India has been flooded with various Ponzi schemes that take advantage of suspicious investors looking for alternate banking options. Lacking access to formal banks, low-income Indians often rely on informal banking. Thes

India has been flooded with various Ponzi schemes that take advantage of suspicious investors looking for alternate banking options. Lacking access to formal banks, low-income Indians often rely on informal banking. These informal banks invariably consist of money lenders who charge interest at inflated rates and are soon replaced by more sophisticated methods of cunning people through disguised Ponzi schemes. Fund raising is done through legal activities such as collective investment schemes, non-convertible debentures and preference shares, as well as illegally through hoax financial instruments such as fictitious ventures in construction and tourism. The rapid spread of Ponzi schemes, especially in North India has various causes, not the least of which, include the lack of awareness about banking norms, steadily falling interest rates, lack of legal action against such activities and the security of political patronage. The Ponzi scheme run by Saradha Group, collected money from investors by issuing redeemable bonds and secured debentures and promising incredulously high profits from reasonable investments. Local agents were hired throughout the State of West Bengal and given huge cash payouts from investor deposits to expand quickly, eventually forming a conglomerate of more than 200 companies. SEBI first detected something suspicious in the group's activities in 2009. It challenged Saradha because the company had not complied with the provisions of Indian Companies Act, which requires any company raising money from more than 50 investors to have a formal prospectus, and categorical permission from SEBI, the market regulator. The Saradha Group sought to evade prosecution by expanding the number of companies, thus creating a convoluted web of interconnected players. This created innumerable complications for SEBI, which labored to investigate Saradha in spite of them. In 2012, Saradha decided to switch it up by resorting to different fundraising activities, such as collective investment schemes (CIS) that were disguised as tourism packages, real estate projects, and the like. Many investors were duped into investing in what they thought was a chit fund. This too, was an attempt to get SEBI off its back, as chit funds fall under the jurisdiction of the State Government, not SEBI. However, SEBI managed to identify that group was not, in fact, raising capital through a chit fund scheme and ordered Saradha to immediately stop its activities until cleared by SEBI. SEBI had previously warned the State Government of West Bengal about Saradha Group's hoax chit fund activities in 2011 but to no avail. Both, the Government as well as Saradha, generally ignored SEBI until the company finally went bust in 2013. After the scandal broke, an inquiry commission investigated the group, and a relief fund of approximately US $90 million was created to protect low-income investors. In 2014, the Supreme Court transferred all investigations in the Saradha case to the Central Bureau of Investigation (CBI) amid allegations of political interference in the state-ordered investigation. In the light of the above, you are required to answer the following questions: (i) Explain Ponzi scheme run by Saradha Group. Why chit funds or Ponzi schemes still persists in India inspite of many scams? Comment.