In a significant development, the Centre has recently allowed non-resident Indians (NRIs) to invest in chit funds by making necessary amendments in the Foreign Exchange Management Act (FEMA) regulations relating to permissible capital account transactions.

Chit funds are savings products (that can also be converted into a credit instrument) that enable households to save money in a disciplined way as well as provide small enterprises an avenue to raise money quickly. These funds are quite popular in south India and more particularly in Kerala.

The move would enable the Kerala State Financial Enterprises (KSFE), an arm of the Kerala state government synonymous with the chitty business in that region, to tap NRI funds, especially from the Gulf in a big way.

Hitherto, the NRI community was allowed to invest only through their families for the company’s Pravasi Bandhu Chits, said P Rajendran, Managing Director, Kerala State Financial Enterprises Ltd.

Made official The Union Government through a gazette notification has allowed non-resident Indians to subscribe through banking channels and on a non- repatriation basis to chit funds without limit subject to the conditions stipulated by the RBI from time to time.

Based on the notification, the Kerala Government has also granted necessary permissions to KSFE to accept subscriptions from NRIs in chits. The government order on the subject came in last week.

“With the amendments in place, KSFE expects a quantum jump in its chit fund business, especially from Malayali diaspora, which would expected to be in the range of ₹100 crore every year,” Rajendran told BusinessLine during an interaction.

Major contributor Of the ₹26,000 crore turnover recorded last year, around 60 per cent or nearly ₹15,000 crore, comes from chitty business alone. The institution also offers a number of other retail deposit and loan products including - personal, consumer, gold, housing as well as trade loans.

The company has chalked out a two-pronged strategy to tap NRI funds, Rajendran said. It would begin with road shows and marketing campaigns in prominent centres like Pathanamthitta, Malappuram, Kollam, Thrissur in Kerala (that have been the home-base of NRIs) as well as other cities with significant Malayali population (Coimbatore, Chennai, Mumbai and New Delhi).

Future plans Later KSFE plans to rope in some reputed corporate agencies based in the Gulf for marketing and collection of funds for chits on a commission basis. Discussions are in progress with some leading money transfer firms based in West Asia, he said, but refused to divulge the names of the companies.

KSFE was started in 1969 with the intention of liberating the common man from the clutches of fly-by-night operators in the chit fund business. It has been profitable throughout and remains among the few state enterprises that can claim that record.