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Many individuals in big cities like Hanoi and HCM City have fallen in bankruptcy after putting all their money to runners into unsound investments.
Many investors lured in with exorbitant interest rates
Each of these scams involved con men who lured people with promises of exorbitant returns on investments. The latest of these was in Phu Xuyen, an outlying district of Hanoi, where a number of people were swindled out of a combined VND1 trillion (USD74 million).
The hook
“The reason for this sort of thing is possible that people are eager to get rich quickly," said Dr Dinh Phuong Duy, Chairman of the Ho Chi Minh City Psychology Association.
In recent petitions against “lamia” Hung My Phuong, HCM City, investors claimed that they were offered returns of up to 7.5% per month. This would be equal to 90% per year.
Many of the operations initially paid out the promised returns in order to develop a network of investors. In the long-term, however, they would inevitably go bust, leaving the majority with nothing.
Borrowing from Peter to pay Paul
Le Dat Chi from University of Economics Ho Chi Minh City, said that such schemes require an ever-increasing number of participants. Any investment strategy that works like this is unsustainable and unrealistic, as even outstanding companies rarely make a profit of more than 20% per year, he said.
"Anyone running a legitimate business could simply take out a bank loan at a much lower interest rate," he added.
Dr. Le Tham Duong, of Banking University of Ho Chi Minh City, said that not all the people who run these operations have the intention of defrauding their investors from the beginning. He said that some actually have a business strategy which doesn\'t work out, then borrow more money to pay their original debt, however, the whole system eventually collapses when they can find no more lenders.
Nothing new to Vietnam
Duong added that the demand for business capital in Vietnam is very high, and that such schemes have been around for years.
“The banking system is also to be blamed because they have failed to provide enough credit to small businesses," he said.