Entrepreneur lessons – what went wrong with Golden Key Finance & caused its fall?

Entrepreneur lessons – what went wrong with Golden Key Finance & caused its fall?

Entrepreneur lessons are many – mostly from stories that went wrong.

Golden Key Finance Co was once one of the stars of the Sri Lankan corporate world, a member of the diversified Ceylinco Group of Companies.

For those of you who are not familiar with the stories of risings and sinkings from the past, we’ re delighted to bring a new series – on Sri Lanka’s well known corporate sector mishaps and undoings.

We start with the story of how a once prosperous and dynamic finance company led to the downfall of one of Sri Lanka’s mammoth conglomerates – eventually reducing its legacy to just a glorious history.

Entrepreneur lessons are many to learn here.

Financial scandal – entrepreneur lessons –

Like many financial scandals throughout the world, Ceylinco’s Golden Key too, was something which was simply too good to be true.

It was not really the what it looked like – in the end, it all collapsed, a less than powerful testimony to the will and legacy of founder Deshamanya Lalith Kotelawala, the founder of the Ceylinco Group and once considered a doyen of the corporate world.

Mr Kotelwala was indeed a pioneering entrepreneur – but in the end, that along was not enough. Entrepreneur lessons can be painful yet reveal much of what could wrong, to us all.

The Golden Key Credit Card Company was a part of the Ceylinco Group which was heavily diversified with interests across multiple segments.

First to pioneer credit cards in Sri Lanka –

Golden Key introduced what was labelled as Sri Lanka’s first ever credit card back in the eighties.

The Credit Card industry was new in Sri Lanka at the time – by offering the first Local Credit Card, they were responsible for setting-up the earliest Merchant Network that still exists even today.

The Company issued a variety of domestic credit cards to a very diverse clientele. They were known for organizing lavish functions and offering exclusive entertainment for their members.

But eventually it all ended on a sour note until nothing was left.

What went wrong?

Analysts believe that it may have happened for several reasons, maybe due to poor management or mismanagement, high salaries and also more importantly, the global financial crash of 2008, which had a ripple effect on the world.

December 2008 will always be remembered as one of the darkest days of our financial history, along with Golden Key, several  such financial institutions also collapsed.

Global financial crash paved the way?

Starting in the end of 2008, several Ceylinco financial corporations failed to pay interest to their depositors and stopped all withdrawals.

Cheques from Golden Key Credit Card began to bounce. By December, Golden Key had crashed and had to close down, and subsequently its CEO & Director Khavan Perera was arrested.

Following which the Ceylinco Group Chairman Lalith Kotelawala publicly stated that there had been a major credit card fraud and that the evidence was implicating Khavan Perera, to which Perera admitted being guilty of.

In response to the backlash, the Chairman stated that his group would exit Seylan Bank, in order to raise money to pay back everyone.

The ripple effect took hold –

This led to frenzy of everyone suddenly withdrawing their deposits, causing the Central Bank of Sri Lanka to appoint a new board to Seylan Bank consisting of senior bankers in order to mitigate the issue.

It didn’t end well. There were scandals and drawbacks, political instigations and various aspects that eventually drove the final nails into the coffin of the Group.

Eventually the Court ordered the Chairman to be remanded as well, and the Magistrate’s Court issued a travel ban on any directors affiliated with the Ceylinco Group.

Also, at this time there were several protests organised by the Depositors Union.

Many who had invested their pension funds and hard earned money in the Ceylinco Group affiliated companies, had to watch their life savings disappear as once prosperous directors were hauled into court and remanded.

In Sri Lanka, many choose the option of depositing life’s savings and retirement funds in a fixed deposit, enabling them to live off the interest component.

Golden Key was paying high interest rates which were attractive to the depositors and at first – it seemed a too-good-to-be-true fortune.

When it all went wrong –

To put this into perspective, at one-point Golden Key had staggering 9,054 depositors, with a deposit base of Rs. 26.5 billion (Rs 47.4 billion in 2020) , making it one of the biggest financial institutions at the time. They attracted an array of customers with their very lucrative interest rates, starting from 16% and even up to 35% for certain depositors.

Their flawless financial record  along with their Chairman’s popularity and charisma, helped give the appearance of safety and security, capturing the peoples trust.

Depositors consisted of people from all walks of life, retired executives, professionals, housewives, ministers, sportsmen, government pensioners, etc.

They not just trusted Golden Key but more importantly, they trusted the Kotelawalas who had never defaulted their customers.

The gravity of the scandal left a mark on our economy ; in 2008 cash flow was significantly reduced by over Rs. 3 billion.

Was diversified too fast too soon to blame?

Analysts believe that the extreme diversity of Kotelawela’s ventures, eventually led to his downfall.

By March 2009, the first death was reported, and later there were several suicides and deaths reported.

There were those who committed suicide because they couldn’t face losing their entire life’s savings- others died of a broken heart. Many others died, as a result of not being able to pay for medicines. They had all hoped to live on the returns from their savings.

This was an instance of gross mishandling of people’s money. It was too good to be true. Golden Key’s victims included both the rich and poor, people who had deposited their entire life savings. To date, there has been no remedy.

2021 marks 13 years since the scandal.

Watch this space for more stories from the past – Sri Lanka’s corporate downfalls that made and broke dynasties, companies and lives.

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