Factors influencing people’s participation in Financial Pyramid Schemes (FPS) in Tanzania: a case of DECI

Abstract

Financial pyramid schemes (FPS) are illegal economic activities. Nonetheless, they have been coming out and offered to the general public. These fraudulent endeavours often collapse within few years of operation, resulting into awesome misplays to individual participants, their families and the nation at large. While the characteristics and/or consequences of FPS have been widely explored in the literature, comparatively little is known as regards to what influences people to join FPS in the environment in which they live and make decisions. This study aims to investigate factors influencing people to join FPSs in Tanzania despite their limitations, using the case of a religious-based financial pyramid scheme in Tanzania known as the Development Entrepreneurship for Community Initiatives (DECI). The theoretical basis of this study is that factors for peoples‘ participation in FPS can be grouped into four categories, namely: demographic (psychological), economic, social, as well as moderating factors termed regulatory framework. The study used primary data which were collected using a structured questionnaire from 60 respondents from the three municipals of Dar es Salaam city. The data collected were analysed using a logit model that was fitted to estimate the impact of several demographic, economic and social factors on the decision whether to participate in FPS or not. The results indicate that all categories of factors influenced peoples‘ decision to participation in FPS, though not uniformly. The study also reveals that the influence of regulatory framework depends on awareness of legal requirement because awareness was found to have negative influence on FPS participation. This study makes two important contributions: first, it extends the literature on factors influencing FPS participation; and second, it adds to the theoretical framework supporting the link between economic, psychological and social factors with investment decisions of individuals.

Keywords: financial pyramid schemes (FPS), Ponzi schemes, MLM, investment fraud