The All India Association of Chit Funds has approached the finance ministry and the Insurance Regulatory Authority of India (Irdai), seeking modifications to the Chit Fund Act 1982 for bringing in insurance cover as a securitisation strategy for chit subscribers.

Chit funds are regulated entities, classified as miscellaneous non-banking financial institutions, under the Reserve Bank of India Act, 1934 and are governed by the Chit Fund Act 1982, which is administered by respective state governments.

“Chit funds continue to be an integral part of the financial networking in our society. We have submitted a memorandum to the finance ministry seeking an amendment to the Chit Fund Act 1982. As any suggestion or recommendation can be given effect only with legislative and administrative support, amendment to the act will be the logical step in this direction for meeting the insurance norms,” TS Sivaramakrishnan, general secretary, All India Association of Chit Funds, said.

Incidentally, chit funds are also seeking change of the name as most often it relates to ponzi schemes by unregistered chit fund companies.

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There are more than 30,000 registered chit operators having an annual turnover exceeding R40,000 crore in India. The Association of Chit Funds said unregistered chit operators could be at least 25 times more than the registered ones.

Members of the association recently met finance minister Arun Jaitley seeking amendment to the Chit Fund Act, 1982. “This Act is obsolete and needs amendment to several provisions that are inconsistent and practically not possible to adhere,” Sivaramakrishnan said, adding that the amendment to the Act is the first requirement if chit funds have to be encouraged to play a more effective role in the financial inclusion programme.

On insurance coverage, Sivaramakrishnan explained that the Act rightly provides penal provisions for various defaults on the part of the foreman, but the main concern of subscribers is safety and security. So, extending insurance coverage to subscribers money may be a prudent initiative.The Association has also requested to be allowed to undertake fee-based activity such as selling insurance policies and other financial products. Availability of credit history is essential in the context of selling these products from the banks and other deposit-taking institutions.