The company was offering two long-term social security schemes -- an assurance plan and a health plan. Under the assurance plan, the company was charging its clients Rs 15,000 (US$ 210), promising accidental death insurance of half a million rupees and assurance coverage of Rs 100,000 in case of natural death. [break]
In case of no fatal incident, it has promised to refund the money with 10 percent annual interest after five years. But the company was registered neither with Nepal Rastra Bank (NRB) nor with Insurance Board (IB), something which is mandatory for mobilizing deposits or selling assurance [insurance] plans.
Under its health plan, the company was charging clients Rs 15,750 (US$ 191) for life-long free health checkups and a treatment package at hospitals that it operates in 19 districts. While some of its hospitals in Kathmandu, Pokhara and Itahari have modest facilities others are more like clinics with a few rooms.
It was also selling travel and assurance plan to overseas clients. It was also dealing with termination plan exclusively in Hong Kong for third country workers there. Unity´s MD Bishnu Chhetri had told myrepublica.com that the company has 250,000 overseas clients in 62 countries.
If his claim is true, the company has collected at least another Rs 3.75 billion from foreign nationals, but its financial statement does not include this figure. Moreover, for operating businesses payable in foreign currency, it was required to have NRB´s approval. But the company was not authorized for such transactions.
MARKETING SCAM
The company was employing faulty binary network marketing model to intensify sale of its plan, which is illegal. Under this model, the company was giving each member a commission of US$ 10 for adding two new clients below him in the marketing pyramid, US$ 20 for adding four, US$ 40 for six, US$ 80 for eight and US$ 140 for inducting 10 clients into the network.
For the sustainability of this marketing model there has to be an infinite number of clients, which not possible in the real world. Unity´s MD Chhetri never accepted that ULI´s operation was illegal. Instead, he argued that there was no law governing the type of service Unity offers and said he has been demanding a specific law.
UNVIABLE BUSINESS
Given its expenses and flawed business model, financial experts had raised serious concerns over the sustainability of the company. Chhetri admitted that the company was spending as much as 43 percent of cash collected from the clients to meet its marketing cost (20 percent), comply with VAT (13 percent) and manage overhead expenses (5 percent).
Given that it was further required to provide interest return of 10 percent to assurance plan holders on the original charge for the plan, it was required to make a profit of more than 50 percent every year to maintain its fund.
"In today´s competitive market, no company can sustain with such a high operating cost,” said Madan Krishna Sharma, chartered accountant associated with CSC & Co, an associate of PricewaterhouseCoopers in Nepal.
Unity´s MD Chhetri disagreed with this, advancing flimsy arguments.
“Unity will sustain because we have invested in high-return sectors like real estate, and are soon starting biodiesel production and carbon trading through Jatropha project, which will generate enough long-term returns,” he said.
He even claimed that his company´s investment plan will earn a return of over Rs 10 million in the next 21 years for an investment of just 13,000 rupees.
Understandably, real estate is a volatile sector from the point of view of long-term investment. As for its plan to gain sustainability through Jatropha project, energy experts too term this claim as a mere ´hoax´.
"Even the advanced research across the globe has not yet proved that Jatropha oil can replace diesel," said Amrit Nakarmi, the coordinator of Energy Planning and Policy Analysis at Center for Energy Studies. Because of high viscosity, Jatropha oil cannot even be blended more than 10 percent in diesel.
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