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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”.