Letter to Chief Economic advisor Dated 07-Dec-2012

7-12-2012

Dr. Raghuram Rajan,
Chief Economic advisor,
Government of India,
New Delhi.

Sir,

We congratulate you on taking over as the Chief Economic Advisor, Government of India.

To introduce our self, ours is Sole All India forum representing more than 30000 chit operators in whole of India through their District & State Associations having a turnover of nearly 30,000 crores per annum, but do not represent the unregistered sector, which is almost 100 times the size of our industry.

Though financial inclusion is a recent buzz word, traditional financial technology like ours had already been doing this from time immemorial even before the origin of banking concept. The fact that M/s Bill & Melinda Gates Foundation are supporting our activity under their ‘Poverty Alleviation Program’ speaks volumes in this regard. The initial research report of an ongoing survey conducted by IFMR, Chennai under the guidance Dr. Antoinette Schoar, MIT Sloan School of Management & Dr. Mudit Kapoor, Indian School of Business, Hyderabad, substantiates the same. (Copy of this Report for your reference is Annexure I). This is on account of the fact that Chit Fund is a unique product having several advantages like, a. Savings cum Borrowing instrument, b. Cost of borrowing is the lowest, c. The cost is determined by the participants themselves, d. It doesn’t require any subsidy from any external source as in Micro-Finance and other intermediaries.

We are very much confident of participating in the National Financial Inclusion Program in a massive way; however, we are getting suffocated as we are not at all included anywhere in the ongoing economic reforms agenda. Though the Department of Financial Services, Ministry of Finance has constituted a Key Advisory Group to bring in value addition in our working, the recommendations of the said group is yet to see the light of the day. Though a Memorandum has been submitted to      Dr. Arvind Mayaram on 28th September 2012, as directed by the Hon’ble Minister of Finance, as is our experience with any Government department, we are yet to know the outcome.

As our industry will not be able to move forward even a inch without any Administrative or legislative support, we will be greatly honoured if you can spare us some time to let us know your perception on the role of informal financial institutions like Chit Funds and the value additions that we have to bring to our working to complement banking and other financial intermediaries, with specific reference to financial services being offered to the urban and rural poor.

Meanwhile, you may make it convenient to put in a word to Department of Financial Services, and the Department of Economic Affairs to consider our representation to some logical end.

With you in the service of our Nation and thanking you

For AIACF(Regd)

Gen Secretary

Letter to Secretary, Economic Affairs Dated 26-Sep-2012

September 26, 2012

Dr. Arvind Mayaram,
Secretary, Economic Affairs,
Ministry of Finance
North Block,
New Delhi.
Respected Sir,
Memorandum from Chit Fund Industry

To introduce us, All India Association of Chit Funds is the sole body representing more than 30, 000 registered chit operators across India through their respective State and District Associations. The major challenge that our Association confronts is unfortunately from within our own industry, which is the unregistered sector, their estimate being almost 100 times that of registered ones. And their emergence and unprecedented growth is mainly on account of over-regulation.
The only subsidy the Chit Industry has received from the Government perhaps is the Legislative sanction. Though the concept of Chit fund is prevalent in South Asian countries, West Africa, Cambodia, Korea, Indonesia known as ROSCAS and other names, India is the only country where this activity is regulated by an enactment. The precise problem is, The Chit Funds Act 1982, a Central legislation in force is obsolete, since it is almost a replication Cochin Kuries Act, 1932. i.e. outdated by more than 80 years! The legislation not being in tune with the ongoing liberalization policy has driven many a chit operators under ground.

Utility of Chit Fund
In many parts of India, Chit Funds address gaps left by the traditional banking sector. They mobilize huge amounts of small savings, and in return allow members to have access to lump sum amount of money that they would often not be able to get from traditional banks. Easy accessibility and flexibility are important aspects of this form of financing. Compared to banks, Chit Funds require less documentation, are more flexible about collateral, and allows to determine own interest rate (within the constraints of a given chit scheme). Furthermore, there is no need to determine upfront whether funds are used for saving or borrowing. This is a salient feature of chit funds as it not only puts in place a disciplined saving mechanism, but it also allows access to cash when needed. In addition, as Chit Funds use the funds of the participants there is much less capital requirements for the institution (unlike banks). Though the banking sector has come up with No-Frill account, Mobile Banking, Banking Correspondent Model etc, these do not help the un-served population to get funds for their income generation activity. As regards MFIs, multiple lending, high cost of borrowing etc has affected their agendamainly because they are focused on redistribution of wealth while what is required is inclusion in the Creation of wealth. All said and done, debt distribution to the poor as done by MFIs by itself does not grow economies! Chit Funds on the contrary, as against air dropping the finance, make sure that the entire cycle from distribution to collection is complete effectively, that too with out any Government subsidy, thereby playing the crucial role in Financial Inclusion.

The tie –up with Bill and Melinda Gates Foundation
While the “Financial Inclusion Program” is of recent origin, Chit Funds and other informal Financial Institutions are already implementing this, for the last several decades, catering to those cross sections, which are beyond the reach of Banking and other Financial Intermediaries.  The Bill and Melinda Gates Foundation knowing the standing of this Industry has tied up with the All India Association of Chit Funds, to reach the economically weaker section of the society through Chit Fund companies; under their ‘Poverty Alleviation Program’. The maiden survey conducted on the working of Chit Funds by the Institute of Financial Management and Research, Chennai under the Aegis of the Gates Foundation is an eye opener unraveling the inherent potential of this industry and suggesting ways and means to enhance its services to the deserving lot, in context of the current economic policies. The potential of this Industry to cater to the Lower and Middle Income Households is quite substantial, which can be optimized only with the legislative and Administrative support. The complete research material can be submitted as and when required.
The issues we are up against are as follows.
The Chit Funds Act, 1982
As it is not the mere formulation of an Act, but its effective implementation that matters, the Chit Fund Act need to be amended immediately. The amendment exercise which was being carried out for more than 4 years finally picked momentum, thanks to the formation of a  Key Advisory Group on Chit Fund / Nidhi Companies with a view to Review the existing legal/regulatory / institutional framework for Chit Fund/Nidhi Companies and its efficacy; to decide the Action plan including policy initiatives for orderly growth of the Sector; and to recommend the legal / institutional / regulatory initiatives related measures required for orderly growth of the Sector. The recommendations of the KAG, in principle, have been accepted by the DFS, but are yet to be introduced in the parliament.
Apart from the Amendment to “The Chit Funds Act, 1982”, elucidation to the following issues will allow us to position this Industry at par with other financial intermediaries.
Insurance coverage
The Act rightly provides Penal provisions for various defaults on the part of the foreman but the subscribers’ main concern is safety and security of their money in the hands of the foreman and not the punitive provisions of the Act as such. So, extending Insurance coverage to the Subscribers money in the hands of the Forman may be a prudent initiative. Extending insurance coverage, apart from safe-guarding the hard earned money of the subscribing public, will make good business sense for the Insurance companies.
Securitization facility
RBI rightly has prohibited Chit companies from accepting any deposit from the public but at the same time there should be some options for arranging liquidity, in order to enable the foreman to honor their commitments to the chit subscribers. Securitization can be a right step in this direction. Chit companies may also be permitted to raise funds within the framework of its functioning.  We are aware that this may bring to the fore the bigger policy issues such as if the ARC can securitize good loans of miscellaneous non-banking financial companies at all but a beginning may have to be made at some point of time!
Value addition to the Chit Industry
Allowing Chit companies to undertake fee based activity like selling insurance policies and other financial products like educational, housing loans etc should be considered favorably. The availability of Credit history is essential in the context of selling these products from the banks and other deposit taking institutions. The data bank that we have on this information qualifies us to undertake procurement, processing and disbursement of such products very effectively in view of our skill on intrinsic evaluation, cost effectiveness, market intelligence and the quality of ownership. This will also benefit those cross sections that are beyond the reach of banking and other financial intermediaries.
Grievance redressal cell
Chit Fund Association/Promoters should take the primary responsibility of addressing the subscribers’ grievances. The grievance redressal cell, which can consist of a representative of the Registrar of Chit Funds, a representative of the Chit Funds Association and representative of the subscribing public/or experts in the field so that complaints, as and when occur, can be resolved in the elementary stages. Such a cell has yielded result in States where it had been voluntarily set up.
Rating of chit fund companies
Chit funds traditionally operate on a small scale; foreman-participant as well as intra-participant relations is based upon mutual trust and personal information. The smaller Chit Funds have higher overheads and less capital cushioning but often provide more customized services and personalized attention to their clients. The larger Chit Funds are regarded as financially more reliable. To be successful and acceptable at an increased size and scale, chit funds need transparent processes, risk identification and management strategies, a pool of useful products, professional management, proper documentation, increased use of technology and financial strength to bear the risks.  Brand recognition comes with this type of professional management.  Though some process certifications, (such as ISO) exist, a holistic assessment of the quality of governance and strategies, strength of risk management and operating systems, legal compliance and financial performance can be delivered only by undergoing a detailed performance rating process. Hence it must be made mandatory to obtain ‘Rating’ from agencies like  M-CRIL/CRISIL etc which will be beneficial both to the subscribing public and also motivate the chit promoters to excel. Necessary enactment may kindly be initiated in this regard.
Formation of SRO
It’s high time that Chit Funds constitute an SRO, which we understand has also been suggested many times by RBI, as in the case of Bar Association of India, Institute of Chartered Accountants, and Medical Council for Doctors etc. The said SRO will further increase the transparency & ethical practices. This body can keep a tab on the chit promoters and can act as a deterrent for the erring companies thereby reducing the burden on the administrators.  This forum may further help in

  • Advocacy of best practices
  • Corporate Governance
  • Best financial practices
  • Ethical behavior
  • Educational & awareness activities

As we are unable to form this body on our own, a hand holding approach on the part of the Government will enable us in achieving this objective.
Requirement of a common Registrar
One major drawback we find is that activities of any company in one State are not made known to the Registrar of another State. Creation of the post of a ‘Common Registrar’ for all the States will enable the working status of companies in different States and look into the complaints, if any, for the overall benefit of the subscribing public. The respective State Registrar can keep posting computerized financial and other relevant reports on a periodical basis.
Easy availability of the computerized information to the public from the office of the Common Registrar, based on a few points, and not the entire balance sheet, and some awareness program to the extent that they should deal only with companies who are in the approved list will be enough to maintain effective control.  If any individual chooses to deal with an unregistered company just for the sake of better returns, he should be doing at his own risk.  Risk taking behavior is inherent in human nature and undue concern to protect the public who knowingly lend themselves in the hands of unscrupulous elements is unwarranted.  Over regulation can only promote unhealthy practices and is also against the ongoing liberalization program. In fact the activities of all the non-banking financial institutions can be monitored by this common Registrar who can maintain the efficiency index based on one common index/Permanent Account number.
Inclusion Chit Funds in the ‘Negative List’ for Service Tax.
Imposing Service Tax on Chit Funds is akin to levying Service Tax on Micro Credit, Self Help Groups, and Co-operative Societies etc. While the Government and R.B.I. are rightly thinking in terms of using the Money Lender Channel for reaching the poor agriculturalists, artisans etc in granting credits at low rates, encouraging our industry will only be just and apt. Though Financial Inclusion has become buzzword only recently, Chit Funds have been addressing the very objective since time immemorial.  Service tax on Chit Funds will act as a disincentive. The Chit Fund companies do not manage any fund or cash as no money is left in their hand to manage, neither they undertake any activity to maximize the return of its subscribers. The companies do not do anything to “effectively cause movement of
such cash to keep it working”.  More over, as the Service Tax collected may not even cover the cost of such collection, the Government even on the merit of this may consider excluding Chit Funds from Service tax as the exercise will be cost inefficient. While we were hopeful of getting relief at least on this front, this recent levy has further aggravated the situation and will force more operators to enter the unregistered arena, which not only will harm us but also give a boost to the unregistered sector as the subscriber will also be enticed to join them.
TDS on Chit Dividend
This is another classic case not seeing in the right perspective. Even though the Law is very clear, there seems to be some ambiguity causing us unnecessary anxiety, which needs to be cleared.
Role of Chit Funds in the economy and National Financial Inclusion Program
Chit funds operate on the unique principle of intrinsic evaluation. It is a faith on the subscriber’s ability to repay and not the collaterals or its value, thus easing the credit flow to lower/middle income group, small entrepreneurs etc which are often wedged between the exorbitant cost of the moneylenders and the stringent procedures of the bank. The chit is not seen as an investment but a plan to get lump-sum finance for meeting the expenses such as marriage, education, and housing etc. at a future date. Our industry accounts for a lion’s share of credit to the rural masses and provides direct and indirect employment to millions giving impetus to GDP growth. Dr. Babatosh Dutta Committee, Dr. A.C. Shah committee have lauded chit funds for the role in our economy. In the findings of James Raj Committee based on whose report the 1982 Act was enacted, Chapter 6 Para 13 “…. The rationale of chit funds is that they bring the borrowing class directly in contact with the lending class…” in other words, in the case of chit funds, the savers as well as the borrowers are put together and they are allowed to save or borrow for a pre determined term, the rates of interest being fixed on the principle of demand and supply of funds in the same group. The Chit Funds are of a self-liquidating nature and par-take the character of mutual benefit schemes.” That is to say,  institutions like Chit Funds absolves the Government of their responsibility in reducing the interest rates, stabilizing the fiscal balance, reduction in the GDP etc in its own way.  
Prayer: 
In view of the significant contribution of our industry to the society and the pivotal role visualized therefore and to enable the chit operators to enhance their participation in prestigious projects like ‘National Financial Inclusion Program’ etc., we appeal to your good self to

  1. Help push the Amendment of the Chit Fund Act 1982.
  2. Relieve the chit industry from sword of ‘Service Tax’
  3. Clear the ambiguity on TDS, once for all.
  4. Give us a lead in the formation of (i) Advisory Committee (ii) Introduce

An Efficiency Index (iii) Appoint a Common Registrar (iv) Allow Securitization Facility, (v) Allow us the benefit of Insurance Coverage (vi) formation of SRO and Other benefits you deem fit in the light of the above.
Total support from the government alone will facilitate our participation in the Micro economic reforms initiated by the present regime. Encouraging chit funds, which has been a “Financial Inclusion” activist since its inception will be in tune with the present Government policies, which we are sure you will agree.
In the light of above, we request you to make use of your good office and help bail out our industry.

Thanking you,
Sincerely,
For All India Association of Chit Funds (Regd.)

T.S. Sivaramakrishnan
General Secretary
Mobile # +91 98100 24853

Letter to Editor, Times of India

The Editor,
The Times of India,
New Delhi.

Sir,
This refers to the write-up published in the Times of India, Delhi Edition dated June 25, 2013 under the heading “Chit Funds offer Quick Loans but come with Risks”.
On a reading of the said article, we find that though the comparison between chit funds, Bank FDs & MFs have been done with reasonable fairness, but it is not free of malicious reporting. To back our contention, we would draw your attention to the following.
1.       The presentation of chit fund as ’risky’ in the headline itself smells mischievous. Though on reading the entire story, the reader will find that registered chit funds are a good option but the headline makes a negative imprint on those who don’t read beyond the headline. For example, in the sub-heading why don’t you say “If you require money anytime soon, chit fund is the best option”. This also could have gone well with your story. What we are saying his PLEASE DON’T MANIPULATE FACTS TO MAKE IT JUICY FOR THE STORY.’
2.       The first paragraph refers to the ‘recent scam’ as a ‘collapse of the largest chit fund in West Bengal’ scam. This reference, to say the least, is preposterous. The recent collapse was of ‘Saradha’ group which had floated around 160 odd companies in areas like Real estate, Media, agro, exports etc but however, none of them were neither floated as a chit fund company nor working in such manner. So how come their failure is attributed to our industry.
Did the writer, Mr. Partha Sinha or for that matter anyone from TOI involved in this write up bother to find out what actually a chit fund means? Did they ascertain the facts with the Registrar of chit Funds, West Bengal? What is shocking is a newspaper like TOI that boasts of high ethical standards could publish such unfounded stories!
The fact is that failure of individual or a Residuary NBFC or Deposit accepting companies and Multi-level Marketing/Ponzi scheme companies are constantly being reported by the media as failure of a chit fund company, and the writer in the present instance followed suit, without bothering to do his homework!
To present our case, we start with the legal definition of ‘Chit Fund’.
Section 2 (b) of THE CHIT FUNDS ACT 1982 is reproduced below
Chit” means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount;
Explanation – A transaction is not a chit within the meaning of this clause, if in such transaction,-
i.            Some alone, but not all, of the subscribers get the prize amount without any liability to pay future subscription; or
ii.            all the subscribers get the chit amount by turns with a liability to pay future subscriptions;
Some basic features of Chit Funds that distinguishes it from MLM/Ponzi companies are as follows.
1.       Reserve Bank of India is the Principal Regulator for Chit funds, and has an advisory role, as provided u/s 73 of The Chit Fund Act, 1982 (Act No. 40 of 1982).
2.       Chit Funds are defined under Sec. 45 I(c) of the RBI Act.  RBI Notification No.DNBC.39/DG(H)-77 dated 20th June  1977 categorizes it as Miscellaneous Non-Banking company (MNBC)
3.       Since the subject is in the concurrent list (Entry 7 of List III) of the Constitution, administration of the Rules is with the respective State Governments. The company should be registered with the Registrar of Chit Fund of the State of their operation
4.       Chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 (b) of ‘The Chit Funds Act, 1982’
5.       Any company carrying on the operation of ‘Chit Fund’ should have the words ‘Chit’, ‘Chitty’ or ‘Kuri’ as part of their company name.
6.       Chit Fund companies are not allowed to accept deposits from the Public, Trade in Stock, Equity or other cash management.
7.       Chit Funds, as of now, are not allowed to carry on other businesses without the permission of the Registrar/State Governments.
The above clarification, we are sure you will see makes it amply clear that in the referred collapse in West Bengal, the writer erred in calling it a ‘Chit Fund’ collapse as the said group(s) doesn’t fulfill even one of the parameters of chit fund.
Our sincere request is that before filing their report/stories, the reporter should find out the nature of the company, the laws governing their operation and should desist from loosely worded reports, a procedure given a bypass in this case. In fact, the office of Registrar of Chit Funds in Kolkata is at the ‘Writer’s building’ and is open to one and all. A mere telephone call would have served the purpose of justice! Another glaring issue, though it may be a sheer coincidence, is that UTI Mutual Funds is sponsoring this investor education initiative and write-ups are recommending MFs! As this ‘Swatantara’ column is being brought out in association with Ministry of Corporate Affairs, Government of India, this communication is being copied to them for their information and necessary action.
Attributing such events/incidents and failure of individual or a Residuary NBFC or Deposit accepting companies, as failure of Chit Fund Companies, you will agree, is Erroneous, Unauthenticated and Malicious, and will create a run-in situation for the various Chit Fund Companies working for last several years in various parts of India. In fact some companies are more than 100 years old and have been carrying on their activities in impeccable manner.
As the reputation of the members of our Association is gravely hurt by your malicious report, you are hereby requested to issue a clarification article of similar size and prominence in your newspaper, acknowledging the mistake and clarifying the correct facts along with an unconditional apology within 3 days and oblige.
In case we do not hear from you, we will be compelled to initiate necessary legal action without any further reference to you.
Thanking you,
Sincerely,
T.S. Sivaramakrishnan
General Secretary
All India Association of Chit Funds (Regd.)

Letter to Chairman, Press council of India

Hon’ble Mr. Justice Markandey Katju,
(Judge, Supreme Court of India (Retd.)
Chairman 
Press Council of India, 
Soochna Bhavan, 8-C.G.O. Complex,
Lodhi Road, New Delhi-110003
,

Your Honor,
Subject: Complaint against Entire Media for Breach of the recognized ethical canons of journalistic propriety and taste in the publication, which were published in most of the Newspapers & magazines against our industry ‘CHIT FUND’

1. Your honor must be well aware of the recent extensive coverage by the print and visual media of what has come to be known as Saradha scam. Chit funds governed by the Chit Funds Act 1982 who are members of our Association are aggrieved by the labeling of the scam as chit fund scam or chit gate scam by the media.
2. We understand that the Saradha Group from West Bengal has varied business interest in areas like Realty, Agro, Exports, Multi marketing and even Media and had floated around 160 companies. We further understand that not one of the 160 companies carried on the business of chit funds as per Chit Funds Act 1982 (40 of 1982) enacted by Parliament which had come into force in the State of West Bengal from as early as 02.04.1984.  The scam related to fraudulent money pooling activities similar to ponzi scheme and had nothing to do with chit transactions by a company doing chit business.
3. Though there is no denying that what happened in the matter of Saradha Group and other Multi-level marketing/Ponzi companies is tragic and has robbed the general public of their hard earned money and it very well deserves the media attention it’s generating, yet,  that does not at all entitle the media to act irresponsibly without ascertaining the basic facts and launch a vilification campaign against chit funds and malign them badly under the hallucination that the culprit is a chit funds company.
4. The media, in their frenzy to outwit each other and spice up their story started writing out of their imagination and how creative they can be! Even under such tragic circumstances. They freely quoted various sections of the laws governing our industry, without even bothering to check if it is correct, and in fact some of the newspapers went to the extent of manipulating the entire Section to suit their requirement. One such example is the case of a story in ‘Navbharat Times’ where the Reporter invented his own version of Section 2(b) of the Chit Fund Act, 1982, which defines ‘Chit Fund’.
5. Though we held Press Meets in various cities like Delhi, Chennai & Bangalore with the sole purpose of educating the media and through them the Regulators, Administrators, Ministry officials and Politicians etc., it probably was not enough and did not get us the desired result. Though the media carried our version, to some extent, they continue to tarnish our image. One such instance is the case of a death of the owner of Micro-Finance Company. In this report, while the body of the report clarified that the person was managing Director of a Micro-finance company, the headline shrieked “Chit Fund Boss Dies’. The fact is that in spite of our various pleas, this media onslaught seems to be never ending, as even as of couple of days ago, in a so–called investor education initiative, in association with Ministry of Corporate Affairs, the TOI carried defamatory article against us. As regards the eastern starts such reports appear even now, on a day-to-day basis.
6. Our case is that of ‘wrong victimization’ wherein failure of individual or a Residuary NBFC or Deposit accepting companies and Multi-level Marketing/Ponzi scheme companies is being reported as failure of a chit fund company, Hence, this complaint.
To present our case, we start with the legal definition of ‘Chit Fund’.
Section 2 (b) of THE CHIT FUNDS ACT 1982 is reproduced below
Chit” means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount;
Explanation – A transaction is not a chit within the meaning of this clause, if in such transaction,-
i.        Some alone, but not all, of the subscribers get the prize amount without any liability to pay future subscription; or
ii.        all the subscribers get the chit amount by turns with a liability to pay future subscriptions;
7. Some basic features of Chit Funds that distinguishes it from MLM/Ponzi companies are as follows.
·         Reserve Bank of India is the Principal Regulator for Chit funds, and has an advisory role, as provided u/s 73 of The Chit Fund Act, 1982 (Act No. 40 of 1982).
·         Chit Funds are defined under Sec. 45 I(c) of the RBI Act.  RBI Notification No.DNBC.39/DG(H)-77 dated 20th June  1977 categorizes it as Miscellaneous Non-Banking company (MNBC)
·         Since the subject is in the concurrent list (Entry 7 of List III) of the Constitution, administration of the Rules is with the respective State Governments. The company should be registered with the Registrar of Chit Fund of the State of their operation
·         Chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 (b) of ‘The Chit Funds Act, 1982’
·         Any company carrying on the operation of ‘Chit Fund’ should have the words ‘Chit’, ‘Chitty’ or ‘Kuri’ as part of their company name.
·         Chit Fund companies are not allowed to accept deposits from the Public, Trade in Stock, Equity or other cash management.
·         Chit Funds, as of now, are not allowed to carry on other businesses without the permission of the Registrar/State Governments.

8. The above submission makes it amply clear that in the said instance of ‘Saradha’, the media committed on egregious blunder in calling it a ‘Chit Fund’ company.
9. The media, before filing their report/stories, should find out the nature of the company, the laws governing their operation and should desist from loosely worded reports, a procedure they conveniently forgot to follow and started screaming ‘MURDER’, in the matter of ‘Saradha Scam’. In fact, the office of Registrar of Chit Funds in Kolkata is at the ‘Writer’s building’ and is open to one and all. A mere telephone call would have served the purpose of justice! However, the media were either callous in their behavior or had any specific agenda to malign our industry, which only they can and should answer.
10. Attributing such events/incidents and failure of individual or a Residuary NBFC or Deposit accepting companies, as failure of Chit Fund Companies, you will agree, is Erroneous, Unauthenticated and Malicious, and will create a run-in situation for the various Chit Fund Companies working for last several years in various parts of India. In fact some companies are more than 100 years old and have been carrying on their activities in impeccable manner.
11. Our resentment is that the media chose to lend credence to such idle speculation, instead of acting in a responsible manner and abused their potential to create panic and added fuel to the fire!
About our industry
Chit Funds have been around from time-immemorial, even before the advent of banking. Though the buzzword ‘Financial Inclusion’ is recent, Chit Funds have been doing it since inception, catering to the un-served population in remote areas and are one of the most popular & trusted form of informal finance. Even the Bill & Melinda Foundation have chosen the channel of ‘Chit Funds’ for their poverty alleviation program, in India and are working closely with them in rural as well as urban India
In the light of the above, we request you pass an order
1.    Directing the Press at large to issue a clarification/article of similar size and prominence, as of the earlier incorrect reports, acknowledging the mistake and clarifying the correct facts along with an unconditional apology.
2.    Putting a gag on erroneous use of the term ‘CHIT FUND’
3.    To run Public awareness campaign, highlighting the difference between Chit Fund Companies and Residuary NBFC or Deposit accepting companies, MLM Companies/Ponzi schemes, at their cost, to offset some the damage done to our image
Merit for bypassing the laid down Procedure for complaint
While, we are aware that the laid down procedure is to first write to the editor of the concerned newspaper first drawing his attention as to what is considered to be a breach of journalistic ethics or an offence against public taste and seeking right of reply, this being the case of entire Media and not restricted to any particular publication, we seek your indulgence to allow us to approach your honor directly and if you deem it proper, make it a case, as in a case of public importance, touching the council’s statutory responsibilities, suo-motu take cognizance and order on-the- spot inquiry
Sample copies of the said media reports can be furnished on hearing from you.
If given an opportunity, we can present our case in person.
Thanking you,
Sincerely,
T.S. Sivaramakrishnan
General Secretary
All India Association of Chit Funds (Regd.)

Letter to Governer, RBI Dated 15-May-2013

15th May 2013

Sri D. Subbarao,
Governor,
Reserve Bank of India,
New Delhi.

Respected Sir,

This has reference to the recent war cry all around, based on general misconception, to hang ‘chit Funds’ and that too without trial. Though the Media is hell-bent to go after our industry, without bothering to even understand what exactly a ‘chit Fund’ means and how it works, it’s the Government apathy that is of more concern to us. While, most of the media reports freely quote the officials from RBI, SEBI, Ministry of Corporate affairs etc & Politicians/Ministers to back their stories, what is shocking is there is no rebuttal from the concerned departments/officials, which lends credence to such idle speculation. This behavior only reflects either callousness or even lack of knowledge of the Regulators, Administrators, and Concerned Ministries, forget the media.
Though there is no denying that what happened in the matter of Saradha Group and other Multi-level marketing/Ponzi companies is tragic and has robbed the general public of their hard earned money and it very well deserves the media attention it’s generating, but at least the reporting should be fair, and all concerned, and that includes, the Media, RBI, SEBI, Ministry officials, should desist from taking pot-shot at a industry, chit fund, that has not even a iota of link with such scams.
Attributing such events/incidents as failure of Chit Fund Companies, you will agree, is Erroneous, Unauthenticated and Malicious, and will create a run-in situation for the various Chit Fund Companies working for last several years in various parts of India. In fact some companies are more than 100 years old and have been carrying on their activities in impeccable manner

The need of the hour is

1.To create awareness, highlighting the difference between the Multi-Level marketing companies, Deposit accepting companies, Prized Chit companies (which is banned under a different legislation)  etc, with that of Conventional Chit companies, which is legal and governed separately.

2.Issue advisory to the public to check the credentials of the company and its legality before parting with their money.

3.Stop use of the term ‘Chit Fund’ to describe such companies/failures.

4.Coordinated efforts among investigative, law enforcement, and regulatory agencies to use their enforcement powers against major multi level marketing fraud schemes

In fact, we will only be too glad to be of any assistance in the above endeavor. Though we are trying our best to create general awareness, and have recently held Press meets to highlight our contention, it will not create the desired effect without the support of the regulatory bodies.

To set the record straight, and make it convenient to all concerned to draw distinction between Chit Fund & MLM/Ponzi companies, some basic features of chit funds are given below.

1.Reserve Bank of India is the Principal Regulator for Chit funds, and has an advisory role, as provided u/s 73 of The Chit Fund Act, 1982 (Act No. 40 of 1982).

2.Chit Funds are defined under Sec. 45 I(c) of the RBI Act.  RBI Notification No.DNBC.39/DG(H)-77 dated 20th June  1977 categorizes it as Miscellaneous Non-Banking company (MNBC)

3.Since the subject is in the concurrent list (Entry 7 of List III) of the Constitution, administration of the Rules is with the respective State Governments. The company should be registered with the Registrar of Chit Fund of the State of their operation

4.Chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 (b) of ‘The Chit Funds Act, 1982’

5.Any company carrying on the operation of ‘Chit Fund’ should have the words ‘Chit’, ‘Chitty’ or ‘Kuri’ as part of their company name.

6.Chit Fund companies are not allowed to accept deposits from the Public, Trade in Stock, Equity or other cash management.

7.Chit Funds, as of now, are not allowed to carry on other businesses without the permission of the Registrar/State Governments.

8.ETC.

About our industry

Chit Funds have been around from time-immemorial, even before the advent of banking. Though the buzzword ‘Financial Inclusion’ is recent, Chit Funds have been doing it since inception, catering to the un-served population in remote areas and are one of the most popular& trusted form of informal finance. Even the Bill & Melinda Gates Foundation through Institute of Financial Management & Research, Chennai, have chosen the channel of ‘Chit Funds’ for their poverty alleviation program, in India and are working closely with them in rural as well as urban India.

In the light of the above, we request you to issue a clarification in the above matter which will be immense benefit to the investing public, apart from educating media, other government Departments, and which of course, will give a fresh lease to our battered industry and help us enhance our participation in the national Inclusion Program.  

Copies of this communication is being marked to Department of Financial Services, Ministry of Finance, SEBI, Ministry of Corporate Affairs, SFIO for their necessary action, more especially under the context of formation of Inter-ministerial group to probe and resolve the recent scams.

Expecting an early response, thanking you and assuring you of our best support in increasing the Investor Protection Measures.

Sincerely,
T.S. Sivaramakrishnan
General Secretary
All India Association of Chit Funds (Regd.)
New Delhi.

Subscription to Chit Funds by Non Resident Indians on non-repatriation basis, Dated 11-Jun-2015
Memorandum from Chit Fund Industry, Dated 10-Oct-2014
Deposition of Chit Fund Industry, Dated 19-Jun-2015
Request for Service tax exemption for the Chit Fund Foreman Commission
Miscellaneous Non-Banking Companies(Reserve Bank) Directions, 1977, Dated 01-Jul-2015