Who Is Targeted? Financial Pyramid Schemes and the Poor

“I had a friend who lost a lot of money. He even sold his father’s land on the idea that by the time he gets that money, he will give his father his share and keep his,” recounts a woman in a focus group discussion (FGD) in Kisumu, Kenya in 2010.

Such stories surfaced with surprising frequency when FSD-Kenya and CGAP commissioned group discussions with low-income persons in Kenya and Tanzania in 2010.

In Kenya, where the qualitative research provided input to a policy diagnostic on financial consumer protection issues and approaches, at least one person in each of 14 groups (comprising a total of 114 individuals) was personally affected by a pyramid investment scheme (for detailed definitions of pyramid and Ponzi schemes, see an earlier post in this series.) While some persons were ashamed to share their tales, others openly admitted that they knew something was fishy but greed overwhelmed the warning signals. How schemes operated in Kenya is briefly described here.

Pyramid investment schemes promise high returns on dubious investments and people who invest typically lose all their money. They are widespread. They emerge in markets with relatively low levels of financial inclusion as well as highly developed markets. In this post we share some recent evidence on who these schemes target, who invests, the losses they incur, and what happens when people realize that they have been scammed. While hard evidence is scarce, it appears that these schemes also target poor and vulnerable persons, who come up with money to invest by tapping savings, selling assets, or borrowing.

Findings from consumer research in Kenya

Kenya has a history of financial pyramid scams. A Report of the Taskforce on Pyramid Schemes lists 271 schemes in Kenya, ranging from very large ones such as DECI Investments (involving 93,485 investors and 2,4 billion KSH invested, i.e. about USD 28 million) to small ones such as Brucobi (with four investors and 2.000 KSH invested, i.e. about USD 23).

The findings from a 2010 survey on consumer protection in Kenya, which had a national sample of 1,548 urban and rural respondents across provinces and districts, allows us to explore whether lower-income people lost money and whether other possible links to financial inclusion exist. In the survey, around 44%  of all respondents reported that people approached them with a money-making opportunity that offered high returns realizable within a very short time.  Of those who were approached, 18% invested. And of those who invested, about 82% reported losing their money (the other 18% reported making money). While relatively few individuals invested high amounts, the most frequent sums that were reported lost ranged from 3,000-5,000 KSH (about USD 30-60) to around 10,000 KSH (roughly USD 120).

Well-off vs. vulnerable: Who is targeted and who invests?

The Kenya survey defined vulnerable households as those with income of no more than KSH 30,000  per month (Bankable Frontiers devised this proxy in their capacity as technical advisor to the 2010 consumer research). Using this definition, roughly 91% of survey respondents were classified as vulnerable and 10% as non-vulnerable. Among the vulnerable, 44% of respondents reported that they were approached to participate in some sort of pyramid investment scheme. Of those, around 16% reported that they invested money. The lost sums reported by vulnerable-household respondents who participated ranged from KSH 2,000-5,000 (USD 24-58) with a few outliers at higher sums. While those who were targeted were just as likely to be rural as urban, respondents living in urban areas were on average more likely to actually invest in pyramids than persons living in rural areas.  Pyramids affected all segments of society, and some (such as DECI in Kenya and Tanzania) targeted both low-income as well as better-off individuals.

Correlation with income

Perhaps not surprisingly, higher-income respondents in the non-vulnerable group reported being approached to participate in schemes (on average) more frequently than those with lower incomes. The Kenyan survey did not ask respondents who exactly approached them. However, in the consumer group discussions conducted in Kenya and Tanzania, individuals reported that in addition to friends and family members, they were also approached by trusted persons such as religious leaders.

Do people complain?

At the climax of the large surge of fraudulent investment schemes in Kenya in 2006-07 the Central Bank of Kenya issued two public notices warning people about such schemes. In principle, getting those who had fallen prey to fraudsters to come forward as early as possible could pave the way for a useful early warning system; in practice, however, it may be difficult to get people to come forward and share relevant details such as the identity of those involved in the scheme. The Kenya consumer survey asked whether respondents complained, once it was clear that they had lost money.

TABLE 1. Complaining about financial pyramids

If you lost money, did you complain to anyone?



No one, I didn’t know who to complain to


No one, I didn’t think that complaining would do any good


The majority of those who lost money did not complain, for different reasons (see Table 1). About 40% of these individuals reported they thought complaining would not help them and 22% did not know to whom to complain. Some respondents in the Tanzanian consumer group discussions reported that they wanted to complain at the scheme’s local office but it was closed. Public education campaigns about pyramids could point consumers to the right place for complaints. They could also stress that complaining may help to protect other people from becoming victims, especially if there are early complaints about dodgy schemes.

Financial inclusion and pyramids – what’s the connection?

Experience to date and the specific evidence presented above suggest that indeed, pyramid investment schemes can harm lower-income people. This is a significant issue, since in Kenya, for example, just under one fifth of all those targeted ended up investing and those who are poorer can scarcely afford the not inconsiderable losses entailed.
Schemes can also thrive in environments where formal access is relatively low and financial inclusion is a national priority. To offer one specific example: Participants in the 2010 Focus Group Discussions in Kenya reported that some fraudsters disguised their activities as microfinance institutions. Among those who reported using financial products (bank saving accounts, SACCOs, MFIs and ASCAs), SACCO members were most likely to be targeted (53%) and MFI clients were most likely to invest (28%).  Further research is needed on whether and how fraudsters abuse financial inclusion initiatives and language in their schemes. We also need to better understand the motives and behavior of those who invest, as well as how pyramids spread and the channels used to target participants. This will help to develop better methods to tackle such schemes, which is the subject of the next blog post.

Since data is so scarce, we would really invite readers to share experience from their countries and helping us explore the case for attention to these issues on the financial inclusion agenda.

Topic: Policy


27 December 2012 Submitted by Avik Kedia (not verified)

Hi Nicola, Pyamid schemes are predominant in India. In urban areas, majority of the urban poor individuals are part of one or more "committees" which are like ROSCAs. These are informal, risky, painful, lead to fights, murders, and cause loss of hard earned savings. We have been eagerly wanting to create awareness so that the urban poor people reduce investments in "committees" and use formal tools like banking, insurance, investments, etc but are unable to do so due to lack of funds. Government is absolutely doing nothing about these unregistered, illegal, unlicensed schemes.

Avik Kedia
Sanchayan Suraksha

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