FEW lives straddle the badlands of Uttar Pradesh, a vast, lawless, dirt-poor state in India, and the Plaza Hotel on Fifth Avenue in New York, with its champagne bar and view of Central Park. One such rarity is Subrata Roy, an Indian tycoon who was jailed this year by India’s Supreme Court and who over the years has been snapped glad-handing Bollywood stars, famous cricketers, Barack Obama, Bill Clinton, David Cameron and the Dalai Lama, among others. Mr Roy claims to be the only person who was allowed to touch Mother Teresa’s feet after her death.

Mr Roy’s dream was to join the Indian Air Force. Instead he created Sahara India Pariwar, a conglomerate which spans hotels, a Formula One team and Macedonian dairy projects, but whose spine is a shadow bank that for decades has persuaded India’s underclass of rickshaw drivers, peasants and peons to trust it with their rupees. Sahara says it has 80m customers and a net worth of $11 billion, and that it is a victim of bullying officials. “I love regulations,” Mr Roy has said, “but it should not be the regulations of Hitler to the Jews.”

A new book, “Sahara: the Untold Story” by Tamal Bandyopadhyay, an Indian financial journalist, documents Sahara’s rise and partial fall. Founded in 1978, the firm has three competitive advantages. It has an army of 600,000 agents who go where big banks fear to tread, into the countless feudal villages that are untouched by formal finance. It has dazzling public relations, with an emphasis on glamour, patriotism and Mr Roy’s charisma, designed to persuade the poor of its invincibility. And it has a genius for outfoxing regulators, whom it has treated by turns with deference and defiance.

One way in which it has confounded officialdom is by switching products. In the 1970s it offered prize schemes. Then it sold housing finance and after that changed tack to become a “mutual benefit” firm. Later it raised deposits until the central bank ordered it to wind down in 2008 and repay $4.5 billion to depositors. By 2009 Sahara was selling the rural masses fiddly convertible bonds, which it argued fell under the purview of a minor government ministry. In 2011 the securities regulator demanded that Sahara refund $5 billion of these bonds.

Sahara has been keenly aware of the fine print of rules. Customers on plans that required them to make daily deposits could forfeit years of interest if they missed a payment. Deposit-gathering was outsourced to a legal entity that the central bank did not have authority to inspect.

Inevitably officialdom has finally caught up. On March 4th the Supreme Court jailed Mr Roy for contempt, after deciding that Sahara had failed to comply adequately with the order to repay the bonds. On May 6th the court noted that “every order was consistently and systematically disobeyed”, that the pleas mounted by Sahara were “patently false” and that it had subjected the court to “calculated psychological offensives and mind games”.

Yet Sahara’s finances remain a mystery. One theory is that its customers are partly fictitious—a front for politicians’ cash or for undeclared income. Asked to provide the identities of its customers in 2012, Sahara sent regulators a convoy of 127 trucks with 32,000 cartons of chaotically ordered documents which officials are still sifting through. Another view is that Sahara’s customers are real, but that the group is either illiquid or insolvent and unable to repay them in cash, using other financial instruments instead. The Supreme Court has demanded to see a paper trail. Sahara claims to own 36,631 acres of land, but regulators worry that it does not have legal title to all of this and that it overvalues its holdings.

For his part Mr Roy denies all wrongdoing or that Sahara is in bad financial shape. “I can only say one thing and you can record it ten times—I have never done one wrong thing in my life.” He has a surprising fact on his side. When financial schemes collapse in India there is usually a violent reaction. For example, in 2013 a “chit fund” imploded in Kolkata, destroying the savings of hundreds of thousands of poor investors. Up to a dozen committed suicide, one by immolation. So far there has been little sign of complaint from Sahara’s supposedly vast customer base.

The answer to the Sahara riddle will take more investigation. But three conclusions can already be drawn.

First, some of India’s institutions work—eventually. Often they are under intense political pressure. A regulator closely involved in the Sahara case recalls getting “100 telephone calls from a who’s who of India” when he acted against the firm. But over time the central bank, the securities regulator and the Supreme Court have enforced their will. Free speech is also protected, in a fashion. Mr Bandyopadhyay faced a $32m defamation suit from Sahara before his book was released. In an out-of-court settlement Sahara agreed to allow the book to be published with a two-page disclaimer* by Sahara arguing that it “does not reflect the true and complete picture.”

Second, India needs to co-ordinate its regulators and move from a nit-picking, rule-based system of regulation, which can be circumvented and is enforceable only through Byzantine courts, to one based on broad principles that gives officials flexibility.

The last lesson is that India needs to extend the reach of its financial system. Only 35% of adults have bank accounts and less than a third of household savings goes into the formal financial system, with gold and local moneymen being popular alternatives. The central bank hopes to encourage a new generation of simple banks focused on deposits and payments. Mobile-phone banking could help. Vodafone, a big global operator, has launched an Indian version of M-Pesa, a service it honed in Kenya.

Until initiatives like these take hold there will be more episodes like Sahara. Not that Mr Roy is likely to admit defeat. In 2013, as the courts were closing in, he declared, “In the next five years, in terms of assets and profits, Sahara will be among the top ten companies in the world.”

* The full text can be found at economist.com/sahara14