Lok Sabha passes chit fund bill

The Lok Sabha on Wednesday passed the Chit Funds (Amendment) Bill, 2019 that seeks to protect subscribers of chit funds, bring in transparency and better regulation norms in the institution.

The amendment in the bill seeks to raise the prescribed ceiling of aggregate chit fund amount an individual can raise to Rs 3 lakh from the current Rs 1 lakh. For firms, with four or more partners, it was raised to Rs 18 lakh from the present Rs 6 lakh.

The amended bill also proposed to raise the maximum commission of a person, who manages the fund to 7% from existing 5%.

Moving the bill in the Lok Sabha, Minister of State for Finance and Corporate Affairs, Anurag Thakur said the government was making changes in the rules to facilitate orderly growth of the chit fund sector and change the negative image it has earned in the recent past.

Thakur said chit fund was not a deposit-making scheme but a subscription-based scheme and was legal unlike unregulated schemes or ponzi.

The bill seeks to amend the Chit Funds Act, 1982. The bill will now go to Rajya Sabha.

Earlier, the government had introduced a Bill to regulate the chit fund industry in 2018, but it lapsed. The bill was also sent to a parliamentary panel, which suggested the government incorporate elements of insurance coverage for subscribers.

However, the insurance was not made mandatory for chit fund subscribers in the amended bill, with Thakur saying, the subscribers can opt for insurance if they want.

Chit fund schemes are majorly subscribed by poor savers, who have limited access to formal banking system. But these savers are often cheated by agents, who lure them promising abnormally high returns on their funds than a bank, but eventually turn out to be fly-by-night operators and elope with investors' money after paying a few installments.

In the recent past, Saradha Group and Rose Valley have emerged as chit funds, which have lured gullible investors only to cheat them. Since 2016, the Reserve Bank of India (RBI) has received over 5,200 complaints related to chit fund scams.

However, the central bank has no regulatory jurisdiction over chit funds.