CBSL Governor Warns Plantation Investment Schemes Dependent on New Funds Could Collapse
Central Bank Governor Dr. Nandalal Weerasinghe has warned that businesses accepting money from the public under the guise of plantation or cultivation investments could eventually collapse if they rely on funds from new investors to repay earlier investors.
Responding to questions about recent action taken against several companies, Dr. Weerasinghe said entities that do not have legal authority to accept public deposits are violating the law regardless of whether the funds are described as investments in cultivation or another business activity.
He said companies promising annual returns of around 40% while also undertaking to return the original investment would not be able to sustain such payments through cultivation activities alone.
The Governor explained that after accounting for operational expenses, a business offering such high returns while also guaranteeing repayment of the original capital would need a continuous inflow of money from new investors to maintain the arrangement.
He said a decline in new investments following increased public awareness had exposed the underlying financial problems faced by some such companies, leaving them struggling to meet payments to existing investors.
“When new deposits stop coming in, naturally, as we have seen in previous cases, these businesses will collapse,” he warned.
The Central Bank recently issued freezing orders against six companies and their directors under the Finance Business Act. The Colombo High Court subsequently confirmed and extended the orders.
The companies are Kasagala Green Plantation (Pvt.) Ltd, Ceylon Green Life Plantation (Pvt.) Ltd, Singhe Capital Investment Ltd, Pro Shop Advertising Holdings (Pvt.) Ltd, Athens International Education Centre (Pvt.) Ltd and Eyon Lanka Investment & Film Production International Company (Pvt.) Ltd.
According to the Central Bank, investigations are continuing into Kasagala Green Plantation and Ceylon Green Life Plantation, while the other four companies have been found to have conducted finance business and/or accepted deposits in violation of the Finance Business Act.
Dr. Weerasinghe stressed that the Central Bank had not prohibited plantation or cultivation businesses from operating.
He said businesses could continue agricultural activities using their own funds and distribute profits generated through legitimate operations. The legal issue arises when an entity without the required authorisation accepts deposits from members of the public.
The Governor also rejected claims that the freezing orders themselves had caused companies to become unable to repay investors. He said the action was directed only at funds and assets connected to alleged unauthorised deposit-taking and that the amount frozen represented only part of the money collected from the public.
He said preserving the available funds was intended to minimise potential losses to depositors and could facilitate the distribution of funds through the relevant legal process.
Dr. Weerasinghe urged people who had invested in such schemes to provide the Central Bank with information and supporting evidence, stressing that such material was important for ongoing investigations and potential legal action.
He said investigations had also revealed indications that money collected from the public had been channelled into activities beyond the plantation ventures used to attract investors.
Among the activities cited were supermarkets, newspapers, tourism-related businesses, entertainment events, sponsorships and payments to artistes. He also referred to significant expenditure on advertising and social media promotion.
The Governor urged artistes, media organisations and other parties to exercise caution when accepting payments from or promoting such businesses, warning that the funds could ultimately have originated from the savings of members of the public.
He similarly cautioned suppliers and service providers dealing with such companies, noting that they could also face losses if businesses relied on revenue from other activities to sustain an unauthorised deposit-taking model.
Dr. Weerasinghe said the Central Bank would continue taking action against entities found to be accepting deposits illegally and urged the public not to place additional funds in such schemes.
The Central Bank has also confirmed that investigations are being conducted into several other institutions and individuals following complaints concerning suspected unauthorised finance business or deposit-taking.
The Governor called on anyone approached by an entity seeking funds while promising monthly or annual returns to report the matter to the Central Bank, noting that complaints and supporting evidence are essential for authorities to initiate investigations.
Under Sri Lankan law, public deposits may be accepted only by institutions authorised under the Banking Act or Finance Business Act, or by entities specifically exempted under those laws.
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