Mylswamy Chits(p) Limited. reports to The registrar of Chits, Pollachi and Tirupur. It has been Registered under the Central Chitfunds Act 40/1982 and Tamilnadu Chit Fund Rules, 1984. for almost two decades. Mylswamy Chits(p) Ltd. submits its annual return to the Registrar of Chits, Registrar of Companies and also to the reserve Bank Of India.. It is a company with Limited Liability, registered with The Registrar of Companies. Chit schemes are in the nature of Insurance Against Event Uncertainty. Chit schemes are not similar to any schemes offered by banks, the general insurance corporation or the life insurance corporation.
Mylswamy Chits(P)Limited., is planning to launch a chit fund for corporates. Further plans to launch two schemes for corporates. The first scheme, called Corporate Pool Finance, would be a chit fund that would be similar to the lines of an individual auction chit fund. Under this scheme various companies would come together to form a joint pool that would help them raise funds to meet their various business plans. Says
Mr. Bharathy, "At present companies have the option of raising funds from banks, financial raising funds from banks, financial institutions, inter-corporate loans, debt instruments and the stock market".
The corporate Pool Finance would allow them another option of raising funds at a later stage. A company might need funds fast at certain times for, say, a product launch, or building a marketing network or opening new offices etc and that's where the chit fund can step in. "He goes to say, "Basically the scheme would provide liquidity to corporates on a contingency basis". For instance, we could have a pool finance of Rs. 50 lakhs for 20 months where 20 companies can participate with each company contributing Rs..2.5 lacs each month. Hence, at any given point of time a company can raise nearly Rs. 50 lakh within a month.
"The second scheme, called Group Finance scheme, would be a chit fund that would meet the needs of the employees of a company. Under this scheme a chit fund would be started for a employees at the request of the company. Explains Mr. Bharathy, "In what is turning out to be a highly competitive environment, companies need to attract and retain employees. But they might not always have the requisite funds to, say, extend car loans, or housing loans to their employees. And the company will stand as our guarantee against any defaults. "Mr.Bharathy has already had discussions with various companies who have shown interest in the two schemes. The total chit companies transacting chitfunds in the country exceed 10,000, estimates the All India Federation of Chit Funds (AIFCF). The figure seems to indicate that chit funds could well become one of the favoured investment instruments after stock market and debt instruments. Yet this informal financial sector is beset with problems, not the least the unscrupulous operators who take advantage of the rather loose regulations to defraud the public.
Way back in 1965 several state Governments had enacted their own statutes to control chit business. In order to bring about uniformity of legislations all over the nations and to protect the interest of the subscribing public more effectively, Government of India enacted The All India Chit Funds Act in 1982. This comprehensive Act imposes rigid control on each and every aspect of chit business. Among other factors, this Act prescribes capital requirement, furnishing of security deposit, registration of chit group, submission of accounts, furnishing of statutory return etc. This Act has, on the whole, brought about a salutary effect on the healthy functioning of chit business.
"There are basically two kind of risks that are involved in a chit fund. Firstly, delay on part of the subscriber to pay his installment. Second, delay on the part of the foreman, which is basically a question of willingness.. In the second case, banks do not give cash credit (CC) limit to borrowers who raise part of their funds from a chit. Explains Bharathy, "If a person requires Rs 5 lakhs for expanding his business and he takes Rs 2 lakhs from a chit and approaches a bank for the remaining Rs 3 lakhs then a bank won't give him a loan. This is ridiculous."Though chit funds act as financial intermediaries, they are not allowed to borrow from banks, too. They are not even eligible for temporary refinance. All of them are required by the Chit Funds Act, 1982, to keep security deposits individually which run into lakhs of rupees and collectively into crores of rupees. Unfortunately, say the operator, in times of adversity, these chit funds are not allowed access to these fixed deposits. Hence, they borrow at relatively high rates of interest mostly from directors, shareholders and partners and also from indigenous bankers. Narendra Kumar, managing director of Klic Chits Ltd, says, "All forms of business activities have access to bank finance barring chit funds. The ratio of borrowings to net owned funds is not an appropriate parameter since the ratio of auction turnover to net owned funds is very high." He adds that financial investment is also necessary for office premises, furniture, staff and promotional activities. As per the Chit Funds Act, "a company shall not commence or carry on chit business unless it has a paid up capital of not less than Rs 1 lakh". Further, " Every company carrying on chit business shall create and maintain a reserve fund and shall, out of the balance of profit of each year disclosed in its profit and loss account and before any dividend on its shares is declared, transfer to such reserve fund a sum equal to not less than 10 per cent of such profit."M.J. Ramesh, managing director, Shubhashree Chits and Investments Ltd, says it is not feasible to bring in capital through equity since there is no exit route for equity capital. Klick Chit's Kumar says they should be given facilities to borrow from the banks, akin to cash to cash credit limit. It is interesting to note that other financial intermediaries have the choice to fix the rate of interest at which they lend and also the people to whom they lend. The financial intermediaries benefit from the difference in interest rates on deposits and loans.
In contrast, chit funds merely act as passive middlemen without any right to fix the discount rate, select the prize winner or have control over their income. Through the process of auction, a member of chit fund fixes his discount rate and the time of borrowing. The role of the foreman is to simply collect his commission, receive the subscription and release the prize amount. Says A.S. Venkatraman, corporate vice-president, Shriram group, "The ceiling of five percent of the foreman's commission is killing the chit industry. The capital adequacy norms for the chit companies is 10 per cent of the value of the chitgroups conducted by them. The chit fund companies, he says, have to walk the tightrope considering the net returns. The success of chit funds companies lies in the collection machinery of the company. That is the reason, Venkatraman says, that Shriram Chits opens new branches when the volume of business exceed a certain percentage. The entire gamut of regulations are meant for small operators which acts as a disincentive for big industry houses to participate.
He adds "In the Companies Act, there is a trust relied on the corporates. But in the Chit Fund Act, there is distrust for the operators. They are over concerned about protecting
investors. "D. Ramachandra of the Chit Promoters Association points out, "In about 131 sections which govern the operations of chits in Karnataka, only three provisions are in favour of the foremen and the remaining 128 are to protect the investors. "The regulations provided in the Chit Fund Act prescribes the manner in which the daily books of accounts are to be maintained and the provisions are unlike any under other acts. For instance, the Banking Act and the Insurance Act prescribe only the format in which the balance sheet and the profit and loss account are to be maintained. Venkatraman says this hampers the computerization of the chit fund companies. But more than anything else, it is the prejudice against chit funds that is keeping them from growing into a respectable industry. Says pollachi-based
Mylswamychits Bharathy, "The Reserve Bank of India and the government take a very negative approach to chit funds because of certain happenings in history. This negative attitude is strangulating us. "The rating of chit fund companies would be an important step in changing the negative attitude that has marked this business and prompt the government to take a more favorable look at it.
Mylswamy Chits is registered with and reporting to all the relevant Government wings including RBI & Registrar of
Companies. For its day to day working Mylswamy Chits is reporting to the Office of the Registrar of Chit Funds, Pollachi, and Tirupur . Mylswamy Chits has maintained an absolutely clean and unblemished record of healthy operations with the office of the Registrar from the
commencement Madras Chit funds Act 1961, and Central Chit funds Act1982.
|
