Lok Sabha Passes Bill For Transparency In Chit Fund Schemes
New Delhi: The Lok Sabha on Wednesday unanimously passed a Bill that aims at putting in place a mechanism to ensure transparency in chit fund schemes, protect subscribers and regulate the industry.
To facilitate orderly growth of the chit fund sector, Minister of State for Finance and Corporate Affairs Anurag Thakur said through the Chit Fund (Amendment) Bill, 2019 the government was making changes in the rules for starting a chit fund, which earned a negative image in the recent past.
The Minister had moved the Bill, which seeks to amend the Chit Funds Act, 1982, on Monday.
With the amendments, the prescribed ceiling of aggregate chit fund amount for individuals would be raised to Rs 3 lakh from Rs 1 lakh, and Rs 18 lakh from Rs 6 lakh for firms. Besides, words ‘gross chit amount’, ‘share of discount’ and ‘net chit amount’ would be substituted with ‘chit amount’, ‘dividend’ and ‘prize amount’, respectively, in the Act.
The amended Act would confer powers upon the state governments to specify the amount up to which any chit fund shall be exempted under the Act.
During the discussion, many amendments were proposed to remove bottlenecks and enable greater financial access to people.
Thakur had introduced the Bill during the Budget session in August and it was referred to Standing Committee. In 2018 too, the government had introduced a Bill to regulate the chit fund industry, but it lapsed.
The parliamentary panel had suggested the government to incorporate elements of insurance coverage for subscribers. It also noted that mobilising short-term funds to meet various needs had been a chronic problem, faced by the people in developing countries like India.
Chit funds are popular among low-income families, as it offers both access to funds and options to save. The need to protect investor interest highlights the crucial role chit funds play in rural economy, providing people with access to funds and investment opportunities.
The House rejected the amendments proposed by the opposition.
The Bill also introduced words like “fraternity fund”, “rotating savings” and “credit institution” to make chit funds respectable, said the Minister. The proposed changes include raising the maximum commission of the manager from 5 per cent to 7 per cent of the chit amount.
The Bill also allows the foreman a right to lien against the credit balance from subscribers.
In the past few years, there have been several alleged frauds pertaining to companies, like Saradha Group and Rose Valley, as they lured investors to deposit money in lieu of abnormally high returns. But many shut their shop, leaving the poor in the lurch.
In some cases, politicians’ links with the tainted companies also surfaced. Since 2016, the Reserve Bank of India (RBI) has received over 5,200 complaints related to chit fund scams.
Thakur said, the chit fund was not a deposit-making scheme but a subscription-based scheme and was legal unlike the unregulated schemes or Ponzi schemes. Regulated funds were in the purview of nine registered institutions, he aadded.
“The chit fund is legal. It is registered and then floated,” he said.
Thakur said some members had said there was not much difference between “chit fund” and “cheat fund” in West Bengal, thus ‘fraternity fund’ and ‘rotating savings and credit institution’ had been added as alternate names for chit fund.
Referring to demands from members for GST exemption, he said the matter was to be decided by the GST council.
Chit funds were under the purview of state governments but the RBI had powers to monitor their functioning, the minister added.