New Delhi, December 1: In an attempt to protect investors who primarily belong to economically weaker sections of the society, the Rajya Sabha passed the Chit Funds ( Amendment ) Bill 2019 on Thursday. This bill aims to save the investors from the cities and areas where the banks and financial institutions do not have a presence. Let us understand what is going to change after the bill’s implementation.
Introduced in Lok Sabha on August 5, 2019, the bill seeks to amend the Chit Funds Act, 1982. Actually, the 1982 bill regulates chit funds and prohibits a fund from being created without the approval of the state government. It was amended to incorporate stringent measures to stop alleged fraud.
Chit fund system is in vogue as saving a corpus, wherein the banks and financial institution’s presence is negligible. They are famous by different names in different regions. Chit funds are legal and registered and are different from Ponzi schemes as well as unregulated deposits. These funds are an alternative source of finanace and saving for the poor.
This bill added some names such as ‘fraternity fund’ and ‘rotating savings’ and ‘credit institution’ to the list. The act defines certain terms in relation to chit funds . It defines chit amount, dividend, prize amount. But the bill changes the names of these terms to gross chit amount, share of discount and net chit amount respectively.
Under the act as of now ‘foreman’ is responsible for managing the chit fund. He is entitled to a maximum commission of 5 per cent of the chit system. The bill seeks to increase the commission to 7 per cent.
The current bill increased the limits of the aggregate amount of chits to Rs 3 lakh for chits conducted by individuals and for every individuals and Rs 18 lakh for chits conducted by the firm with four or more partners. As the act is not applicable on any chit by the same foreman where the amount is less than Rs 100. The bill removes the limit of Rs 100 and allows the state governments to specify the base amount over which the provisions of the act will apply.