Sri D. Subbarao,
15th May 2013
Reserve Bank of India,
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.
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.
All India Association of Chit Funds (Regd.)