Tricks Scammers Use to Rob Kenyans: Pyramid Schemes

Pyramid Schemes are fraudulent schemes that promise high returns/profits to investors pegged on the ability of the recruits to enroll more people to join the scheme. The next level of recruits is also expected to recruit more investors, and it thus becomes a chain of recruitment. The profits from these schemes are not based on a product but rather the money that recruits ‘invest’ in, which is then used to pay earlier investors. 

Some schemes may indicate that they have a product they are selling, but this is usually a front to entice consumers and hide the pyramid nature of the scheme. Initially, the scheme organisers may appear to pay investors on time, but they eventually stop and disappear thereby fleecing investors of their money.

Targets of Pyramid Schemes in Kenya

Over the years, there have been multiple occurrences of this scam where hundreds of Kenyans, even thousands end up losing their hard-earned money. Yet, more and more Kenyans keep being scammed in this manner. How do the perpetrators manage to infiltrate the masses so easily?

Here are some of the target victims of this scam:

1. Low-income individuals: Pyramid schemes often prey on people who are struggling financially and are looking for ways to improve their financial situation quickly. This could be someone unemployed or under-employed. Individuals not earning enough may be more susceptible to promises of easy money.
2. Individuals with limited financial literacy: People who are not well-informed about financial matters or investment risks may be more easily swayed by the promises of high returns with little effort.
3. Members of close-knit communities: This scam relies solely on the recruitment of new members. Sometimes they target specific communities or social groups where trust and close relationships can be exploited to recruit new members such as families, churches, schools, work colleagues, etc.
4. Elderly individuals: Older adults, especially those who are retired or on fixed incomes, may be targeted due to their desire to supplement their savings or retirement funds.

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Signs it Could be a Pyramid Scheme

Here are some of the clear indications that the opportunity could be a pyramid scheme and how it works;

Recruitment: The scheme begins when a promoter recruits individuals to join the program. This can happen through various means such as social media, word-of-mouth, or seminars. Promoters often use enticing promises of easy money to attract potential participants.

Investment: Once recruited, participants are required to make an initial investment or purchase into the scheme. This could involve buying inventory, paying membership fees, or purchasing training materials. The investment amount can vary, but it's typically significant enough to entice participants with the promise of high returns.

No Genuine Product or Service: While pyramid schemes may claim to offer a product or service, the focus is usually more on recruiting new participants rather than selling a legitimate product. In many cases, the product or service offered may be of low quality or completely non-existent.

Income Generation: Participants are encouraged to recruit others into the scheme. They earn money primarily through the recruitment of new members rather than through actual sales of products or services. As new participants join and invest, the original recruiter and those above them in the pyramid receive a portion of the investment.

Hierarchy Structure: The scheme operates with a hierarchical structure resembling a pyramid, with the original promoter at the top, followed by a few early investors, and then an increasing number of later investors forming the lower levels. Participants are incentivized to recruit others into the scheme, often promising them a share of the profits earned from their recruits' investments.

Unsustainability: The pyramid scheme becomes unsustainable over time because it relies on an ever-increasing number of recruits to pay returns to earlier investors. As the pool of potential recruits dwindles, it becomes impossible to sustain the promised returns.
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Collapse: When this happens, the majority of participants, especially those at the bottom of the pyramid, lose their entire investment. Only those at the very top of the pyramid, including the original promoter, may typically have profited massively from the scheme.

Read Also: 5 Reasons Why People Get Scammed

Tricks used by Pyramid Schemes in Kenya

Since the pyramid scheme scam type is not new, how come with every new scam there are victims? And some, repeat victims! What do these scammers use to appeal to their victims and lure them in? 

Let us learn some of the psychological tricks the scammer uses to entice their victims,

1. Exploiting Emotions: Pyramid schemers may take advantage of people's emotions, such as greed, fear of missing out (FOMO), or a desire to belong to a community or group. They use these emotions to lure individuals into joining the program without properly assessing the potential risks.
2. Personal Relationships: Schemers may target individuals within their networks, such as friends, family members, or coworkers. They leverage existing relationships to build trust and credibility, making it easier to persuade people to join the scheme.
3. Isolation and Manipulation: They discourage skepticism or questioning of the scheme and foster a culture of blind trust and obedience.
4. Social Proof: The Schemers may showcase success stories or testimonials from people who have supposedly benefited from the scheme. This creates a sense of social proof, making it seem like a legitimate opportunity that others have successfully taken advantage of.
5. Urgency and Scarcity: Schemers often create a sense of urgency and scarcity to pressure people into joining quickly. They may claim that spots are limited or that the opportunity is only available for a limited time, pushing people to act impulsively without fully considering the risks. 

By understanding these psychological tactics, you can better recognize and resist the manipulative techniques used by pyramid schemers. It's essential to approach investment opportunities with critical thinking, skepticism, and careful consideration of the risks involved.

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Avoiding Fraud: Tips and Strategies.

The easiest way to avoid being defrauded is not to participate in any promotion that appears to be a pyramid scheme. 

However, the following are some additional tips to help you steer clear of pyramid schemes that you can also share with the people around you:

• Understand the Model: Educate yourself about the difference between legitimate multi-level marketing (MLM) companies and illegal pyramid schemes. Legitimate MLM companies derive revenue from the sale of products or services, whereas pyramid schemes primarily generate income from recruiting new participants.
• Research the Opportunity: Take the time to thoroughly research any investment opportunity before getting involved. Look for information about the company or program, its products or services, its business model, and its track record. Be wary of any opportunity that lacks transparency or has limited information available.
• Beware of Unrealistic Promises: If an opportunity seems too good to be true, it most likely is. Avoid schemes that guarantee profits or use pressure tactics to push you into making quick decisions, especially on investments that promise high returns and minimal to no risks.
• Scrutinize the Compensation Structure: In a pyramid scheme, compensation is typically based on recruiting new members rather than selling products or services. If recruitment is the primary focus, it's likely a pyramid scheme therefore, examine the compensation structure of the program carefully.
• Ask Questions, Seek Clarification, and Seek Advice from Trusted Sources: Legitimate companies should be transparent and willing to provide clear answers to your inquiries. Other than that, before making any investment decisions, consult with financial advisors, lawyers, or other trusted professionals who can offer objective advice and help you evaluate the legitimacy of the opportunity.
• Trust Your Instincts: If something feels off or doesn't seem right, trust your intuition and proceed with caution. Don't ignore warning signs or red flags, even if others are promoting the opportunity.

If you remain vigilant and look out for any red flags you stand a big chance of evading the risk of being scammed. In case you suspect that you are being scammed or about to, you can always report the fraud to the police. This will go a long way in curbing the scam epidemic in Kenya where based on research there have been more than 271 schemes reported so far.

For instance, The Development Entrepreneurship Community Initiative (Deci) was an alleged pyramid scheme that operated in Kenya for three years. The scheme promised members 200% returns on investment in as little as 8 weeks but never revealed its profit-making formula. It claimed its strategy was established using the wisdom of God and was affiliated with the Pentecostal Churches of Tanzania. 

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Kenyans were easily lured by the promise of huge returns in money-doubling or tripling schemes. The pyramid could no longer be sustained hence Deci collapsed in 2006, sinking with over Ksh2.4 billion that over 93,000 investors had pumped in. 

With more than 271 schemes listed in Kenya and rarely ever being any chance of the victims being compensated, there have been arrests that prove futile in most cases. You need to look out for yourself and create wide awareness.

Despite the tough economic times, you can learn of better lucrative ways of making money rather than risking it all in GET-RICH-FAST schemes that eventually leave many people more financially dented than they were before.

Wrapping Up

In summary, pyramid schemes continue to pose a significant threat to individuals' financial security, as evidenced by the devastating impact seen in cases like Deci in Kenya among others. These fraudulent schemes prey on vulnerable individuals, including those with limited financial literacy, low-income earners, the elderly, and members of close-knit communities. Understanding the mechanics and warning signs of pyramid schemes is crucial for safeguarding against financial exploitation. 

By educating yourself, conducting thorough research, and seeking advice from trusted sources, you can avoid falling victim to these scams.

Moreover, fostering awareness within the communities and advocating for financial literacy can help combat the proliferation of pyramid schemes and protect individuals from financial ruin.