Fear and panic is running deep among the participants of Mavrodi Mondial Moneybox popularly known as MMM as the Zimbabwean chapter of the peer to peer lending platform has completely stopped disbursing new loans. This comes as the nation gears itself for the inevitable #bondnotes and the economic situation continues to deteriorate. New money has virtually dried up on the network and those who have Mavro (MMM) credits to their name are left stuck with a virtual funny money which they cannot convert to hard currency. The only way to “cash-out” is if new investors keep coming to the peer lending network and their funds will be used to pay out old investors.

I spoke to a Mavrodian (term used by people who participate in MMM), Mai Bee who luckily withdrew all her funds in the nick of the time and was not affected by the collapse of the peer lending platform. Mai Bee however knows plenty of people who have been burnt left right and center as they had borrowed funds from family and friends at interest rates between 10-20% per month looking at pocketing the difference for themselves. MMM offered 30% interest rates per month and some gullible characters had leveraged up to $5,000 and are now left with debts they cannot afford to pay back. With economic opportunities disappearing everyday; there are fears that this could lead to a wave of suicidal Mavrodians who have lost sizable amounts of cash from this scheme. Mai Bee started the speculative lending on MMM early this year and made descent returns, earning 30% per month and additional money by signing up new people.

MMM Background

Triple M was founded by Russians Sergey Mavrodi and his brothers in 1989 in their home country. MMM Russia went bankrupt in 1997 and the brothers were charged and successfully convicted of fraud in 2007 with more than 5 million people losing as much as US$10 billion, according to the MMM wiki. Now that this information is publicly available out there, why is it our fellow brothers and sisters fell for this 20 years old trick? One would wonder. Is it the poverty, unemployment and desperation that most citizens are going through?

How does a pyramid scheme work?

MMM openly calls itself a pyramid scheme on its website and according to wikipedia, a pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services as is in the case of network marketing. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

In as much as MMM openly calls itself a pyramid scheme, the fact that MMM gives people “interest” on their monies invested in the system when there is no underlying economic activity generating that interest makes MMM a ponzi scheme. The reason is because the so called mavro points are fuzzy and fictional until a new investor known in MMM terms as a pledge comes to the rescue.

What is a Ponzi Scheme?

According to Wikipedia, a ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.

The above definition clearly spells out what MMM has been doing: firstly it does not have a legitimate source of profit, interest or mavro points. This is because the person who is given the pledged money is not charged the interest to compensate the person who pledged or the investor. Secondly, MMM offers interest of 30% per month or when annualised it’s a whooping 360%! Which other investment gives such a ridiculously high return in the world? Perhaps first round equity funding on a technology start-up in Silicon Valley would be the only alternative investments with such astronomical returns on investment. This return is just too high and the opportunity too good to be true given the economic fundamentals in the country.

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MMM Marketing Material

Who benefits, who loses 

In a classical example of a ponzi scheme, first round investors are the biggest winners whilst those who join the scheme when sign-ups slow and ultimately do not receive their interest or money back are the biggest losers. Those who join the ponzi scheme earliest and re-invest their profits and are able to take them out before the bubble burst benefit the most. In classic American ponzi cases these have been forced by the courts to pay back any excess profits that they made from the Ponzi.

However, as we all know Zimbabwe is not technologically, financially or legally sophisticated to be able to bring these biggest winners to book. Surprisingly enough, MMM has been operating and recruiting members for a good 4 years and the authorities have not done anything to address this cancer despite there being vast evidence of MMM being a ponzi scheme.

Why these Ponzi Schemes attract the ordinary citizen

Zimbabwe currently is dogged by high unemployment, diminishing disposable incomes and high poverty levels, which leaves many people desperate for ways to earn a living. The promised 30% monthly returns and a diary of testimonies and referrals attracted a lot of people making MMM big business in Zimbabwe. Many Zimbos, however, were very much aware that MMM is a ponzi scheme and like all ponzi schemes, it will collapse at some point and for MMM in Zimbabwe, it is now a thing of the past. Good riddance!

Its surprising that Zimbos remain gullible to such schemes after experiencing the Microfinance Institutions (MFIs) bubble between 2009 – 2012 which saw hundreds of people illegally depositing funds after being promised astronomical interest rates of between 5-10% per month. The most prominent being Mcdowell’s International which was headquartered in Masvingo with 21 branches countrywide, and at the time of collapse owed its “investors” a whooping $4 million dollars. The other MFI was Bulawayo based Perfect Shot Investments which whisked away $1 million worth of clients money. Its easy to judge people and argue how they can be so reckless, but this volatile economy has left many clueless and in quandary. People have been doing the right things educating themselves, investing in the money market investments which are now threatened by #bondnotes and saving in banks which are at risk of closing due to high toxic loans. So it’s a sad reality that my fellow Zimbos are in a catch 22 position.