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Dr. Paul Price
Dr. Paul Price
Articles (488)  | Author's Website |

Bloomberg Businessweek Endorsed a Ponzi Scheme

January 29, 2013 | About:

The Jan. 21-27 issue of Businessweek ran an article praising what Pakistani Community Savings "circles" called Ballot Committees. The author noted that these organizations force citizens to save while paying no interest to their participants.

The article came complete with three photos of typical "savers." Muhammed Sajid was said to have bought a Dell laptop with his distributions. A mother and child proudly posed with their new microwave oven. A third saver showed off his new Nokia phone.

Ali, a merchant in the Karachi market was said to have bought a car and acquired a new store in his 15 years of saving with Ballot Committees. Bloomberg noted that he’s now just months away from getting 400,000 rupees ($4,100) from a nearly year-long, 1,000 rupee a day deposit with his local group. Ali planned to put a down payment on an apartment.

Note that one year’s worth of 1,000 a day equals 365,000. How can a 400,000 return be possible on a non-interest bearing account?

The implication was that without these wonderful committees the purchases illustrated would never have been possible. In reality the best one could hope for was to simply get back all the money they had deposited after taking about an 8% annual hit to buying power due to inflation (Bloomberg’s estimate).

Ballot Committees collect a set daily or monthly deposit from a group of trusting people. The term is typically set for one year. Each participant is then "voted" a number designating his turn to be paid a whole month’s worth of collections (i.e. the total amount contributed by the entire group). The article stated that the organizer usually would personally collect the money while charging no fee. These committee insiders would usually be first to receive their entire year’s distributions in a lump sum.

Here’s an example of how this might work in a best-case scenario.


The money collected is never invested. It earns no return. In theory nobody can receive more than 100% of what they contributed. The only possible benefit would be to those who got paid early and then quit paying their fair shares into the pool.

These Ballot Committees meet the strict definition of all Ponzi schemes. They pay early withdrawers only through return of their own deposits or from money paid by later "investors."


Like all con games this one depends on low financial literacy and the confidence of the marks. A housewife/ballot committee organizer was quoted as saying, “I only run committees in the family. Otherwise there’s the danger someone can run off with the money. That’s no fun.”

I can understand how unsophisticated peasants could be duped into thinking the Ballot Committees could do something positive. I can’t fathom how or why Bloomberg Businessweek could have praise for a system that, at best, equals stuffing money in your mattress and at worst is an invitation to theft.

This is the stupidest system I've ever seen in my life. Am I missing something?

You can read the original Bloomberg Businessweek article here.

About the author:

Dr. Paul Price

Visit Dr. Paul Price's Website

Rating: 2.9/5 (8 votes)


Basil2000 - 3 years ago
No Ponzi Scheme here.

"Now he’s a few months away from getting 400,000 rupees ($4,100) from a savings group of 16 shopkeepers into which he’s been paying 1,000 rupees a day for almost a year." Not a very precise description, but not an indicator of a ponzi scheme at all as it just says "roughly a year".

He is a few month away to get back what he paid into it for almost a year, which means very likely just what the article is about: non-interest bearing saving-circles. When you pay 1.000 rupees a day for a bit longer than a year - like a year and a month and a couple of days - you get exactly the 400.000 rupees back you put in. This is indeed nothing else than stuffing money in your mattress with the only exception that you add the social pressure to actually do it. That can be a very smart move, especially because we don't know what the local banks offer these people with almost no money after fees; maybe it is the best solution in their situation - even with losing 8% or more in purchasing power due to inflation.
Supratik - 3 years ago
As Basil2000 put it, this is really a non-interest paying saving circle that encourages you to save money. There used to be somewhat similar saving schemes in the US as well, very low paying savings account where people had to put in money every month and could not take it out till it was Thanksgiving or Christmas gifting time.

If you really consider it, this a very smart scheme. It encourages the habit of saving money and bridges relationships within families and communities. Most importantly (IMO) it subtly teaches the advantage of delayed gratification since the members have greater pride and feel more confident in their ownership of high priced items which under normal circumstances they would not have bought. When you are forced to contribute a good amount of money every month you will be very careful how you spend (e.g. no more wasteful spending on cigarettes and alcohol). When you do get the big pot during your turn you will feel far more confident about purchasing that laptop or cellphone that you earlier thought was beyond your reach.

Mohammed Yunus' work in microfinance with women for which he won the Nobel is somewhat similar though it is a for-profit venture.

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