Chit funds are a traditional business…

Publication:

Bussiness Line

Date Of Publication:

3-5-13

Chit funds are a traditional business, strongly regulated by the State Government and Central laws and the Reserve Bank of India, clarified the Tamil Nadu Chit Fund Companies Association.

Unorganised companies

Addressing a press conference organised by it, T. S. Sivaramakrishnan, General Secretary, All India Association of Chit Funds, said the public should not confuse chit funds with the unorganised, unregulated companies that take deposits promising unrealistic rates of return or operate Ponzi schemes.

Allaying the fears of the public in the backdrop of the recent finance scams, he said the chit funds are governed by the Chit Fund Act 40/1982, apart from stringent norms set by State Governments through the Registrars of Chits.

There are over 10,000 registered chit funds in India with an annual turnover of Rs 30,000 crore. In Tamil Nadu, there are 2,000 such chit fund companies with business of Rs 4,000 crore.

Representatives of the Tamil Nadu Association clarified that registered chit funds are expected to include the term chit fund in their names and are not allowed to take deposits. It is a traditional business where the promoter only collects the subscriptions.

Source link:  http://www.thehindu.com/todays-paper/tp-national/chit-funds-are-scapegoa…

New Delhi, April 27 (IANS)…

Publication:

The New Indian Express

Date Of Publication:

27-04-13

Prime Minister Manmohan Singh Saturday said the unauthorised collection of deposits for chit funds should be curbed in the wake of the Saradha Group defrauding thousands of depositors.

Speaking to reporters at Rashtrapati Bhavan, the prime minister said: “The unauthorised collection of deposits, in exchange for the promise that exorbitant rate of return will be given, is something which has to be curbed.”

Six cases, including for non-payment of salaries to employees and for duping depositors, have been filed against arrested Saradha Group promoter Sudipta Sen, who was remanded to 14 days’ police custody by a court Thursday.

T.S Sivaramakrishnan, general secretary, All India Association of Chit Funds, has said that while the incidents concerning Saradha are “definitely scary and tragic, attributing it to chit funds, will only further aggravate the whole issue, as it may create a run even in the established in the chit fund companies, who are playing a major role in the Indian economy”.

In a statement, Sivaramakrishnan said the Saradha Group had varied business interests with around hundred and odd companies which were in realty, construction, exports etc. “However, what is quite glaring is that they did not float any ‘Chit Fund’ company, yet their scam/failure is attributed to Chit Funds!”

Source Link:http://newindianexpress.com/business/news/Unauthorised-fund-collections-…

After the lid was blown off…

Publication:

The Telegraph

Date Of Publication:

28-04-13

After the lid was blown off the Saradha Group’s Rs 1,200 crore scam in Bengal last week, all chit fund schemes are being viewed with suspicion and scepticism. However, chit fund operators elsewhere in India are making the point that all should not be tarred with the same brush. And that far from duping subscribers, bona fide chit funds actually work very well for small investors.

In fact, the All India Association of Chit Funds (AIACF) has shot off angry letters to several media houses, protesting against the loose use of the term “chit funds”, to describe residuary non-banking finance companies (RNBFCs) such as the Saradha Group that take public deposits, flouting all rules and regulations. The association, that works closely with the Union finance ministry, says fraudulent RNBFCs in Bengal are giving good chit funds a bad name.

“What people should remember is that the RNBFCs or multi-level marketing companies in Bengal selling various high-return schemes are not chit funds in the true sense of the term,” thunders T.S. Sivaramakrishnan, general secretary, AIACF, Delhi, and proprietor of Balussery Benefit Chit Fund that operates in all metros, including Calcutta. “As bona fide chit fund companies (referred to as miscellaneous NBFCs), we are not allowed to accept deposits from the public or trade in stock, equity or other cash management options.”

What’s more, activities of chit fund companies — there are many successful ones, especially in the south — are governed by the central Chit Funds Act of 1982 and Section 45 (I) of the Reserve Bank of India Act, and administered by state governments.

So, how do conventional chits (also called chittis or kuris) run? To begin with, they are an indigenous financial system, combining both savings and credit instruments. Apparently, they existed in India even before banks came into being.

A traditional chit scheme normally has a predetermined value (chit value) and duration. A particular number of members (generally equal to the duration of the scheme) are admitted into the scheme. For instance, 50 members can take part in a 50-month scheme. Each member contributes a certain sum every month to a “pot”. The “pot” is then auctioned out every month. The highest bidder (also known as the prized subscriber) wins the “pot” for that month. The bid amount (a certain percentage of the chit value) is also called the “discount”. The prized subscriber bags the sum of money equal to the chit value less the discount (the bid amount) and a fixed fee (not more than 5 per cent) to the foreman. The discount money is then distributed among the rest of the members as dividend. Next month, the required contribution is reduced by the amount of dividend.

Apart from the southern states such as Kerala, Andhra Pradesh and Tamil Nadu, chit funds are also popular in Delhi and Maharashtra. A financial services department report states that there are more than 30,000 registered chit operators across India, “generating employment opportunities for several lakh people either directly or indirectly especially in rural areas, without taking any subsidy from the government”. The department stresses these figures “speak volumes for its (chit funds) strength in our national economy”.

Indeed, companies, public and private, dealing in traditional chit schemes are doing roaring business in India. Take the Kerala State Financial Enterprises (KSFE), set up in 1969 and wholly controlled by the state government. Out of its aggregate business turnover of Rs 18,000 crore per year, around Rs 12,000 crore come from chittis (as they are known in Kerala) alone.

With 460 branches in Kerala and 16 lakh subscribers, KSFE is perhaps the only profit-making chit business in the public sector — not only in India, but also elsewhere in the world, says P. Rajendran, managing director, KSFE, in Thrissur. “Chittis are a part and parcel of Kerala culture,” says Rajendran. “They are a potent savings and credit instrument for most Kerala families cutting across socioeconomic strata. Even businessmen use chits to create assets.”

Then there is the Hyderabad-based Margadarsi Chit fund, part of the Ramoji Rao group. It has a subscriber base of 4.5 lakhs, an annual turnover of Rs 7,500 crore, and operates in Tamil Nadu and Karnataka as well. According to A. Bhima Shankar Rao, a chit fund agent, Margadarsi has a well-governed management that follows the rules scrupulously. “Chit funds are popular because they provide easier access to larger sums of money than what banks offer,” says Shankar. “Moreover, if banks do not increase their interest rates, chits can provide interest up to 12-15 per cent and hence, people keep coming back to chits.”

Inspired by Margadarsi, Shriram Chits was set up in 1974. Starting with a capital of Rs 10 lakh, the firm has grown to 900 branches and has a turnover of Rs 4,300 crore. “We were careful not to expand too fast,” says A.V.S. Raja, vice-chairman and co-founder, Shriram Group, Chennai. “We grew through word of mouth — people were attracted to us because we had integrity.”

Balussery Benefit, with net owned funds of over Rs 2 crore and offering chit schemes ranging between Rs 30,000 and Rs 9 lakh per month, is another success story.

Big chit fund companies apart, self-help groups, particularly those run by women, in rural and semi-rural areas also engage in chits. Take the Beesis in Maharashtra. In a typical Beesi scheme, a married woman who is not a breadwinner, makes frequent contributions that not only provide her a safe outlet for savings but also helps her build household assets and fulfil consumption needs.

Arshad Mirza, research associate at the Small Enterprise Finance Centre in the Institute for Financial Management and Research (IFMR), Chennai, says an all-women chit fund is currently being run in a village near Shimoga, Karnataka, as part of their “randomised control trials” since 2010. “The village, which always has been very proactive about improving their lifestyle, is displaying a lot of discipline about payment,” he says.

The IFMR has been carrying out extensive surveys on chit funds under the aegis of the Bill & Melinda Gates Foundation. Even the finance ministry says in a report that this research has been an “eye-opener unravelling the inherent potential of this industry”.

However, unregistered chit funds continue to be a concern. The size of the unregistered chit fund industry is estimated to be almost 100 times that of the registered ones. As the finance ministry notes in its report, since “the growth of this unregistered sector is not in the national interest, there is an urgent need to ascertain the exact volume and take remedial measure to contain the same”.

Lawyers say there are many ways by which foremen in chit schemes can make illegal gains. “Fictitious members can be enrolled to complete the required number of subscribers in a chit series,” says Niloy Pyne, senior corporate lawyer. “If a real member is not able to offer a high discount at the auction, one of these benami members is shown to get the prize.”

But the introduction of the Chit Funds Act of 1982 in states such as Kerala last year (before this the Kerala Chittis Act, 1975, was in effect) through a Supreme Court ruling has weeded out unscrupulous players, claims Rajendran of KSFE. “Earlier, companies used to register themselves in places such as Faridabad in Haryana, where neither a state law nor the central law was in operation,” he says. “But now the law requires chit companies to register themselves in the state where they conduct the chits. Also, they need to have adequate capital and transparency to start chits. So, only companies from the organised sector can come into this field.”

According to the financial services department, the act has now been notified in all states such as Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra, Rajasthan, Uttar Pradesh, West Bengal, Delhi, Kerala and Haryana.

The Indian government too is keen to do its bit to encourage the industry’s growth. The core committee of the Key Advisory Group on chit funds under the finance ministry has made several recommendations, including those on amending the Chit Funds Act to address lacunae in the legislation, formation of grievance cells, credit rating of chit funds and so on.

AIACF sees a promising future. “Like yoga or ayurveda, the chit concept has stood the test of time and is now being revived,” says Sivaramakrishnan.

Clearly, one rotten apple called Saradha is unlikely to derail the success story of bona fide chit funds in the country.

 

Source Link:http://www.telegraphindia.com/1130428/jsp/7days/story_16836319.jsp#.UYuH…

New Delhi, April 29…

Publication:

Business Line

Date Of Publication:29-04-13

 The registered chit funds are a worried lot these days as they fear that the recent-Saradha Group episode could hurt their business prospects.

On Monday, the representatives of the All India Association of Chit Funds claimed that the frauds committed by Kolkata-based Saradha Group were wrongly labeled as a chit fund scam.

“Saradha was not a chit fund, but more of a financial scheme. Not even one of the 160 group companies of Saradha was registered as a chit fund,” said T.S.Sivaramakrishnan, General Secretary of the All India Association of Chit Funds.

Under the Chit Fund Act, 1982, a chit fund has to be registered with the Registrar of Chits. And, the registered company should have ‘chit fund’ mentioned in its name. Also, a registered chit fund is not expected to carry out any other business, he told a press conference.

There are more than 10,000 chit fund companies registered with the Government transacting business worth over Rs 30,000 crore per annum, Sivaramakrishnan said.

Following the Saradha collapse, which has left thousands of investors in the lurch, the Centre had ordered probe by the Serious Fraud Investigation Office into functioning of certain chit fund companies that are alleged to have misused the money raised from the public.

“A chit fund does not raise any deposits but collects subscription at regular intervals. Accepting deposits from the public towards construction cannot be considered as a chit fund,” said Kamal Bhambani, Joint Secretary of the Association, referring to Saradha Group activities. “The Government should clarify whether Saradha is a chit fund or a Ponzi scheme,” he said.

Citing a study done by the Institute for Financial Management and Research, Chennai, Sivaramakrishnan said chit funds have been a tool for achieving financial inclusion. Even the Bill & Melinda Foundation has chosen the chit fund channel for their poverty alleviation program in India and are working with them closely in both rural and urban areas.

Source Link:http://www.thehindubusinessline.com/industry-and-economy/banking/chit-fu…

New Delhi, April 29 (IANS)…

Date Of Publication:29-04-13

Publication:Yahoo! India

The All India Association of Chit Funds Monday urged the government and the media not to associate Saradha group of West Bengal with the chit fund sector, as the company was not registered as a chit fund and had business in various other sectors.

“We have verified with the office of ‘Registrars of Chit Funds’ in Kolkata that Saradha is not registered. The company had varied business interests and what is quite glaring is that they did not float any chit fund company. Yet, their failure is attributed to chit funds,” said T.S. Sivaramakrishnan, general secretary, All India Association of Chit Funds.

The association claimed that the chit fund sector was being made a “scapegoat” by the government, who are feeling the public pressure following the scam involving Saradha in West Bengal.

Sivaramakrishnan said chit fund companies, unlike Saradha, are not allowed to accept deposits or allowed to carry on any other businesses without permission of the registrar or from the state government, which as of now had not been given.

Stating that registered chit funds companies are being “irresponsible” maligned by the media without having proper understanding of the sector, Sivaramakrishnan said this may create panic among the citizens who may have invested in the sector, and put a multi-crore-rupee industry at stake.

According to the association, there are as many as 10,000 registered chit fund companies across the country, with an annual turnover of Rs.30,000 crore.

“Chit funds are perfectly legal, governed by Chit Fund Act, 1982,” and administered by the state governments. Even the Bill and Melinda Gates Foundation have chosen this channel for their poverty alleviation program in the country, he said.

Acknowledging that there are hundreds of fraudulent companies in the country, Sivaramakrishnan said the threat can only be countered by effective coordination between the investigative, law enforcement and regulatory authorities in the country.

The Association joint secretary Kamal Bhimani said chit funds are the “most over-regulated” sector in the country. “They are regulated at two levels; first by the Reserve Bank of India, the principal regulator, and by the state government.”

“We are not like a bank. The margins on which we work and the latitudes we have is very small,” he added.

The association said that attributing the Saradha scam on the whole sector will only affect genuine chit funds that contribute to the economy.

Source Link:

Saradha Group has about 160 registered…

Publication:

Moneylife

Date Of Publication:

29-04-13

Saradha Group has about 160 registered activities including realty and resort but not even one activity was registered as Chit Fund in the state, he said, while addressing a press conference.

“Our grievance is failure of some other activity, why is it branded as failure of Chit Fund?,” he added.

The association also demanded that the government come out and clear the air over Chit Funds.

There are about 10,000 Chit Funds registered in India with annual subscription of Rs30,000 crore per annum. “We are governed by the Chit Fund Act 1982 and implementations by the respective states. This Act is notified in entire India,” he said.

“Principle regulator is the Reserve Bank of India, Act is made by the Central Government and rules are made by respective state governments,” Sivaramakrishnan added.

The regulator of chit funds is the Registrar of Chits appointed by respective state governments under Section 61 of Chit Funds Act.

Powers of adjudication vest in the Registrar and the state government concerned is the Appellate authority. In case of failure of a chit fund business, the responsibility for winding up such a business also vests with the respective state governments.

As per the law, a Chit Fund company is not allowed to accept deposit from the public and can only accept subscription amount from the members.

However, Saradha Group accepted deposits from investors and worked as a Multi-Level Marketing company.

Meanwhile, the government has said several of its investigating wings like SEBI, RBI, I-T department and Enforcement Directorate have begun crackdowns on Ponzi schemes and have initiated action against Saradha Group under various laws including the Prevention of Money Laundering Act (PMLA).

 

Source Link:http://www.moneylife.in/article/saradha-group-has-nothing-to-do-with-chi…

corporate crime economic offence…

Publication:

The Hindu

Date Of Publication:

29-04-13

Objecting to the use of word ’Chit Fund’ in multi-crore Saradha Group financial fraud, industry body CFAI on Monday said none of the entities of the Kolkata-based Group was operating as a registered chit fund.

“The failure of some Multi-level Marketing (MLM) or a ponzi scheme is explained as failure of a Chit Fund company. This is totally unfair,” All India Association of Chit Funds General Secretary T S Sivaramakrishnan said.

Saradha Group have got about 160 registered activities including realty and resort but not even one activity was registered as Chit Fund in the State, he said, while addressing a press conference.

“Our grievance is on failure of some other activity, why is it branded as failure of Chit Fund?,” he added.

The association also demanded that the government come out and clear the air over Chit Funds.

There are about 10,000 Chit Funds registered in India with annual subscription of Rs 30,000 crore per annum.

“We are governed by the Chit Fund Act 1982 and implementations by the respective states. This Act is notified in entire India,” he said.

“The principal regulator is the Reserve Bank of India, Act is made by Central Government and rules are made by respective State Governments,” Mr. Sivaramakrishnan added.

The regulator of chit funds is the Registrar of Chits appointed by respective state governments under Section 61 of Chit Funds Act.

Powers of adjudication vest in the Registrar and the state government concerned is the Appellate authority. In case of failure of a chit fund business, the responsibility for winding up such a business also vests with the respective State Governments.

As per the law, a Chit Fund company is not allowed to accept deposit from the public and can only accept subscription amount from the members.

However, Saradha Group accepted deposits from investors and worked as Multi-Level Marketing.

Meanwhile, the government has said several of its investigating wings like SEBI, RBI, IT department and Enforcement Directorate have begun crackdowns on Ponzi schemes and have initiated action against Saradha Group under various laws including the Prevention of Money Laundering Act (PMLA).

Source Link:http://www.thehindu.com/news/national/saradha-group-has-nothing-to-do-wi…

Facing the heat in the aftermath…

Publication:

The Pioneer

Date Of Publication:

30-04-13

Facing the heat in the aftermath of the Saradha Group multi-crore fraud, the pan India body of chit fund companies on Monday chose to distance itself from the controversy by claiming that the entity under cloud cannot be associated with them as it was not functioning as an authorised chit fund company and that due to all this, the entire industry should not be maligned.

The industry body claimed that their sector was “over-regulated”, yet they could not come out with a clear response when asked that despite being regulated by the Chit Fund Act 1982, ambiguities regarding a clear demarcation between chit fund companies, ponzi groups and companies involved in multi level marketing (MLM) operations prevail.

Rather they chose to put the onus on the Government and the media to clear the air and “educate” the common investors about the operations of chit fund companies.

In what turned out to be a press conference where passions ran high, the All India Association of Chit Funds (AIACF) went blue in the face explaining that chit fund business has been one of the longest surviving business model in the world and it provides people with modest income groups to generate funds for themselves.

“Moreover any company which has to enter this segment, has to carry the nomenclature ‘chit fund’, or ‘kurrie’ in its name at the time of registration,” the association’s General Secretary T S Sivaramakrishnan told reporters.

He added that just because some entities (referring to Saradha Group) ventured into multi-level marketing (MLM) operations, it does not mean that the chit fund model is not trustworthy. When asked whether the association scrutinised the developments in West Bengal arising out of the Saradha scam, Sivaramakrishnan replied in an off the cuff manner that they were wary of Mamata Banerjee (the state Chief Minister).

They added that chit fund companies are governed by the Chit Fund Act 1982, while the principle regulator is the Reserve Bank of India (RBI), after it the state governments are the next level regulators. There are about 10,000 Chit Funds registered in India with annual subscription of Rs 30,000 crore per annum.

“We are governed by the Chit Fund Act 1982. This Act is notified in entire India. The principal regulator is the RBI, the Act is made by Central Government and rules are made by respective State Governments,” Sivaramakrishnan added.

The regulator of chit funds is the Registrar of Chits appointed by respective state governments under Section 61 of Chit Funds Act.

Powers of adjudication vests with the Registrar and the state government concerned is the Appellate authority. In case of failure of a chit fund business, the responsibility for winding up such a business also vests with the respective State Governments.

As per the law, a Chit Fund company is not allowed to accept deposit from the public and can only accept subscription amount from the members, the office bearers said.

“In fact we would like to clarify that MLM operations cannot be termed as chit fund operations and similarly Ponzi operations too cannot be compared with chit funds,” the association’s Joint Secretary Kamal Bhambani.

The office bearers took pains to clarify that genuine chit fund companies which are registered with the Registrar of Companies (RoC), don’t dupe investors or run away with their hard earned money. “Unfortunately though, unregistered entities outnumber registered chit fund companies,” said Sivaramakrishnan.

The association added that due to the danger of chit fund companies getting maligned in the light of the Saradha controversy, they were forced to come out and “clear the air about the reality”.

 

Source Link:http://www.dailypioneer.com/business/need-to-clear-air-on-model-says-chi…

NEW DELHI: The corporate affairs ministry…

Publication:

The Economic Times

Date Of Publication:

30-04-13

NEW DELHI: The corporate affairs ministry is working with the West Bengal government to help small investors recover their savings they had invested in the bust Saradha group, in the news for duping investors, minister Sachin Pilot said on Monday.

The announcement comes a few days after his ministry set up a special task force within the Serious Fraud Investigation Office to unravel the money trail in the 15 companies of the Saradha group. The task force is also investigating the operations of three more deposit taking companies in West Bengal. These are Rose Valley, Sunshine India Land Developers, Icore-E services and their affiliates. In all, a total of 53 companies are under SFIO’s probe.

Source Link:http://articles.economictimes.indiatimes.com/2013-04-30/news/38930150_1_…

Mumbai, April 30: The Saradha Group…

Publication:Business Line

Date Of Publication:30-04-13

The Saradha Group, which comprises over 100 entities, does not have one registered chit fund company in its fold.

However, the financial irregularities attributed to the group have been labeled ‘chit fund operations’, said T.S Sivaramakrishnan, General-Secretary, All-India Association of Chit Funds.

CHIT Fund Act

The association has over 10,000 registered member-companies across the country, of which over 80 per cent are in the southern States, mainly Tamil Nadu, Kerala and Andhra Pradesh.

Sivaramakrishnan told Business Line, that it has almost become a practice to blame chit funds for any financial scam that surfaces.

On the Saradha Group, he said it had 100-plus companies with business interests spread across realty, construction, tours and travels, exports, agro, livestock, foods, advertisement agencies and a presence in the media.

However, when the market regulator cracked down on the group, the root cause was said to be its chit funds.

On some jewelers floating schemes similar to chit funds, he said if the prize money was a component of the scheme, it does not come under the Chit Fund Act.

Sivaramakrishan said chit funds were not allowed to accept deposits from the public. Such funds are governed by the Chit Funds Act, 1982 and administered by the State Governments. There is an office of ‘Registrar of Chit Funds ‘in every State to monitor the business.

Further, chit fund regulations were more stringent than other deposit accepting companies. Utilization and appropriation of subscribers’ money was strictly prohibited.

Besides, the fund had to provide for capital adequacy and other prudential norms.

Importantly, chit funds, as of now, are not allowed to carry on other businesses without the permission of the Registrar/State Governments.

Asked what the association was doing to curb unregistered chit fund operations, which are rampant in many States, he said it was for the authorities to initiate proceedings and bring the offenders to book.

Strict rules

The police are empowered to take action, but unfortunately, little has been done so far, he said.

On the practice of many chit funds offering loans as an allied business activity, he said the rules were strict and it was not possible for registered members to carry on financing as part of their business.

 

Source Link:http://www.thehindubusinessline.com/industry-and-economy/banking/chit-fu…