Margadarsi Chit Funds To Widen Tn Operations

The Andhra-based Margadarsi Chit Funds is looking to expand its operations in the city at a time when the entire NBFC industry is suffering from a total loss of investor confidence in finance companies.

Speaking to newspersons here yesterday, Sailaja, managing director, Margadarsi Chit Fund Ltd, says the company plans to have 50 branches in Tamil Nadu in the next five to seven years At present the company has three branches in Tamil Nadu and 50 in Andhra Pradesh.

Margadarsi, she said, takes care to ensure that it gets good quality customers and its lowest group is Rs 25,000 going up to Rs 25 lakh.

While much care is given to distributing the prize money within two days, equal attention is paid to the sureties and collateral that people give the company.

"It is a highly regulated business," she said, with the chit business being governed by different Chit Acts that states formulate. In Tamil Nadu, for instance, these are more stringent than in Andhra Pradesh.

For every branch office that is being opened, separate permission has to be obtained. Plus, 100 per cent of the chit value should be deposited as an additional security.

Most importantly, Sailaja says the high-value chits are coming in handy for corporates to meet working capital requirements. "We have a lot of good value clients at the high end and they find it beneficial to get money from chit companies like us," she says.

Corporates can get short term funding requirements met at rates that are competitive with what the banks have to offer. At a time when banks are shying away from lending, this is seen as a useful and cost-effective means of raising short-term and medium-term funds.

Still, business could have been better but for poor investor sentiment. This year, the company hopes to have a turnover of Rs 850 crore, the same as last year. "We could have done at least 30 per cent better," but for loss of investor confidence and the general slowdown of the economy, says Sailaja

However, Margadarsi takes extreme care on who it enrolls for these high chit value groups as even a single default can prove to be very costly.

Much stress is laid on proper, legally fool-proof documentation on assets of those claiming prize money. This ensures investment safety for all other participants in the group.

Recovery is as high as 99 per cent for Margadarsi, claims Sailaja. Also, prize money is capped at 45 per cent of the chit value on the premise that anybody needing more will probably not be as good in repaying it.

Every group, it is ensured, will have a fair mix of those who will need prize money and those who won't. But, a 30 per cent ceiling on dividend is not attractive to those who pay up till the last installment without taking the prize money.

"It should be between 40 and 45 per cent, to make it attractive to such investors," says Sailaja.