Alarmed by the mushroom growth of chit funds in West Bengal, Somen Mitra, a Trinamool Congress MP, has written to the Prime Minister urging him to take immediate steps to curb these “unprincipled companies.” “These chit funds are collecting deposits mostly from the guileless rural and semi urban public, unrestrained by any regulatory administrative mechanism, luring them with promise of sky-high returns,” writes Mitra.
A fair portion of these funds are channeled into real estate and other high risk ventures such as film production, media, and hotel industries. In his letter to Manmohan Singh, Mitra alleged that “these chit funds do prosper with patronage of politicians who have even helped some ‘chit fund’ owners to enter the illustrious House of Parliament.”
When asked about this allegation, Mitra justified his claim by saying that some of the MPs from West Bengal were either in the board of some chit funds, or regularly getting lucrative fees from the chit funds against some unspecified services.
While narrating the negative role played by the chit funds in the state, Mitra warned in his letter to Prime Minister that “if corrective action is not taken in time, the guileless rural and semi urban segment of West Bengal will soon be exposed to heavy losses.”
He has referred to the cases of Peerless General Finance and Sahara Finance in this context. Under the regulatory mechanism of Reserve Bank of India, both Peerless and Sahara have been made to return a fair portion of their collection to the rural depositors. He wants, these unregulated chit funds should be brought under similar regulatory mechanism of Reserve Bank.
He has also enclosed a list of 11 chit funds, of them Rose Valley, Tower, MPS, Icore are prominent, and requested the Prime Minister to institute investigation into their workings. When contacted for their reaction, a spokesman of a prominent chit fund declined to respond.
It should be mentioned here that it is not the first time that the chit fund business has become a cause of concern in the state. In the early ‘80s thousands of people lost their life’s savings when a chit fund ‘Sanchaita’ went bust. The company’s managing director died in mysterious circumstances in police custody. In the 90’s also a number of chit fund companies suddenly wound up their business and their proprietors went underground causing many people lose their savings.
The recent spurt of the chit fund activities have been going on since 2001. But this time the chit fund owners are quick to grab political patronage by entering into media business. A number of recently launched news channels and newspapers are now being financed by the chit fund money.
Though no proper estimate is available about the size of the total business generated by all these chit funds, the conservative estimate given by the insiders put it to the tune of Rs.40,000 crore approximately. But the government is weary of curbing the chit funds as thousands of people are employed by these companies as deposit collectors.
Since Bengal has one of the highest rates in small saving, and Somen Mitra points out that it accounts for purchases of highest number of new life insurance policies and a fairly high collection of mutual fund subscriptions, this large pool of surplus has resulted in several unprincipled companies devising dubious schemes to divert the savings.
Some of these chit funds also represent Life Insurance Corporation (LIC) to collect insurance premiums and pose as official agents of LIC to “deceptively convey credibility for mobilizing deposits for their other activities. He feels that these companies are running almost a parallel economy to ruin our national economy and urged the Prime Minister to intervene to ensure that these chit funds are duly brought under the regulatory mechanism of RBI to protect the small investor.