Philippines Books

NOTE: This Investment Scheme report was originally published in April 2005 and then followed up in November 2005. The scheme is still going strong, paying the dividends and interest and making money for all involved! You can learn more by visiting Dave Whittal’s Blog: http://hi-interest.blogspot.com/ Tell Dave Perry sent you!

There is an old saying that I firmly believe, “if it seems too good to be true, then it probably is”. There are a lot of opportunities in life, however, that may seem to some too good to be true. Their lack of experience with that particular opportunity may make it seem almost surreal and far too good to be kosher. Meanwhile others who may have more information or previous experience recognize the opportunity for what it is and make the proverbial killing. How do you know which is which then?

Recently a friend of mine posted how he had looked into a scheme to invest a lump sum on a time deposit with a local Rural Bank and he would earn 20% p.a. interest on his money. His first deposit was for a modest P100,000 and if it played out, he was planning on investing several million in different accounts, different banks and in his and his wife’s names. Spread the risk so to speak.

On the surface his actions seem prudent and sensible and he would be looking at bringing in around P50,000 a month in interest as a form of income, and all without touching his pension and other savings! Brilliant! But is it too good to be true?

Firstly, I don’t think my friend is easily taken in by scammers. He has lived overseas for most of his working life and has been around the block once or twice. He is also an engineer, a technical type who is pedantic, even anal, in getting all the details sorted out, weighing up each nuance and really squeezing the decision of every drop of “if” before committing. One of those “show me” types who don’t accept someone else’s’ word for things unless they have seen it for themselves. In other words, unlike me, he isn’t the type to leap in boots and all on a whim! If I asked him to research an item and find out the best value for money example on the market, he would bore me to death with all the details but I would buy the model he recommended because I trust his judgment in those matters.

But this investment scheme doesn’t sit right with me. I know the deposit would be protected by the PDIC, the government body that insures deposits in member banks, and it appears the chosen Rural Bank is a member. I don’t like Rural Banks here because they have a history of going squishy on depositors. There are three basic types of banks here, Thrift, Rural and Commercial. Each have different areas they can supply services in and also different degrees of difficulty (i.e. protection for depositors) they must comply with when being set up.

I knew a German in Danao who ventilated his skull with a pistol bullet after losing P5 million when his Rural Bank went belly up and the CEO went on holidays with the cash! In those days the PDIC only covered P100,000 per depositor per bank. Now that amount has risen to a more respectable P250,000 per depositor. With my friend making (less than) P250,000 deposits in several participating Rural Banks and in his and his wife’s names he is indeed spreading the risk and also utilizing the protection of the PDIC. Providing there isn’t a problem somewhere should he need to make a claim. Sounds like he has it covered but I still hear those alarm bells!

I can’t think how a bank in the Philippines can legally loan money at such a rate they can afford to pay investors/depositors, 20%? Are they getting into the 5/6 business and lending money at extortionate rates to high risk borrowers? Heaven forbid! No business can borrow money at 20%, pay it back and stay in business unless we are talking drugs or prostitution so how can a small Rural Bank pay that kind of interest on time deposits?

What if the CEO’s of the Rural Banks have every intention of doing the right thing but they fall into a cash flow shortage problem and can’t make the monthly interest payments? What if they are intentionally defrauding the investor, or misleading them as to the risks? What if they put aside enough of the deposit to pay the first year’s interest payments, then bug out? They take the rest of the principle with them and are long gone before the lack of funds to keep making interest payments is discovered. Meanwhile, buoyed by the regular interest payments you not only invest more, you urge your friends to share the good fortune.

How about they get to the end of the five years, have made every interest payment due but the principle is no longer in existence due to “unforeseen circumstances”, honest or otherwise? What if this is similar to the SEC Share Float scam? A company genuinely releases a float to raise funds but then misuses the money to pay whopping salaries and dividends to managers and board directors and fail to reinvest in the business, which soon goes under. It can be totally above board, the request to SEC to raise capital with a float, the raising and then the board voting on how to utilize the money, despite it not being in the best interests of the shareholders per se. It happened here recently with the first owners of a Master Franchise with an internationally recognized fast food brand.

For me, there are not enough guarantees and too many iffy details. It does sound too good to be true but I hope for my friend’s sake I am wrong. Very wrong. If I am, then I am perfectly happy to not only pass on the news to the Dreamers, but to apologise for ever doubting his judgment. I do hope I am wrong, I just really don’t think I am. What do you think?