Date Of Publication:
P Madhusudhan Reddy
Experts call for stringent provisions to curb unauthorised chit funds in the country, seek single regulating body
Hyderabad: Pointing out that illegal players like Saradha group were causing damage to the reputation of genuine chit fund companies, a group of experts underlined the need for stringent provisions to curb unauthorised chit fund operators and also those who run Ponzi schemes.
They were unanimous in saying there was an inherent strength in the concept of chit fund as it would extend credit access to lakhs of people. It is the responsibility of people to protect the chit fund sector by exposing authorised players and encouraging genuine companies, the experts stated.
“None of the over 160 companies that are part of Saradha group was registered under Chit Funds Act. The failure of Saradha group is painted as the failure of chit funds sector. It’s unfortunate and totally uncalled-for,” said Ch Janardhan Reddy, past president, All India Associations of Chit Funds.
It has become a common practice among government authorities and media to show chit funds in poor light whenever a non-banking finance company collapses or dupes gullible people by promising exorbitant returns on deposits, added Reddy. He further said insurance cover should be there for chit funds so that members would get back their money in the times of crises.
Chit fund activity in the country came under the scanner of financial regulators such as SEBI when Kolkatta-based Saradha group had allegedly duped people of around `20,000 crore. But experts here stated that the group was in the business of deposit collection, not in the chit fund activity.
“Saradha group activity has nothing do to with chit funds. But the scam has damaged reputation of chit funds besides creating fear psychosis among members of chit fund companies,” said D Vishnuvardhan Raju, District Registrar, Hyderabad.
On unauthorized chit funds, he admitted that it was difficult to estimate how many unregistered chit fund companies were there. “No one comes forward and complains about those individuals or companies who operate unauthorized chit fund business,” he explained.
He advised people to make proper background check before joining as member of a chit fund company. “They should check the reputation of the company, see whether it will repay the amount in time, etc,” he said.
According to him, chit fund operators have over 25 lakh members in Andhra Pradesh and many families are benefitting through the activity. He however underscored the need for making recovery process stringent in the case of defaulters. “We should be empowered to attach salaries of those who provided surety for the member. This way, delinquencies can be controlled,” he said.
Pointing there were no stringent provisions in the Chit Funds Act to curb unauthorized operators, V Srinivas, leagal expert, underscored the need for making an amendment to the Act to incorporate such provisions so that illegal chit firms could be punished severely.
He further said government should appoint a single regulator to oversee the crucial sector. “Self regulation will also be useful as in the case of Bar Council of India,” he maintained.
Chit: Chit means a group of individuals come together for a pre-determined time period and contribute to a common pool at regular intervals. Every month, up until the end of the tenure of the scheme, the collected pool of money is loaned out internally through a bidding mechanism to the most deserving member. This way, people who are in need of funds and those who want to save are able to meet their requirements. Chit Fund Act, 1982 governs this activity
Prize Chit: Prize chit includes any transaction under which a person collects monies in one lump sum or in installments by way of contributions or subscriptions or by sale of units or other instruments or in any other manner or as membership fees or admission fees or service charges, and utilizes the monies so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes, namely:
(i) specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash or in kind, whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement;
(ii) not won any prize or gift, the whole or part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage by whatever name called, on the termination of the scheme or arrangement, or on or after the expiry of the period stipulated therein, but does not include a conventional chit
Money Circulation Scheme
Money circulation scheme means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions.