The Chit Funds (Amendment) Bill, 2018 was introduced to improve regulations in the chit fund industry, which remains high-risk and vulnerable to fraud. While chit funds provide an essential financial alternative, particularly for those with limited access to banks, they have also been the source of several large-scale scams. The Bill aims to introduce greater transparency and accountability, but it falls short in key areas, such as strengthening consumer protection, enforcing stricter regulations, and implementing fraud prevention mechanisms. Additionally, it ignores several recommendations from financial advisory groups, missing the opportunity to bring unregulated chit fund businesses under a formal legal structure.
Chit funds function as a savings-and-loan system where members contribute a fixed amount each month. The pooled amount is then given to one member through a draw, auction, or fixed payout. These funds help individuals who struggle to obtain credit from banks, but they carry significant risks, including no guaranteed returns, the possibility of fraud, and members defaulting on payments.
The Bill introduces video recording of chit draws, an increase in the foreman’s commission from 5% to 7%, and a renaming of chit funds to “Fraternity Funds” to differentiate them from banned prize chits. It also gives state governments more control over regulating chit funds.
Despite these changes, the Bill does little to address fraud risks. It lacks financial literacy programs, a robust grievance redressal mechanism, and unified regulatory oversight.
Without stronger enforcement, clearer regulations, and better consumer protections, the Bill does not go far enough to ensure the safety of chit fund subscribers, leaving many still at risk.
Keywords: Chit Fund, Amendment, Regulation, Investment, Fraud, Subscribers, Financial Literacy, Legislation, Oversight, Foreman
The Chit Funds (Amendment) Bill, 2018
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