Parliament approves chit funds amendment bill

NEW DELHI: Chit funds are used by the poor as a scheme acts as both a source of finance and an avenue for savings as because of deficiencies in the banking sector which have existed for years, said minister of state for finance and corporate affairs Anurag Singh Thakur as the Rajya Sabha passed the Chit funds (amendment) bill 2019.

The bill seeks to increase the limits for aggregate fund collections in chit funds to thrice the current limits and allows the chit fund foreman a right to lien against the credit balance from subscribers. The Lok Sabha passed the proposed amendment on November 20.

“For years there was a major deficiency in the banking sector which was filled by chit funds,” said Thakur adding that there was a need to amend the bill to protect poor investors.

While introducing the bill in the Rajya Sabha, Thakur had said the bill was aimed at reducing the compliance burden on chit funds and protecting subscribers.

Thakur highlighted the distinction between unregulated deposits, ponzi schemes and chit funds pointing out that the government had already passed the banning of unregulated deposits act and that this bill was also part of the government’s efforts to protect “poor and gullible” investors.

Thakur said that all legal chits had to registered with the registrar of chit and that stat level coordination committees would prosecute partners of unregistered chit funds.

The amendment will raise the monetary limit of chit funds with less than four partners to Rs 3 lakh from Rs 1 lakh, and the limit for chit funds with four or more partners to Rs 18 lakh from Rs 6 lakh. Thakur said this was done keeping in mind inflation from 2001.

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It also raises the maximum limit of the commission taken by the foreman to 7% from 5%.

The amendment will also allow for the terms ‘’fraternity fund’ and ‘rotating savings and credit institution’ to the list of terms that can be used to refer to chit funds. Thakur said this move was intended to change the image of chit funds which have come to be associated with financial scams.



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