•Meaning
of “Chit”:
▫a
transaction by whatever name
▫wherein
a person enters into an agreement with a specified number of persons
▫every
one of them shall subscribe a certain sum of money by way of periodical
installments over a definite period and
▫that
each such subscriber shall, in his turn, as determined by lot or by auction or
in any other manner as in the chit agreement, be entitled to the prize amount.
Why use Chit Funds?
In many parts of India,
Chit Funds address gaps left by the traditional banking sector. They mobilize
huge amounts of small savings, and in return allow members to have access in
the form of loans to lump sum amount of money that they would often not be able
to get from traditional banks. Easy accessibility and flexibility are important
aspects of this form of financing. Compared to banks, Chit Funds require less
documentation, are more flexible about collateral, and allows to determine own
interest rate (within the constraints of a given chit scheme). Furthermore,
there is no need to determine upfront whether funds are used for saving or
borrowing.
This is a salient feature of chit funds as it not only puts in place
a disciplined saving mechanism, but it also allows to access cash when needed.
In addition, as Chit Funds use the funds of the participants there is much less
capital requirements for the institution (unlike banks). Literature shows that
the primary uses of Chit Funds are the following:-
To address consumption
needs such as marriage, education, property purchase and so on.
To pay off costlier loans
from outside sources like loan from money lenders.
To address working
capital, business expansion or start-up capital needs of small businesses.
For emergency needs or
simply as savings for future needs.
Our survey results also
show that Chit Funds are mainly used as a tool for saving and as a source of
loan for consumption, business and emergency purposes.
Mobile:
+91-9590355556 & 09886461360 / 9916807666
Mr.
Santhosh Kumar
Websoftex
Software Solution Pvt Ltd
No: 240/A,
3rd Cross, Mathikere, Near SBM Bank, Bangalore-560054, Karnataka, India.
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