Govt urged to weed out illegal chit funds

The Andhra Pradesh Federation of Chit Funds has urged the State government to impose a ban on unregistered chit funds and also those carrying out unauthorised operations like real estate business, investing in stocks and other money management options. Federation president B Suryaprakash Rao and Secretary-General Ch Janardhan Reddy said in a release that in order to safeguard the interests of people, it is imperative for the government to make the provisions of the Chit Fund Act, 1982, very stringent to curb such unauthorised operations of chit funds. They also demanded that the government launch a public awareness campaign to educate people to stay away from such firms. Expressing concern over Saradha scam in West Bengal, they said the people are being misled to disbelieve in chit funds per se. Putting the facts straight to clear misconceptions about the chit funds, the Federation representatives said the chit fund industry is pained at the loose use of the term 'chit fund' to describe a money circulation scheme like the one operated by Saradha group. The scam in West Bengal has resulted from a Ponzi scheme operation and does not relate to a chit fund anyway, they said. They said a Ponzi scheme is a fraudulent scheme in which new investors' money is used to pay dividends to old investors and the cycle goes on; when it becomes unviable i.e., when the cycle breaks with no new investors joining in, the management shuts shop and investors have few means of recovering their money. In contrast, a chit fund � conventionally known as 'chittis' or 'kuris' � is basically a trusted savings-cum-borrowings scheme in vogue for over 1,000 years. They said that in India, the chit funds are regulated as Residuary Non-Banking Financial Companies (RNBFCs) by the Central Chit Fund Act, 1982. mplementation rules are framed by respective State governments to provide for security of investors' money. In Andhra Pradesh, it is entrusted to the Stamps and Registration Department and in turn re-delegated to District Registrars who keep tabs on the chit funds. The chit funds are required to deposit equivalent amount in the form of fixed deposits at the time of commencement of a new group with a nationalized bank as security. Popularity of chit funds lies in immediate credit needs of people and inaccessibility to bank loans in times of needs. One more reason why a chit fund is attractive is that bank interest rates on deposits are very low (around 6-8 per cent) compared to the monthly dividend ranging from 12-15 per cent. As per the statistics of the government, there are 30,000 registered and 1,00,000 unregistered chit funds all over India. In Andhra Pradesh, there are about 3,000 chit fund companies, which speak volumes about their strength and place in the national economy. Investing in chits run by unregistered individuals and firms may get higher dividends, but it is fraught with very high risk, the Federation cautioned. In this context, it urged the immediate intervention of the State government to weed out unauthorised chit funds.