Desperate Najib resorts to 'Ponzi schemes' to raise funds

RM13,000 in 5 Years? The government is at it again, calling something other than what it really is.

The scheme, known as “Skim Amanah Rakyat 1 Malaysia” or “Sara 1 Malaysia”, allows households earning RM3,000 and below to purchase 5,000 units of Amanah Saham 1 Malaysia (AS 1 Malaysia) at RM1 each and earn guaranteed returns of double their investment after five years.

“You cannot find a package like this anywhere else,” said Prime Minister Najib Razak at the launch of the scheme at Putra World Trade Centre.

Under Sara 1 Malaysia, applicants can choose to invest RM5,000 of their savings to purchase the units or apply for loans from participating banks. According to the PM, those who invested in the scheme using their savings will be given a fixed dividend of RM134 monthly. But if they choose to reinvest it in the scheme, they will stand to receive RM13,000 at the end of the programme’s five-year lifespan.

Those who obtained loans, however, will have to pay RM84 monthly as repayment, leaving them RM50 to reinvest and a RM10,000 payout in five years. The scheme is however limited to 100,000 households.

Stop embellishing and cosmeticizing

First thing first, SARA 1M is not an investment scheme.

And this is clear when it is clear that there is a fixed dividend return. An investment does not have fixed returns, because investments are dependent on market forces which determines the value of a commodity over time. When one buys shares of a particular business entity, one is subject to that business entity making a profit and this determines the returns on your share purchase. This is not the case with SARA 1M. You purchase a unit of the ‘saham’ and you are guaranteed a return of RM134 monthly. Whatever the government is investing your money on, it has really bad ROI for it to only give you back RM134 per month.

Secondly, in calling it an investment when it is not, SARA 1M is almost like a Ponzi scheme. Ponzi schemes have fixed returns upon the investments put in by the buyer. The buyer is sold on the idea that their money is being used to purchase a high-yield product. Yet, in the case of SARA 1M, we have no idea what the government is investing in, in order to produce a fixed yield. Where is the funding coming from in order to return RM134 per month and eventually grant the buyer a profit of RM8,000 at the end of five years?

Thirdly, SARA 1M encourages the buyer to take a loan out in order to purchase the 5,000 units of the shares. This is bad financial advice. Purchasers should never take out a loan in order to make an investment. At the repayment amount of RM84 per month, the total repayment is RM5040 is paid out to the bank; with a RM10,000 payout. For poor families, a commitment to pay RM84 for five years may put a strain on their finance, especially when the only clear return if RM50 per month. And would they have any thought of reinvesting the RM50 back into the scheme? So it is clear, that without reinvesting back into the scheme, the family stand to have nothing at the end of five years.

Simply put, Najib is asking people to borrow money to lend to him

SARA 1M is not an investment scheme but is rather a government bond issue.

A government bond is a bond issued by a national government, generally promising to pay a certain amount (the face value) on a certain date, as well as periodic interest payments. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country.

Government bonds are usually referred to as risk-free bonds, because the government can raise taxes or create additional currency in order to redeem the bond at maturity. Some examples do exist where a government has defaulted on its domestic currency debt, such as Russia in 1998 (the "ruble crisis"). Another example is Greece in 2011. Its bonds were considered very risky, in part because Greece did not have its own currency.

And since SARA 1M is a government bond issue, is it protected against inflation? Many governments issue inflation-indexed bonds, which protect investors against inflation risk by increasing the interest rate given to the investor as the inflation rate of the economy increases.

BUT SARA 1M is not even adjusted for inflation, since the returns have been fixed at RM13,000 over five years or RM10,000; if you take out a bank loan to invest.

Thus, SARA 1M is merely an exercise to raise money to fatten the government coffers, which by now must be desperately low. This is evident with it being limited to only 100,000 households. It is to show that there is already a fixed amount raised by the government, and when people start pumping in their money, cannot the threshold be raised?

This is not an investment scheme, but merely a clever way for the government to raise money. The sad part is that the poor are mislead to think that they are getting a good deal when in fact they are being bled dry to raise funds for the government.

Written by  Maclean Patrick, Malaysia Chronicle