Karnataka to conduct socio-economic and behavioural analysis to tackle investment frauds

Officials highlighted concerns about the continued entrapment of unsuspecting depositors in various schemes during the 60th State Level Coordination Committee (SLCC) meeting chaired by the state chief secretary on August 30, 2023.

Financial fraud has risen exponentially in recent years, often leaving its unsuspecting victims duped of their life's savings. To tackle this, Karnataka has decided to conduct a socioeconomic and behavioural analysis of depositors/victims and fraudsters.

The Office of the Special Officer & Competent Authority (SPLOCA), tasked with investigating investment frauds, recently floated a tender to select an agency for surveying depositors. SPLOCA is tasked with investigating scams like the I-Monetary Advisory (IMA) scam under the Karnataka Protection of Interest of Depositors in Financial Establishments Act.

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They will look closely at – the socioeconomic backgrounds of depositors, their investment patterns, likely repercussions as well and the link between depositors' financial literacy and their investment decisions so that preventive measures can be put in place. The study will delve into the factors driving depositors towards unscrupulous investment schemes, while also examining the profiles of fraudsters and the factors motivating their illicit activities.

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Elderly citizens – with ample retirement corpus and limited familiarity with technology, are often among the prime targets of scammers who lure them in with fake investment schemes.

The report will also analyse the most common channels used by fraudsters to deceive depositors and assess the financial and non-financial impacts of scams on the socio-economic lives of depositors.

Rajender Kumar Kataria, principal secretary, revenue department, told Moneycontrol that Karnataka is among the first states to conduct a study of this nature. "A lot of cases have come before us. So, apart from raising awareness, we thought we should also conduct a comprehensive study to understand investors' behaviour and the tactics of those who cheat. This will help us to not only prevent such incidents but also take proactive measures to educate people on where and how to invest safely," he said.

"The purpose is to conduct a thorough analysis of these cases and devise a strategy for future action, focusing on corrective and preventive measures." he added.

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Karnataka already has put in measures to safeguard depositors. The state government enacted the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004, alongside the Banning of Unregulated Deposit Schemes Act, 2019.

Officials highlighted concerns about the continued entrapment of unsuspecting depositors in various schemes during the 60th State Level Coordination Committee meeting chaired by the state chief secretary on August 30, 2023. The meeting emphasised the need for awareness campaigns and preventive measures.

"The objective of a study on depositor awareness, behaviour and education is to understand depositor behaviour and devise awareness campaigns through behavioural studies, official dissemination of information, and testimonials from affected depositors," an official said.

The SPLOCA has invited expressions of interest (EoI) from reputable social science institutions in Karnataka with expertise in psychology, behavioural science, economics and statistics to conduct the study.

Study objectives

Officials said they are planning to create public awareness and establish an early warning system (EWS) for financial fraud, as well as coping mechanisms, reporting methods and operational procedures for responders.

The study will be divided into two parts. The first part will involve empirical research and behavioural analysis through structured interviews with depositors, while the second will focus on analysing perpetrators and collaborators of selected scams, alongside the socioeconomic context, to develop an EWS for depositors and operational procedures for responders.

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The selected firm will set up a survey team and conduct essential training under the supervision of SPLOCA. The survey will span the state, involving designing a comprehensive questionnaire and the development of a sampling plan for individuals above 18 years of age through innovative methods and techniques, such as psychoanalytic approaches, to enhance data quality and response rates.

It will also be responsible for devising a robust data quality monitoring plan and conducting pre-tests to refine survey methodologies. Additionally, the firm will be tasked with coding, validating, and analysing survey data and preparing comprehensive reports and factsheets under SPLOCA's specifications.

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