Understanding Buzz around NSEL Scam
Mr. Jignesh Shah has made lot of Headlines in recent past. Thousands of wealthy investors, companies and PSUs like MMTC etc invested in a complex, high-return financial product that many brokers were pushing in the last few years. Now, their money is stuck. Here is an interesting article on NSEL Scam from ET. What was the deal like? An investor would lend money for 25-36 days against commodities like castorseed, wool and sugar stocked in warehouses. Deals happened on the National Spot Exchange (or NSEL) — a platform to match investors and borrowers' orders. The returns were as high as 15%-16%. What is NSEL? It's a spot commodity exchange few had heard of before it defaulted on payments on July 31. Unlike other exchanges, there is no specific law to govern it. Those who ran the exchange used this loophole. But why did borrowers raise money through NSEL? The investors could have lent them directly... No investor would directly lend money to a commodity trader in Ludhiana or Kanpu...