Parcelling up the five million rupees he had earned in the Middle East, K P D J Kumara walked unsuspectingly into Central Investments and Finance PLC (CIFL) in June and deposited the lot.  Nobody told him that the company was in distress, or that other investors hadn’t been paid their interest in months. Employees flaunted [...]


Angry depositors slam Central Bank as another finance company falters


Parcelling up the five million rupees he had earned in the Middle East, K P D J Kumara walked unsuspectingly into Central Investments and Finance PLC (CIFL) in June and deposited the lot.  Nobody told him that the company was in distress, or that other investors hadn’t been paid their interest in months. Employees flaunted CIFL’s Central Bank licence and pushed him to hand over his cash. Ironically, even the regulator knew by then that CIFL was in trouble.

Shattered : An investor breaks down in front of the CIFL building on Friday. Pic by M.A. Pushpa Kumara

Mr. Kumara, 56, had picked up a CIFL brochure from a stall at the Colombo Public Library. He was told it was an old company. Cricketer Sanath Jayasuriya’s image was on the leaflet. He had heard CIFL advertisements during Sri Lanka Broadcasting Corporation Chairman Hudson Samarasinghe’s morning show. It was a company with a significant profile.
“I came here on June 14,” Mr. Kumara said. “Just to be sure, I asked them whether CIFL was also like Sakvithi and whether I would lose my money. They said ‘no’ and showed me their Central Bank registration.”

Mr. Kumara opened a one-year fixed deposit, placing all his money with the company for an interest of 15 per cent to be paid monthly. He got a separate letter promising a further three percent—“under the table”, as industry sources like to define it. 
Five days later, Mr. Kumara applied for a loan against his deposit. He sat at the CIFL head office in Colombo 7 for three hours before being told that he could not borrow money, nor claim his interest payments, nor recover his capital for the moment.
The money Mr. Kumara invested was earned over five years in Dubai, where he had worked as a technician. Now, having made the mistake of depositing all of his savings in one institution, he had nothing.

“We got caught in this mess because we placed trust in the Central Bank’s licence,” said his wife, a teacher who requested anonymity. “When we call the Central Bank now, they don’t even give us their names. They act like it is not their business. But if their registration process doesn’t offer us some guarantee of the safety of our savings, what is the use of it?”

“There is a separate division in the Central Bank for finance companies,” Mr. Kumara said, referring to the Department of Supervision on Non-Bank Financial Institutions (NBFI). “If they had done their work properly, this wouldn’t have happened.”
When Mr. Kumara went to the Colombo Fraud Investigation Bureau, the police rejected his complaint on the basis that CIFL was registered with the Central Bank. So he lodged a complaint with the Kompannaveediya police instead.

Piyaseeli Madapatha, 54, from Kotigahawatte is another CIFL depositor. Last week, she got herself discharged from hospital —where she had been admitted for dengue —to see whether she could recover her money. Mrs. Madapatha trembled and cried continuously. Her niece, a CIFL employee, had asked her to invest with the company. The family sold their three-wheeler and scraped together some other savings to come up with Rs. 500,000. In June, Mrs. Madapatha’s brother, a rubber tapper, was killed in a road accident. She needed money for funeral expenses and to redeem some gold rings that she had lent him for pawning. So she showed her deposit certificates to her sister-in-law, Indrani, and borrowed an equivalent amount from her. 

It is now time for her brother’s three months almsgiving. She had hoped to withdraw the money for the almsgiving and to settle the debt she owes her sister-in-law. “They are saying we can’t have it,” she wept.

Mrs. Madapatha had a polythene bag in her hand containing documents, including her brother’s death certificate. Her mother required medication for a growth in her brain. She was desperate for the money, saying she must settle her loans and hold her brother’s almsgiving. 

A 37-year-old seaman from Polgasowita said he had deposited nearly Rs. 4 million. “My mother and father are old and I invested this money in 2010 so that they could live off the interest when I spend 6 months on a ship,” he said. “My father is suffering from cancer.”

This seaman, who did not wish to be identified, said he had put his money into CIFL on the advice of an executive employee of the company. “But I didn’t invest just because he told me to,” he explained. “I called up the Central Bank and asked them whether I could deposit here. They said, yes, it’s a licensed company. They said they regularly check the reports of registered companies.”

“I also asked them whether our investment would be safe and they said they can’t tell us that,” the seaman added. “So who else are we to ask?” Another CIFL depositor from Maharagama says he has been unemployed since 2005 when he suffered a stroke. Five years later, his wife contracted a stomach ailment from which she suffered greatly. He received Rs. 300,000 from the Employee’s Provident Fund and placed it in a bank. He bought monthly medications from the interest it earned.

At the end of 2010, it was discovered that his wife had cancer. She received treatment at the Maharagama Cancer Hospital. He met the additional expenses also with the interest on his deposit. In March 2011, his wife was seriously ill. While he was at the pharmacy buying her medicines, she hung herself because she was unable to bear the intense pain.

By then, this man had only Rs. 113,000 of his money left. An agent of CIFL was “harassing” him to place it with the company for a higher rate of interest. “He told me that there was nothing to worry about this institution at it received good publicity from national radio morning and evening,” he said.

He opened a fixed deposit at CIFL for his remaining funds. This year, he wrote to CIFL by registered letter saying he wanted his money for a cataract operation. He received a reply that he could not withdraw it. Meanwhile, interest payments have stopped. “I have been borrowing money to buy my medicines,” he says. “I feel like killing myself, as my wife had done.” He is now pleading for at least Rs. 75,000 of his deposit so that he could cure his eyes.

Central Bank list adds to the confusion

The dust is yet to settle on the 2008 collapse of private tutor Sakvithi Ranasinghe’s illegal finance business and the Ceylinco Group’s Golden Key Credit Card Company. But yet another finance business is in trouble.  Before CIFL, another company called Industrial Finance Ltd—a member of the same group—was also in distress. While the Central Bank has restructured this institution (its new name is City Finance Corporation Ltd), its depositors are still awaiting settlement of their dues.

Meanwhile, some of CIFL’s aggrieved depositors gathered at its head office last week. They have formed an association to fight their case. Not only are they angry with the management of CIFL for this collapse, they are furious with the Central Bank whose role it is to regulate finance companies. 

When the Sakivithi operation and Golden Key—which, incidentally, were not registered with the Central Bank—went under, the regulator came under heavy fire. It subsequently launched an aggressive campaign urging people to invest their monies only in licensed financial institutions.

Every few months, the CBSL advertises the names of institutions that are legally permitted to accept deposits. The list of July 1, 2013 includes the name of CIFL. Rightly or wrongly, this sustained campaign has convinced the public that companies registered with the CBSL are “safe” to invest with. 

Perhaps confusingly, CBSL officials are strongly critical of depositors who accept letters from registered finance companies promising them interest over and above the authorised rate. If they are licensed, isn’t it also the regulator’s role to ensure that “shady” business does not occur?

“When we check the certificates, they mention the correct interest rate but the depositor is getting another percentage underhand through a letter,” explains H.M. Ekanayake, the Central Bank’s Non-Banking Finance Institution Department director, in a recent interview with the Sunday Times. “When this type of additional interest is offered by a company, the depositor must think twice. How can the company earn and pay this additional amount?”

“Why do they give it separately in the letter, in the first place?” added B. D. W. Ananda Silva, CB Deputy Governor, at the same interview. “If you are genuine in offering a high interest rate, why not write it on the deposit certificate?”Besides, Central Bank advertisements clearly state: “Depositors should not consider only the interest rate to make the decision in depositing or investing money. They should assess financial health of the institutions and be vigilant of their performances because there are inherent risks in all investment decisions.”

But one CIFL depositor offered a counterargument to this. “If a company did not have a Central Bank licence, nobody would take extra interest even if 50 per cent was offered,” said S. Abeyratne, treasurer of the CIFL Depositors’ Association. “It is because of the Central Bank guarantee that people invest in finance companies.”

“As for the letters they are talking about, I challenge the Central Bank to reveal the names of several other finance companies which they know are giving these documents to depositors even now,” he said. “They will not do it because four or five other companies will collapse. The Central Bank knows what is going on but they are not doing anything.”

“The Central Bank says we should examine the books of finance companies to assess their health,” he asserted. “They examine the books every year. With all their expertise, if they couldn’t detect what was going on, how can individual depositors do it?”

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