The Hindu Business Line : Stock of chit fund companies soaring in Kerala

There were 5,696 money-lending institutions in the organised sector in the State as on March 2004, as against only 3,376 commercial bank branches in the State.

Thiruvananthapuram , April 18

THE reach and volume of chit funds business, which has become an integral part of the non-banking financial sector of Kerala, has been on the rise in recent years.

A measure of the phenomenon can be had from the fact that between 1997-98 and 2002-03, the number of chits registered in the formal sector was more than 45,000 with a total capital turnover of Rs 360 crore.

According to a study by a working group constituted by the State Planning Board, about-two thirds of these chits were registered in Thiruvananthapuram and Ernakulam districts with 43 per cent and 23 per cent, respectively.

Similarly, it was found that there were 5,696 money-lending institutions in the organised sector in the State as on March 2004 with the four southern districts of Thiruvananthapuram, Kollam, Pathanamthitta and Alappuzha accounting for more than half of them.

Against this, there were only 3,376 commercial bank branches in the State. The population covered per money-lending institution is 5,590 as compared to 9,431 per commercial bank branch.

A case study conducted by the working group in Kannur district revealed that there were 139 money-lending institutions in the formal sector, of which 45 per cent were registered after 2001. The annual business turnover of these institutions worked out to Rs 13.57 crore. Of these institutions, around 70 per cent had business turnover of less than Rs 5 lakh and only five per cent had turnover of more than Rs 50 lakh.

A survey in Thiruvananthapuram district showed that around 15 per cent of the moneylenders accepted deposits at interest rates of between seven and 12 per cent, while a majority of them extended loans at rates between 10 and 20 per cent on security of gold. The major depositors were non-resident Indians and most of the borrowers were ordinary workers, government employees and businessmen. And the major defaulters were farmers.

A primary survey among selected unregistered money-lending institutions in Kollam and Kottayam districts by the Department of Economics and Statistics last year found that 50 per cent of them operated their business in own buildings, while some others were operating straight from the cash bag.

The securities against which loans were given included gold, cheques, promissory notes and land documents.

The working group is of the view that the money-lending institutions have been thriving due to the inability of the conventional banking sector to accommodate more people due to high operating cost. At the same time, bulk lending for micro credit can help redeem the situation to a large extent.

It is also felt that the Government-owned Kerala State Financial Enterprises (KSFE), the dominant chits player in the State, needs to be more innovative and competitive in these circumstances.

The default record of KSFE is on the higher side due to poor recovery and its outreach to rural areas falls short of the required extent.

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