Social media is in uproar with posts about a woman named Sidra Humaid who allegedly ran over a hundred online ‘committees’ – also known as ballot committees – and publicly admitted that she has fallen severely behind in making payments to members. Estimates have put the figure at a whopping Rs420 million.
So many questions come to mind: why was this woman trusted by so many? Is this a Ponzi scheme? What does this say about female financial inclusion and awareness?
But let’s start with: what happened?
On her personal Facebook page, Humaid put up a long post on November 27 in which she said “I have really messed up my committees and now I am practically bankrupt and have no means to pay off my committees.”
She promised that she is not running away and wants to pay everyone back in coming months. But how?
Humaid claims she runs two online businesses, Croise, which makes crochet items, and Daily Bites, a food delivery company. It seems after her post, people have been reporting her business pages to Facebook, which might make it difficult for her to continue operating them.
That's probably why her post says that if these two businesses “are allowed to continue … then I would be able to earn and pay off my loans”.
It is hard to imagine the two businesses making her Rs420 million any time soon.
She also wants her committees, in which she is a participant, to continue “without me paying from now onwards then at least I would be in a position in the future to pay off my loan with my receivables (after deductions).”
It seems unlikely that after the major breach of trust that anyone would want her anywhere near their money.
Is this a Ponzi scheme?
As per Investopedia, a Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. It’s similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers.
At some point, the flood of new investors dries up and there isn't enough money to go around and the schemes unravel.
Sounds about right? As Humaid herself said, she apparently “started off with small committees and it worked well for me but as it grew and I opened more committees to help my friends and loved ones with their difficulties, I found myself in trouble of paying more and more money each month.”
According to her, the only way to solve this was to start more committees which (no surprise here) “eventually resulted in a rolling loop that had no end. Now I have to pay so much money, which I cannot even calculate”.
“My committee amount that I was receiving was practically just being reinvested/utilized to pay off my other committees and I never had the chance to use that money for any of my personal use.”
The reasons cited by women for not saving in formal institutions include (i) because they think doing so has no benefits, (ii) because they lack information about products and institutions, and (iii) due to lack of trust in financial institutions
Are committees a bad idea?
The short answer is no. Committees have been around for decades and are a tried and tested method for people, often women, to save up and buy big ticket items.
According to a World Bank Report from 2018, 63% of women in Pakistan had saved in the past year, with the average amount being about PKR 25,000 per annum.
“The use of committee savings remains popular,” it said, “with 29% of women saving through this mode.”
Committees do away with having to open bank accounts or deal with the paperwork that goes into applying for a loan and don't need the same level of understanding as, say, investing in stocks.
They also have a social element as often the committee members meet up once a month.
However, one must be careful. Being in one or two committees by contributing a sum of money that is easily manageable is one thing, but it can be tempting to go overboard.
In Humaid’s own words: “No doubt committee is a good genuine way of solving your financial issues but I would like to warn everyone who is involved that this can lead to the amount mounting up and you eventually get stuck in a vicious cycle.”
Traditionally, women have had committees amongst family and friends. It's when the concept moves online and involves people you don't personally know that it becomes dangerous, and extra caution needs to be exercised.
According to Maham Alavi, who runs a page called Women Investment Forum on Facebook, it is important not to trust anyone on social media with your money regardless of how active they are on groups (or how many years they have been running committees as Humaid was clearly not new to this).
She says financial literacy is as crucial a life skill as learning to drive or cook and can help in other ways of investing - mutual funds, treasury-bills and gold.
She also points out that committees do not protect one’s savings against the impact of inflation. If you are in a committee for one year and are the last to get paid, the pot of money can actually have gone down in terms of value.
And lastly, she says when dealing in cash it is important to get a receipt and signature of whatever transaction has taken place. Otherwise it's better to make a bank transfer or use cheques so you can provide a trail if needed. In the Sidra Humaid case, if there are legal proceedings, they will be tricky without this trail.
This brings us to the most important issue that this whole fiasco has highlighted.
Financial inclusion and independence of women in Pakistan
Why are women trusting people they don't know online over the entire banking sector?
The State Bank of Pakistan (SBP) has its Banking on Equality Policy and banks offer numerous products aimed at women.
And yet, a joint study by Australia’s Market Development Facility (MDF) and Pakistan’s Kashf Foundation and Khushhali Microfinance Bank in 2020 said nationwide only 7% of women hold a bank account - a shockingly low figure. And women are still 15% less likely to have a bank account than men globally.
As one Twitter user, @thoraoffbeat, pointed out, “committees are popular because of: gender dynamics, power dynamics, mobility, ease of access.”
Another, @MeenahTariq, said her mom bought a car “From multiple committees” because it is an “interest free, honor based loan. No bank serves her. Other aunties do.”
Women often struggle to open bank accounts because they don't have either the complete paperwork required or sometimes lack the support of pursuing financial independence from their families — money is power and gives whoever has it control over the other party.
A 2019 report by the Small Enterprise Education and Promotion Network notes that such savings groups “appeal to women given the low legal, economic and social barriers to entry.”
“The absence of documentation requirements, proximity to home, and small flexible transactions are all components of savings groups that make them a suitable and desirable service for women in underserved markets.”
The 2018 World Bank report cited earlier also said just 11% of women saved in bank accounts.
The reasons cited by women for not saving in formal institutions include (i) because they think doing so has no benefits, (ii) because they lack information about products and institutions, and (iii) due to lack of trust in financial institutions.
According to the Women’s Financial Inclusion Data Partnership, there will be an estimated 32% gender gap in access to formal financial services by 2030 in Pakistan.
However, the country’s ‘estimated annual financial services product revenue potential in women’s market’ is $652 million. This is partly because “women are paying back loans at greater rates than men and they are also great savers,” said Inez Murray, the CEO for the Financial Alliance for Women, at an event earlier this year.
Experts say that if both the public and private sectors can see how much they stand to benefit from women’s financial inclusion, they would have more of an interest in it.
But until women are educated on financial literacy, and the formal banking sector makes it more accessible for women to use their services, committees will continue to soar in popularity and women will remain financially vulnerable to such risky ventures where they can easily be taken advantage of.
The article does not necessarily reflect the opinion of Business Recorder or its owners