Pyramid schemes: How they work and who gets hurt

The Central Bank of Sri Lanka has started a special awareness campaign called “Anti-Pyramid National Awareness Week” from July 14 to 18, 2025. The theme is “Pyramid is a trap — don’t get into the wrong track.” This campaign is meant to warn people about pyramid schemes, which are fake moneymaking plans that can cause big financial losses.

- by C. A. Sativa

During this week, the Central Bank will reach out to schoolchildren, teachers, police officers, government workers, and the general public through over 6,000 schools and 14,000 local areas across the country. They will explain how these scams work, why they are dangerous, and how to avoid falling into such traps.

While the slogan “Pyramid is a trap — don’t get into the wrong track” sounds catchy, it raises an important question:

How can people avoid a pyramid scheme if they don’t know what one looks like? For many Sri Lankans, especially those without financial education, pyramid schemes are often hidden behind friendly faces, smart-sounding plans, or online platforms that promise easy money.

Therefore, telling people “don’t fall into the trap” is not enough unless they're clearly taught how to recognise the trap in the first place. Without showing what a pyramid scheme really is, how it works, and what signs to look for, this slogan risks becoming just a rhyme with no real impact.

What Are Pyramid Schemes?

Pyramid schemes are deceptive and fraudulent business models that masquerade as legitimate investment or income-generating opportunities. The people at the top benefit, while those lower down the pyramid inevitably lose money when recruitment stalls.

Figure 1 visually demonstrates how a pyramid scheme rapidly grows unsustainable due to its structure. If each participant must recruit just five new people, the numbers multiply at an exponential rate:

• Round 1: One person (the original recruiter)

• Round 2: Five new recruits (total so far: six)

• Round 3: 25 new recruits (each of the five recruits five more)

• Round 4: 125 new recruits

@ ...andso on.

By Round 14, the calculation goes: 5^14=6,103,515,625