Money & Banking

Chit Fund Amendment Billgets Lok Sabha’s approval

New Delhi | Updated on November 20, 2019

Key provisions include raising the limit for individual contribution to ₹3 lakh and higher commission for foremen

The Lok Sabha, on Wednesday, passed a Bill to regulate chit funds more effectively.

The Bill will now be taken up by the Rajya Sabha before the President gives his assent so that the Bill can become a law.

Replying to a debate on the Bill in the Lok Sabha, Anurag Singh Thakur, Minister of State in the Finance Ministry, said that only the deposit schemes registered with any of the nine regulatory agencies are legal. These include RBI, SEBI, Corporate Affairs Ministry, Registrar of Co-operatives, among others. He appealed to all to spread this message as a part of the government’s financial literacy drive. After enactment of the Chit Funds (Amendment) Bill 2019, the government expects to have an effective mechanism to regulate the savings sector and curb ponzi schemes. The government has already made a law to ban illegal deposit schemes.

The new Bill aims to amend the Chit Fund Act, 1982. The original law was enacted to regulate chit funds, which have conventionally satisfied the financial needs of low-income households.

It 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 subscriber gets the collected sum by lot, auction or tender. In this way, those in need of funds, and those who want to save, are able to meet their requirements simultaneously.

New additions

The new Bill has incorporated some of the recommendations of the previous Finance Ministry Standing Committee. One such recommendation talks about allowing a chit fund company to mention Rotating Savings and Credit Association (ROSCA institution) under their name.

This will help in distinguishing their business from other unconnected businesses. The old Bill had a provision for incorporating the name ‘fraternity fund’, instead of the commonly known ‘chit fund’.

Now, the words ‘ROSCA institution’ will be added to the nomenclature ‘fraternity fund’.

Insertions of these words will signify its inherent nature and distinguish it from ‘prize chits’ that are banned under a separate legislation.

Another key provision of the new Bill is enhancing the limit for individual contribution to ₹3 lakh from ₹1 lakh; for companies, it would be ₹18 lakh, against the present provision of ₹6 lakh.

The old ceilings are in place since 2001. 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 the foreman’s commission to 7 per cent from 5 per cent; and enabling the foreman to have a right to lien for the dues from subscribers.

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

Published on November 20, 2019

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