The government aims to re-introduce a Bill to amend the Chit Find Act 1982 during the ongoing session of Parliament. Enactment of this amendment along with law for banning illegal deposit scheme is expected to effectively regulate saving sector and curb ponzi scheme.

The Cabinet, in its meeting on Wednesday, approved a Bill for the amendment in the Chit Find Act. Though this Bill was introduced during last Lok Sabha and even Standing Committee gave its recommendation, it could not be passed and finally lapsed. Information & Broadcasting Minister Prakash Javadekar said the new Bill has incorporated some of the recommendations of the previous Department related Standing Committee on Finance.

‘A ROSCA Institution’

One such recommendation talks about allowing a chit fund company to mention under their name as ‘A ROSCA Institution’ (Rotating Savings & Credit Association). This will help in distinguishing their business from other unconnected business. The old Bill had a provision for incorporating the name ‘fraternity fund’ instead of the commonly known ‘chit fund.’ Now, words ‘A ROSCA Institution’ will be added to the nomenclature ‘fraternity fund’. Such a change likely to help chit funds in their image makeover and brand building.

Key provision

Another key provision of the new Bill is enhancing the limit for individual contribution to ₹3 lakh from ₹1 lakh and for companies, it would be ₹18 lakh as against present provision of ₹3 lakh. Other provisions include allowing mandatory presence of two subscribers either in person or through video conferencing duly recorded by the foreman, increase of ceiling of foreman’s commission to 7 per cent from 5 per cent, to enable the foreman to have a right to lien for the dues from subscribers, so that set-off is allowed by the chit fund for subscribers who have already drawn funds, so as to discourage default by them and to confer power upon the State government to specify the amount, by notification, up to which any chit fund will be exempted.

All these amendments will fulfil the objectives of reducing the regulatory or compliance burden of the registered chit funds industry and protecting the interest of the chit subscriber, the government said.

The Chit Funds Act, 1982 was enacted to provide for the regulation of chit funds that are indigenous business in India and have conventionally satisfied the financial needs of the low-income households. The chit is a mechanism that combines credit and savings in a scheme, in which a group of individuals come together for a pre-determined duration and subscribe a certain sum of money by way of periodical instalments and each such subscriber, in his turn as determined by lot or by auction or by tender or any other specified manner, gets the collected sum. In this way, people who are in need of funds and those who want to save are able to meet their requirements simultaneously.

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