Maligned chit funds mull a new name

A change of name is among the proposals cleared by a top panel to develop the Rs 30,000-crore industry

T S Sivaramakrishnan, director, The Balussery Benefit Chit Fund Private Ltd, has set a Google alert on ‘chit funds’.  “Not even a single day passes without an article in some publication in some corner of the country on chits,” said Sivaramakrishnan, adding, “invariably these are stories about multi-level marketing schemes, ponzis and many other failures of financial schemes”.

Any failure connected to the financial schemes was wrongly attributed to the chit fund industry by the media, he lamented. He also showed several newspaper cuttings and prints of online reports, which used “ponzi” and chits, interchangeably. He even recalled instances where a  single newsreport had jumbled references to chits and ponzis. “They describe the activities of ponzis in one para and give numbers and statistics of registered chits in the next. It is atrocious. We tried writing back. We even threatened to sue. But, nothing has worked,” Sivaramakrishnan added.

For example, such bad publicity has hit the industry hard with the number of registered chits falling below 100 from over 1,000 a few years ago, according to industry executives.

Fed up by such negative perception received due to illegal financial schemes being referred by the name 'chits', even though they might not be registered as such, the chit fund industry is toying with the idea of taking a new name and shed the stigma.

S Natarajan, director, Shriram Group, and a senior member of the industry’s national body All India Association of Chit funds (AIACF), said the industry has suggested that its name be changed.  A key advisory group set up by the finance ministry had said in its report that there is “no harm” in accepting this name change proposal and call these entities “fraternity funds”. The advisory group had also suggested several other measures to review the legal and regulatory framework of the industry to ensure an orderly growth of the registered fund sector.

Natarajan was speaking at an event organised by AIACF on the recent recommendations on “efficacy of regulation of collective investment schemes, chit funds, etc.,” by the Parliamentary Standing Committee on finance headed by M Veerappa Moily. The Moily committee expressed surprise that the report of the key advisory group on chits submitted in February 2013 has not been acted upon by the government.

“The committee is surprised that the department of financial services has still not taken any follow-up action on this report though more than two years have elapsed.” The committee has asked the finance ministry to finalise legislative and administrative proposals within three months. The industry body, which has welcomed the Moily panel recommendations, has said its stand has been vindicated and asked the government to implement the recommendations as soon as possible.

Chit funds are those registered with the respective state authorities under the Chit Funds Act, 1982, wherein a group of individuals come together for a pre-determined period and contribute to a common goal at regular intervals. There are about 25,000 registered chits in the country with over five million members. It is said to have assets of around Rs 30,000 crore.

On the other hand, ponzi, named after American Charles Ponzi who first devised these schemes, refer to schemes which generate no real return, but look to pay off dues to old investors out of money brought in by new ones.