JOHANNESBURG – Social financial network, MMM needs a continuous stream of new members to join the system in order to provide existing members with financial assistance. And herein lies its number one problem.
If no new members join the so-called “mutual financial aid scheme” then the flow of money between members – described as “donations” by those on the inside – will simply dry up. This is because MMM relies on new capital entering the system to pay its members, rather than actual profits earned from selling goods and services.
This infographic illustrates the problem:
In South Africa, MMM advertises potential growth of 30% per month on deposits – a potential return of 360% per year, which makes it a “multiplication scheme” or ponzi scheme in terms of the Consumer Protection Act (CPA).
Once you have registered with MMM, you need to first provide financial assistance by donating a minimum of R100 before you receive your Mavro, which according to the website is an internal currency that begins to grow at 30% per month.
The system then gives you a bank account number to which you are directed to transfer the financial assistance you have decided to provide. Once the recipient of the money confirms receipt, your Mavro become active and allow you to request financial assistance, also known as ‘getting help’.
One of the consultants on MMM South Africa’s website explained it to Moneyweb in the following way:
“When you get help, the system declares how long your money has stayed and for that you are rewarded in the form of interest. All the money provided to you or any member is coming from the community. The system declares you have this much and then looks for someone to cover your get help, be it with or without your interest including (sic). We are able to afford this as we have a lot of members not only in South Africa but across many countries as well, which all together are willing to make donations for members of the community that needs help.”
In other words, if no new members join, no new ‘help’ will be provided.
Mavro is there to balance the inflow and outflow of money, and its growth rate can be adjusted to keep this balance in check, according to administrators of MMM South Africa’s Facebook page.
This suggests that if anyone decides to stop ‘providing help’, given that Mavro is balancing the flow, people will stop ‘getting help’.
“There are no promises or guarantees… MMM is just a platform and guarantees nothing,” according to the administrators.
There’s a lot of misinformation out there regarding MMM. Of concern is that a lot of the misinformation comes from MMM members themselves.
MYTH: MMM puts banks out of business
FACT: Members of MMM use their existing bank accounts to transfer money to one another. If they did not have bank accounts they would not be able to transfer money. In other words, MMM relies on banks and the banking system to keep it going.
MYTH: The SA government has declared that MMM ‘is not a scam’
FACT: This is a blatant lie. There has been no official communication from the government whatsoever to this effect. In fact, the commercial crimes unit within the South African Police Services (SAPS) – known as the Hawks – is investigating MMM as we speak, after the National Consumer Commission (NCC) found that MMM was contravening the CPA.
MYTH: Capitalism is evil and MMM is anti-capitalist
FACT: According to some MMM members, capitalists “hate it when you buy your cars, clothes, TVs, houses”. Nonsense! Capitalism thrives off heightened economic activity – i.e. when people spend money and there is demand for goods and services. Capitalists support what is known as a free market economy, which is one that is based on supply or demand with little government intervention.
Socialism, on the other hand, says that the state should determine how much money people make, how wealth is distributed, and what goods and services cost.
Since the point of joining MMM is to grow your money and supposedly enhance your access to goods and services, MMM is in fact a great supporter of the capitalist system.
MYTH: MMM members do not have to pay donations tax
FACT: In terms of the Income Tax Act, once an individual has exceeded R100 000 in donations made in a given tax year – which could be made to a single or multiple other individuals – he or she is then liable to pay 20% tax on donations made over and above that.
Some of the exceptions to this rule are where donations are made to charities or between spouses, but these exceptions do not apply to MMM members.
MYTH: Banks have paid media to discredit MMM
FACT: Yet another barefaced lie from those within the MMM community. As a watchdog acting in the public interest, the media is trying to explain to members of the public what the risks involved with MMM are, so that they fully understand what they are exposing themselves to if they decide to join.
As noted in a previous article, MMM preys on the poor, who are understandably frustrated with a financial and economic system that seems to benefit only a few to the exclusion of the many.
Tragically, this makes them vulnerable to ‘get rick quick’ schemes, which, if history is anything to go by, leave people worse off than they were before.
Sergey Mavrodi, the founder of MMM, was jailed after cheating millions of low-income Russians out of their savings.