NEW DELHI, May 5: Engineer Deepak Sharma thought he was dealing with a poverty relief project, but now believes he was caught up in a “Ponzi” fraud scheme — just one victim of India’s unregulated non-profit sector.

He is fighting a legal battle to recover Rs100,000 ($2,240) that he claims he lost to Anand Jan Seva (Anand Help to the People), a group which was set up in New Delhi in 2009 posing as a charity helping poor people.

It began work as an officially-registered non-government organisation involved in community work in the Madangir district of the city, before it started to take cash from locals and return massive, rapid profits.

“The charity boss turned up and gave away grain and sugar to poor people living nearby, helping lower middle-class families with their wedding costs, and organising religious pilgrimages for the elderly,” Sharma, 25, said.

“He seemed so devout and trustworthy, the whole neighbourhood supported him.” The NGO, which was licensed by local legal authorities, then offered a finance scheme which promised to double investors’ money within a few months.

Sharma’s sister-in-law Sakshi gave Anand Jan Seva Rs1,000 and soon got Rs2,000 in return. Sharma first gave Rs10,000, and received Rs20,000 back in August 2010.

“Looking back it seems strange that an NGO was doing this but we wanted to believe it. It was working so well and we got our money on time,” he said, trying to explain why he took the plunge last year and invested Rs100,000.

Within weeks, Anand Jan Seva collapsed, saying it could not return anyone’s money. Its office was mobbed by furious investors who clashed violently with police.

“Ponzi” schemes, which pay out returns from other investors’ contributions rather than from actual profits, are not new — but campaigners say the problem is worsened in India by fraudsters posing as charity workers.

Sharma is now one part of a huge legal case against the head of Anand Jan Seva, Anand Arora, who is the main accused in an alleged fraud worth billions of rupees.

Arora was charged in September and remains in custody in Delhi as his case limps through the courts.

The trial is a rare insight into how organisations claiming to be NGOs are part of every aspect of Indian life.

The national audit authority last November published a damning report revealing that only 3.5 per cent of the NGOs which received grants from the environment ministry completed their projects.

The auditors were unable to contact the remaining NGOs and, according to the report, “the possibility of misutilisation/fraud cannot be ruled out.” The environment ministry released Rs315 million in grants to NGOs between 2003 and 2008, but could only account for Rs17.7 million spent on completed projects.

According to the international Charities Aid Foundation (CAF), India is home to at least 1.2 million NGOs, employing some 2.7 million people and with an annual turnover of Rs200 billion.

“The registration criteria for NGOs is absolutely insignificant and totally outdated,” said Robert Dequadros, who works with Credibility Alliance, a consortium of NGOs set up in 2004 to improve accountability in the sector.

“When we started Credibility Alliance, some 400 NGOs signed up. But once we put pressure on them to adopt good governance and accountability, 250 dropped out,” he said. “So many NGOs operate like thieves.” One key problem is that many NGOs are established specifically to distribute funds from government coffers — meaning they are perfectly placed to funnel off cash before it reaches its target.

“Often these NGOs are set up by relatives of government officials just to get money, since they know well how to work the system,” said Vinay Somani, who runs karmayog.com, a free online resource for the non-profit sector.

“In my view, government programmes run through NGOs should be scrapped entirely.” Prime Minister Manmohan Singh, whose own reputation has been hit by corruption scandals over the last year, has said he wants to prioritise the fight against graft amid growing public anger.

At the environment ministry, officials said that they had temporarily stopped releasing funds to NGOs after being heavily criticised by the national audit authority report.

“We think there are sufficient safeguards against misuse of funds and are looking into the reported claims,” said A.R. Chadha, inspector general of the National Afforestation and Eco-Development Board, which disbursed the funds.

But for those like Deepak Sharma, the discovery that a registered non-profit organisation is not always all that it seems has been a painful and costly experience.

“It was three months’ salary and I don’t think I will ever see that money again,” he said.—AFP

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