Sharada scam hits chit funds
May 03 2013 , Chennai
““The misconception that equates deposit schemes with chit funds is lowering subscriber’s confidence in the latter. After the scam started being reported as one pertaining to chit funds, we have started seeing increasing participation in auctions. Several small and medium chit funds have reported investors seeking early auctioning, probably fearing loss of deposits,” T S Sivaramakrishnan, general secretary, All India Association of Chit Funds.
The industry is governed by Chit Fund Act 40/1982 and is regulated by state governments with their own set of rules. Reserve Bank of India is the principal regulator and at the state level Registrar of Chits/The Inspector General of Registration oversees these regulations.
“Ponzi schemes offer unfeasible interest rates, cash prizes or gift articles for deposits while chit funds are traditional and regulated Miscellaneous Non-Banking Financial Companies. Registered chit funds cannot accept deposits and cannot offer any other financial products or services. The companies that organize chits should have chits in its name,” he said.
Nationally, there are about 10,000 registered chit funds with an annual turnover of Rs 30,000 crore and in Kerala the state government itself runs a chit fund.
Chit fund offers saving/borrowing option with standard returns, low-cost loans and personalised service. Chit funds are community-driven and the industry is growing at an annual rate of 15-20 per cent.
Once a chit fund company decides to commence a new group they have to deposit 100 per cent of the chit value as fixed deposit with the Registrar of Chits as security. This amount can be withdrawn only after the chit group closes and every subscriber is paid in full. The role of a chit promoter is just to collect the subscription from the subscribers. Hence he does not hold any funds, he added.