The Union Cabinet’s approval to introduce Chit Funds (Amendment) Bill, 2018 in Parliament has not gone down well with the Rs 45,000-crore chit fund industry of the country. Expressing disappointment, the apex body of chit fund companies, All India Association of Chit Funds (AIACF), on Tuesday said that the Bill in its current form will not solve the main purpose of bringing the unorganised players into the organised sector. It was of the view that the proposed amendment will not provide the desired investor protection, badly needed to safeguard public money. The Union Cabinet on Tuesday gave its nod to introduce the Chit Funds (Amendment) Bill, 2018, in Parliament. The Bill is aimed at facilitating orderly growth of the chit funds sector and removing bottlenecks faced by the industry.
Slamming the move as an eyewash, TS Sivaramakrishnan, general secretary, All India Association of Chit Funds, told FE that since the number of the unregistered players is almost 100 times of the registered ones, the legislation should have been user-friendly and should have contained steps to persuade unregistered entities to get registered. “Also, it is not about mere the formulation of the Act, but implementation that matters,” he said.
According to him, the main requirement was to reduce the security amount to be deposited with the Registrar, under Section 20 (1) to 50% of the chit value, that too at the time of commencement. The proposal, which was included in the report of the key advisory group formed by the department of financial services, wherein the association was a participant, has been dropped without providing any reason.The group had also suggested bringing in insurance coverage for the subscriber money in the hands of the chit foreman. “Though some leads in this regard have been given in the report, it has been omitted conveniently, for reasons best known to them,” he pointed out. He also said that the organisation is planning to insist on referring the Bill to a select committee when it is tabled in Parliament, so that it is examined in detail.
According to the proposed amendments, chit business will be required to use the word fraternity fund to signify its nature as well as to differentiate its working from ‘Prize Chits’ which are banned under a separate legislation. The Bill proposes to allow the two minimum required subscribers to join through video conferencing duly recorded by the foreman, as physical presence of the subscribers towards the final stages of a chit may not be forthcoming easily. The Bill also aims at hiking the ceiling of foreman’s commission from 5% to 7%.
The report of the key advisory group on the chit fund companies had suggested that AIACF’s request to allow undertaking fee based activity, like selling insurance policies and other financial products, seemed fair. The availability of credit history is essential in the context of selling these products from the banks and other deposit taking institutions. The data bank that the chit fund companies have on this information qualifies them to undertake procurement, processing and disbursement of such products very effectively in view of their skill on intrinsic evaluation, cost effectiveness, market intelligence and quality of ownership.