Rajya Sabha passes Chit Funds (Amendment) Bill, 20192 min read . Updated: 28 Nov 2019, 05:53 PM IST
- Chit funds are legal and registered and are different from ponzi schemes as well as unregulated deposits, Minister of State for Finance Anurag Thakur said
- The bill was passed by the Lok Sabha last week. It will now require the President’s assent to become a law
NEW DELHI : The Rajya Sabha on Thursday passed the Chit Funds (Amendment) Bill, 2019, to streamline operations of collective investment schemes or chit funds, with the aim to protect investors that primarily comprises economically weaker sections of the society.
Chit funds are legal and registered and are different from ponzi schemes as well as unregulated deposits, Minister of State for Finance Anurag Thakur said, adding that such funds are alternative source of finance and saving for the poor.
The need to protect investor interest highlights the crucial role chit funds play in India’s rural economy, providing people with access to funds and investment opportunities, especially in regions where banks and financial institutions do not have a presence.
The Chit Funds Act of 1982 was amended to incorporate stringent measures to stop alleged fraud. The bill was passed by the Lok Sabha last week. It will now require the President’s assent to become a law.
The finance ministry proposed amendments to chit funds law after several alleged frauds reported over the last few years. Several innocent and the poor investors were duped by such schemes.
In a chit fund, people periodically pay a fixed amount. Thereafter, one of the subscribers get the prize money, which is determined by an auction or lottery.
The proposed amendments in the bill include raising the maximum commission of the ‘foreman’ or the person who manages the fund from 5% to 7% of the chit amount. The foreman will also have the ‘right to lien’, a legal right, against the credit balance from subscribers.
According to the current bill, chit fund schemes operated by individuals can raise a maximum of ₹3 lakh, up from the existing ₹1 lakh. For firms, with four or more partners, the Centre raised the amount from ₹6 lakh to ₹18 lakh.
The bill has introduced words such as ‘fraternity fund’, ‘rotating savings’ and ‘credit institution’ to help these funds get an image makeover, and build a brand for them.
Among other amendments, chits are supposed to be drawn in the presence of at least two subscribers, and also allow subscribers to join through video conferencing.
Chit fund companies such as Saradha Group and Rose Valley in West Bengal were mired into controversy as they allegedly lured gullible investors to deposit money in their schemes in lieu of abnormally high returns and subsequently shut shop, leaving the rural poor in the lurch.