made fortunes that they would have never encountered from the conventional investment system if DKM had not met them. My VIP Co-Passenger says he was a student in Sunyani when he first heard of them. He graduated from a mere hearer to a customer at a point until he completed schooling.

He has friends whom have worked for DKM at a point and can disclose based on interactions with them that on the face, DKM's modus operandi looked genuine and plausible. He takes to an analogy that my banking background appreciates to a minimal extent. A financial intermediation firm scrambles for as much deposits that it can fetch and channels them into short call credit markets which is noted for higher rewards amidst a risky profile. It was then that I was reminded that DKM has quite a substantial fraction of borrowers to it's fixed depositors mass. The insane margin of returns, he believes, was initially a marketing promotional idea that overreached its purpose. Eager to get on, the firm continually pursued same business strategies even in the face of changing general dynamics in the finance market, arguably the root cause of their latter woes.

Compounding their hassle was a move by DKM's Chief Director, Delle to go on an entrepreneurial adventure drawing directly from the blood of the microfinance's vault. He established a shea-butter processing plant, transport chain, farms and petroleum pump stations hoping to reap some eggs of gold from these businesses to cushion his riskier financial intermediary expedition. My deductions from these acuity was that DKM was grinding towards a halt, that is if it kept going this tangent of business strategy. The halt wouldn't have been in 2015, but it was really close.

But the gentleman whose insights moved me into writing what you are reading had a contrary belief to my assertion that Delle was steering DKM to a halt. He says the firm was evolving, He discloses that in 2015, he understands that the firm had more non-fixed deposits than a year ago. He explains that DKM had warmed into the hearts and minds of the people as a reliable financial partner that folks reposed in them more confidence than it offered the mainstream properly regulated banks. This reveals why religious groups, SMEs, social groups and scores of individuals opened ordinary savings accounts with them as a tail to other investment products they have subscribed earlier. He disclosed as well that the interest on 90-day FD was scheduled to drop by at least 10% by the second half of 2015.

To him they were seemingly on course until the Central Bank incautiously grounded their operations. He argued vigorously that after the panic button was hit in May 2015, the firm was never going to get back to work at ease. His latter point I subscribe to unlike his former. This preambles my address to the frail form of supervision the Central Bank grants to the sector of non-Banking financial institutions. Indeed, my thesis at the end of my degree program at the University focused on the Bank of Ghana, in which I recommended that the supervision of the the entire non-Bank and Bank sector should be decoupled from the Central Bank so it can focus on its core monetary economic business.

When I bought waakye at a stall in the Nkoranza township, an oldlady whose conversation with a taxi driver I eavesdropped asked a question that when analyzed carefully absolves all the victims from blame save their gullibility. She asked why DKM's offices had a police guard manning or in appropriate sense, complementing its security during the days of its operations. Was that not symptomatic of the state's moral endorsement accredited to the operations of the firm? The Bank of Ghana's license to operate a microfinance firm anywhere in the country is not an absolute infinite green-light. The licenses are subjects to annual renewal, I am reliably informed. How did DKM pass the tests to keep their operating tickets in the past years when it engaged in more severe phases of their business scheme? Did the Bank of Ghana adjudge the firm as liquidly apt for the scope of their business only to realize they have dipped months after? A possibility of that will be more than scary!

The prime essence of regulators in liberal markets is the protection of consumers and producers from abuse and severe harm cross respectively. One ideology that seems not to be the reality in Ghana. So its common to see policyholders complain of being ripped off by insurance companies whiles the National Insurance Commission staffs sit in the cozy-set offices enjoying their monthly salaries over no effectual work done. I have a similar account of the million-cedis-making National Communications Authority who seem to only have a mouth when it comes to heaping levies and taxes on services rendered by telcos. These cited bodies has the Bank of Ghana as their senior brother. The nations Central Bank can be credited for creating that path of taking the work of a regulator for granted.

Though there are many victims in this saga, I must recount that there is as well some amount of beneficiaries. The gentleman I engaged hinted that many existing debtors of DKM are benefitting from this freeze since the firm has been rendered too weak to pursue them, this I can agree. I believe the debt assets of DKM should be pursued on their behalf by the authority which has suspended its operations.

The microfinance sector has many risks for consumers and entrepreneurs alike, hence its hightime the Central Bank whiles it continues to function as the regulator, stops using the ostrich approach in managing its responsibility, a responsibility that has dire national security consequence.

PS: A sequel to this article will zoom into the partisan ill-exploitation of this saga and how a national political approach could make or unmake the desired solution.