Parliament on Thursday passed the Chit Funds (amendment) Bill 2019 with the upper house giving its nod for the legislation that seeks to regulate chit funds more effectively. The Lok Sabha had passed this legislation recently.

Replying to a discussion on the Bill in the Rajya Sabha on Thursday, Anurag Singh Thakur, Minister of State for Finance, said that the current changes to the legal framework on chit funds are pro-poor and pointed out that any absence of such legislation would have only placed them in a disadvantage. This legislation will help the poor in ensuring that their hard earned money is not easily taken away by unscrupulous chit fund operators.

Thakur underscored the need for people to subscribe into only registered chit funds and not participate in unregistered ones. 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 Chit Funds (amendment) 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.

Chit Funds are 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 features

A 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.

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.

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.

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