ISSN NO.: 2321-290X RNI : UPBIL/2013/55327 SHRINKHALA : VOL-1 * ISSUE-9*MAY-2014 Financial Regulation in a Changing World Regulating the Unregulated

Abstract The recent Chit Fund fiasco in West Bengal has not only pushed the panic button for the Indian Investors, but also opened the Pandora‘s Box of our corrupt system and the state of awareness of the State Government about their control on such scams. This is a case in which all the three parties are to be blamed equally – the Investors, the System or the Government and the investment Agencies. Though the issue of cheating and fraud came to light because of Saradha fiasco in West Bengal, Odisha is not far behind in any sense. "Chit funds in are governed by the Chit Funds Act, 1982. Under this Act, the chit fund businesses can be registered and regulated only by the respective State Governments". After such clarification from the Centre the affected states are now trying to revamp the wound of ill fated investors of their states. No one is giving a fair solution to prevent the chit fund scams. Also no one is trying to find out the root cause of such scams. As a result the investors are in dark about the refund of their funds. It is going to be treated as a combined failure of state as well as country. Expectation of easy money return in short time, fake success stories by the agents of such companies motivate the illiterate rural people to invest in the chit funds. The poor literacy in rural areas gives a wide dimension for the fraud chit fund companies for growth. No investor is interested to know about the strategy of the company behind such attractive offers.

Rasananda Mohanty Keywords: investment, compensate, stringent regulatory, administration Research Scholar, Introduction Deptt. of Commerce Now many questions come to the discussion table when everything Ravenshaw University is lost. Questions like why such scams are not identified from the beginning Cuttack, Odisha stage, why the administration is not taking any action to prevent such scams, why state Govt. will not compensate the investors, what will be the future of the money invested, why the growth of chit fund companies is not being restricted and many more. So it is the time to raise voice against such scams. We must try to find out the root of such cheats. We should try to aware ourselves about such fraudulent offers. Strong administration and systematic rule can be a solution to melt down such scams. Strong awareness programs must be initiated by the Government for a fair investment for the investors. The Govt. should design a stringent regulatory mechanism to control activities of mushrooming of chit funds, many of which dupe investors of their life's savings. Tushar Kant Pany The role of SEBI and RBI must be redefined to monitor the activities of chit Reader fund companies. The chit fund companies operated in breach of Company School of Commerce & Deposit Rules, 1975 which prohibit all companies (except public sector undertakings) from accepting deposits which are unsecured instruments Management Studies, (debentures or otherwise) for more than 10% of their net worth. RBI must Ravenshaw University, come up with an adequate solution to protect the investors from the chit Cuttack, Odisha fund companies. The regulation of the Chit Fund industry was put in place by the Government of India to address the problem of misuse of informal Chit Funds by unscrupulous promoters and founders running away with the participants‟ funds, leaving the members with little recourse to retrieve their money back. Literature Review Chit Funds…Past, Present & Future… A Chit fund is a kind of savings scheme practiced in India. Chit funds are the Indian equivalent of the Rotating Savings and Credit Associations (ROSCA) that are famous throughout the world. ROSCAs are a means to ―save and borrow‖ simultaneously. It is considered one of the best instruments to cater to the needs of the poor. It enables poor people to convert their small savings into lump sums. The concept of chit funds originated more than 1000 years ago. Chit funds are savings schemes under which a person enters into an agreement with a specified number of 30

ISSN NO.: 2321-290X RNI : UPBIL/2013/55327 SHRINKHALA : VOL-1 * ISSUE-9*MAY-2014 persons who agree to subscribe a certain sum of concessions in the matter of stamp duty. Chit funds money over regular installments for a certain period in do not receive any special assistance from the return for interest and lends money to those wanting Government, but are tending to be regulated in an to purchase property, etc. On the other hand, nidhis Chit funds grew at a time when banking and credit are restricted to smaller groups and accept deposits facilities were inadequate and people in general had and lend money only to member-borrowers. to rely to a large measure on indigenous sources for According to Primitive civilizations, a book written by their many productive and consumption needs. Chit Edith Jemima Simcox, the ‗Malabar Kuri‘ system funds have been meeting a part of the genuine credit existed from ancient Dravidian times and is somewhat needs of the people, both in urban and rural areas. similar to the systems in China. In China it developed In present scenario chit funds are identified as to what is popularly known today as the Chinese Cheat Funds. The state Govt. has no defined lottery. ―The concept of Chit funds came into being in guidelines to start up a chit fund so any financial the 1800‘s when Raja Rama varma, ruler of erstwhile sound group of people come together to start such Cochin State gave a loan to a Syrian trader, keeping a business. They start to serve the people as a pool of certain portion of it to himself for administrative and saving with a commitment to help in their need time other expenses. Later, to manage the increasing but slowly they start gambling with the investors by number of those seeking loans, he ordered a cast of utilizing the fund for their own benefits. As the lots and gave the accumulated amount to those who borrowing aspect of the chit fund raised, it gave drew the lot on the principle of equity. momentum to the expansion of the chit fund business A Chit fund company means a company and a new class of institutional foremen developed. managing, conducting or supervising, as foremen, The chit fund business now a days became a modern agent or in any other capacity, chits as defined in business serving the credit needs of the all categories Section 2 of the Chit Funds Act, 1982. According to of rural as well as urban people with branches spread Section 2(b) of the Chit Fund Act, 1982, "Chit means all over the country. Chit fund companies pool the a transaction whether called chit, chit fund, chitty, resources by diverting the surplus funds from one kuree or by any other name by or under which a branch to the other and maintain the liquidity properly person enters into an agreement with a specified of in order to meet the customer‘s credit requirements in persons that every one of them shall subscribe a time. With the help of these branches it runs various certain sum of money (or a certain quantity of grain chit schemes of various denominations ranging from instead) by way of periodical installments over a daily or weekly chits to help small traders and daily definite period and that each such subscriber shall, in vendors. With the crisis in the micro finance sector, his turn, as determined by lot or by auction or by chit fund companies are now eager to tap lower tender or in such other manner as may be specified in income group households. Thus, over the past year, the chit agreement, be entitled to the prize amount". chit funds of lower denomination, with a higher They have served as a medium of saving for number of participants, fuelled the growth of the many people. Chit fund is a typical indigenous industry in the southern states. financial institution peculiar to South India, particularly As there are no guidelines on the investment , and . The strategy of chit fund companies so they get freedom progenitor of chit funds in Tamil Nadu is known as to distribute the funds in any means. Particularly in Moyy Murai. The term Moyy means call money pooled rural areas the chit fund companies grow rapidly. and Murai means custom. Under this system, a group There are many reasons stand in favor of such of persons in a village or locality, known to each other growth. The chit fund companies invest the public joined together to pool their resources to meet the money for their luxury. They utilize the funds in film need of an individual of the group. There were some making, costly car, flats and gold. The unregistered well-defined needs such as celebrating marriage, chit funds invest the public money in many grey fields. buying of land, building of houses and purchasing of As a result the investors face a lot of difficulty at their cattle that were prescribed under the system. It was a need time. Finally failing upon which them attempt Sahaya-Nidhi, with a strong element of co-operative suicide. The chit fund companies design many spirit. In course of time, the term Moyy was replaced attractive schemes by showing a high rate of return by the term chit or olai (palm leaf), which was the initially. Once an investors cut in their trap they start notice of demand for payment of a member‘s exploiting. For instance, Astha International designed contribution to the pool. Later the names of the a scheme in which an investor has to invest Rs.500 members of the group were written on chits or small per month for five years and after completion the pieces of paper or palm leaf, rolled up and shuffled to return amount after 6th year will be Rs 50,000/-. If we pick out the person to whom the amount of fund was will see the rate of return is approximately 70%. The to be given. That was the origin of the chit fund. Chit rural investors blindly put their hard earned money funds resemble co-operative credit societies in some without taking a second thought. After completion of respects. Both co-operative credit societies and chit 4th year the company declared that the money funds work on the same principles of self-help and deposited in that scheme has been shifted to another mutual help. The membership is voluntary and scheme where the return rate will be little high and the members pool their resources for mutual benefit in collection month from the investors has been both the organizations. In many respects both the increased for next 4 years. This example clearly organizations are different. Co-operatives have been shows the fraud as well as the means how the chit sponsored by the Government and are given financial funds keep the investors in dark. assistance, directly as well as through Reserve Bank. The future of the registered Chit fund Co-operatives also enjoy tax benefits and companies will be affected by the frauds made by the 31

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unregistered chit funds. The deposit volumes and the The lack of Government concentration on chit membership volume will be reduced. The continuity of fund business is effecting the growth and reputation of the unregistered chit funds depend on the regulations the business. Due to Government‘s negligence many which are going to be formulated by The Securities small chit funds sprouting all over the state and and Exchange Board of India as well by the misusing the subscriber‘s funds. Some of these respective state Govt. The unregistered chit funds companies are pooling the money and winding up which will rectify their mistakes by compensating the without any notice to subscribers, because of these investors without any hesitation may survive. The companies entire industry is under question. Not only registered chit funds following the guidelines will new chit funds but also very well established chit fund survive and continue in the business. The money companies having a good track record of more than utilization policy and the products of the chit fund twenty years are also defaulting and deceiving their companies must be verified by the financial regulators customers by absconding with the money of the to provide a reliable financial assistance to the need subscribers. Crores of rupees are still unrecovered by people of the society. From time to time, the financial these companies. These companies stood as world has been rocked by stings involving multi-level obstacles in the smooth running of the chit funds. marketing companies, art funds, time-sharing If we plan to join a chit fund, it‘s best to keep off schemes and, maybe one day, a Bernard Madoff- the unregistered ones and stick with registered inspired Ponzi schemes. players of good repute. A list of registered chit funds List of Bogus Chit Fund Companies (Not in order is available on the Web site of the Ministry of of fraud.some states in notice) Corporate Affairs. Make enquiries about the chit West Bengal Odisha Tamilnadu Delhi fund‘s track record. With chit fund companies being M/s. Saradha Seashore M/s M/s unlisted, there may be little information about them in Construction Group Unipay 2U Speakasia the public domain. s Company Marketing Online Pte. Importantly, be sure about your financial ability Pvt. Ltd. Pvt. Ltd. (Unregistered) to stay the whole course, else the penalties and M/s. Rose Astha M/s Unipay M/s. Basil interest charges, and security encashment could burn Valley Real International Creative International a hole in your pocket. The loss of face will add salt to Estates Pvt Ltd Business Ltd. injury. Construction Pvt. Ltd. Objective s Ltd. The chit fund scheme, floated by the West M/s. Modern Artha Tatwa M/s Unipay M/s. Vamshi Bengal-based Saradha Group, has been in the news Investment Group 2U Chemicals recently for allegedly mopping up close to Rs 1,200 Traders Pvt. Production Ltd. crore through its bogus operations, duping gullible Ltd. Pvt. Ltd. investors. Odisha has a much more 'consistent' record M/s. Golden Green Ray M/s. M/s. when it comes to rolling out the red carpet for bogus, Life Agro International Goldquest Appeline fly-by-night chit fund companies, which lure the India Ltd. Ltd. International Cosmetics & gullible small investors promising the moon before Pvt. Ltd. Toiletries vanishing into thin air. At last the punishment goes to Ltd. the investors causing loss of life. In light of the rising M/s. Happy Swastik M/s. M/s. Basil incidents of unregulated collective investment Life Realty India Questnet Express Ltd. schemes (CIS) going bust leading to huge losses to (India) Ltd. Enterprises the public at large, the market watchdog Securities India Pvt. and Exchange Board of India (Sebi) has proposed a Ltd. separate regulator to control chit funds and nidhis. According to the Ministry of Corporate Affairs The objective of this study is to lighten the there are 4276 registered chit funds are operating in possible reasons of chit fund frauds which are the country out of which not a single chit fund happened to the investors of different parts of our company of Odisha is registered. The highest number state and to suggest possible solutions for that. The of chit fund companies belong to West Bengal. In objective is odisha besides the above companies, some are 1. To study the reasons of growth of Chit funds in Mideast, Sri Gayatri, Sunraj, SLB, Specimen, Swastik rural areas as compared to urban areas. India, Sai Kishore, Vista Credit, Evos, Rajiv Gandhi 2. To understand the financial needs of poor Memorial Multistate, Green India, Flourish India, Rose households and also to determine to what extent Vally, Utkal Multistate and Jansahyog Sahkari Credit their financial needs are met by chit funds. Society, . But data suggests that despite 3. To study the financial investment as well return laws prohibiting them, unregistered chit funds, which policy of the unregistered chit fund companies operate among members of informal networks such 4. To study the state rules and SEBI guidelines to as relatives, friends or work colleagues, outnumber protect the investors fund from unregistered chit registered chit funds by a wide margin. This poses funds. several risks to such chit fund members who may find Hypothesis themselves being short-changed and without  Inadequate banking facility and lack of adequate or timely legal recourse. ―Be safe than financial literacy opens the opportunity for chit Sorry‖ should be followed sincerely when we plan to fund investment. invest in chit funds.

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 Poor administration and loose SEBI guidelines allows to access cash when needed. Chit fund model give opportunity for growth of Chit fund is an easy and innovative method of access to finance companies. for the low income households. It caters to the needs of different sections of the society, mainly in the income generating households. Chit schemes have Scenario of Chit Funds ( INDIA) traditionally been generic, differentiating only in value After the crisis in the MFI sector especially in and duration. The need for customization of products, Andhra Pradesh, investment opportunities in NBFCs to address varied requirements of chit members, is (Non-Banking Finance Companies) have shrunk. evident. Chit funds, an indigenous savings and credit Investors are looking at alternative investment options mechanism, are prevalent in many regions of the and a chit fund is one better option of investment country. The flexibility offered by these funds to though the returns may not be as alluring as the MFI borrow and to save without much paperwork has sector. The southern states of Kerala, Tamilnadu, and contributed to its popularity. Businessmen too use chit Andhra Pradesh, where the MFI crisis got funds to meet their funding needs quickly. There is precipitated, account for 1/3rd of the chit fund industry more risk in investing in unregistered chit funds than in India. The total size of the industry in the country is registered chit funds because the unregistered chit estimated at 45,000 crore. The total number of funds do not come under the rules of the chit fund act registered companies in the country is 40,000 and the 1982. They don‘t face the audit process as a result unregistered sector is 100 times bigger than the the chances of misappropriation is more. The chit registered one. The industry grew around 20 Per cent fund industry is very prominent in five states of our last year, against a usual growth of 15-20 per cent. country viz- Tamil Nadu, Karnatak, Andhra Pradesh, Typically, these companies cater to middle-income Delhi & Kerla. Now Odisha is not far behind the list. group clients, due to the high cost of operations and Scenario of Chit Funds (Odisha) cap on revenue. Chit Funds mobilize huge amounts of Last year (2013), the frauds by so many chit small savings, and in return allow members to have fund companies of odisha, which is unbelievable access in the form of loans to lump sum amount of came into the notice of State Govt. The Saradha Chit money that they would often not be able to get from fund fraud in Balasore unlock the log of chit fund traditional banks. Easy accessibility and flexibility are scams. After wards the Odisha Govt ordered probe important aspects of this form of financing. Compared into the functioning of 15 renowned chit fund to banks, Chit Funds require less documentation, are companies. They are AT Group, Mideast, Sri Gayatri, more flexible about collateral, and allows to determine Sunraj, SLB, Specimen, Swastik India, Sai Kishore, own interest rate (within the constraints of a given chit Vista Credit, Evos, Rajiv Gandhi Memorial Multistate, scheme). A country like India, which is most Green India, Utkal Multistate and Jansahyog Sahkari predominantly agricultural country, and is being Credit Society, Microfinance. Fifteen teams industrializing itself, the trade, communications and comprising two members each have been formed to transport needs of the country are increasing on a conduct detailed inspection about the firms( on the massive scale. This situation increased the credit functioning and financial irregularities). The teams will needs of the country. The organized banking sector also look into the money deposit schemes run by the being limiting its credit to certain types of business companies. The Economic Offences Wing of CB, and under severe restrictions and conditions to extend Odisha has sealed a 3,000 sqft guest house owned credit, the credit needs of various sectors is being met by Seashore Group. The Commissionerate Police on on a large scale by the non-banking sector of the Monday had unearthed Artha Tatwa group-owned economy. Even after the nationalization of the properties worth Rs 130 crore. commercial banks and enormous branch expansion Such companies grow due to the massive the credit needs of the vendors, petty trades, poor collections they made from the rural areas. They agriculturists and the very poor sections of the opened their branch offices in rural areas of all parts economy, who need credit for a very short period of of Odisha with high salaried collection agents. The time varies from a day to a week or a month, are not company appoints local agents which works as a key met properly by the commercial banks. This untapped point to convince the investors of their locality. As a segment of the credit needs of the country and also a result the funds came to the company in one way part of the credit needs of industry and trade are met format by the agents for a fixed period. In the mean by the unorganized and individual money lending time these chit companies get ample of time to utilize facilities available in the country. The Governments the funds in different ways. credit squeezing policies to control inflation and Saradha group promoter Sudipta Sen claimed demand increased the demand for money through to have paid Rs 3 crore as ‗protection money‘ for his unorganized sector. The unorganized and the Odisha operations. The Director of AT group Pradip individual money-lending facilities supplement the Sethi claimed that he has paid a huge amount to institutional credit in the economy. The role of non- politicians of State. While the Seashore group, the banking finance companies and chit fund companies biggest of them all, is widely believed to be a front for has been increasing in serving the credit needs of the Odisha Jan Morcha leader Pyari Mohan Mohapatra, middle class and poor rural segment of the economy. Pradip Sethy of the AT group is said to have gifted Furthermore, there is no need to determine upfront expensive cars and apartments to influential ruling whether funds are used for saving or borrowing. This party politicians. The CMD of Seashore Group Mr P. is a salient feature of chit funds as it not only puts in Dash was a lecturer in a private college till a few place a disciplined saving mechanism, but it also years ago. He started his operations under the Seashore banner only in 2005 and built up an empire 33

ISSN NO.: 2321-290X RNI : UPBIL/2013/55327 SHRINKHALA : VOL-1 * ISSUE-9*MAY-2014 that has been estimated to be worth over Rs.1,000 societies, which raised money from public with crore in just seven years. There is reason to believe assurance of massive returns in a short time. But the role of the politicians in the growth of such most of these have turned out to be companies. huge scams running away with the depositors' money. Shubhranshu Lenka, the state head of the In the wake of the post-Saradha churning, the Odisha Surat-based Astha International who was motivated government is now planning a series of measures to the people by showing dreams in air. According to a protect the interests of the investors. Among them are reliable source in the Crime Branch, Sethy of the AT strengthening the EOW of Crime Branch, expediting group has named at least seven media persons as Presidential assent to the Odisha Protection of having received amounts ranging from Rs 5 lakh to Interests of Depositors (in financial establishments) Rs 25 lakh from him to buy their silence. Over 200 Bill passed by the Assembly back in December, 2011 such companies, big and small, have already been and requisitioning the services of officers of Reserve identified at last count, their cumulative ‗turnover‘ (RBI) and Securities and Exchange touching Rs 20, 000 crore as per one estimate. Green Board of India (SEBI) officials to detect cases of fraud. Ray International Limited (GRIL), promoted by Mir Analysis Sahiruddin of Balasore, alone has reportedly We find that the money circulated in the mobilised deposits of over Rs 2, 000 crore from registered chit fund industry ranges from 10 per cent gullible people spread across several states. The to 50 per cent of bank finance when compared to the company, which had forayed into various sectors, had total deposits and credits in the bank. The number of roped in cricketer Irfan Pathan as the brand chit schemes registered has been reducing over the ambassador for its apparel division and got the then years. The average percentage change in the number Health Minister Prasanna Acharya, who is now the of schemes registered from 2003 to 2006 is Finance Minister, to inaugurate its pharmaceutical approximately a negative 10 per cent. While the division. The ongoing investigation has also brought number of schemes has reduced, the total value of to the fore the lavish lifestyle the chit fund Czars used registered chit schemes increased by approximately to lead before the crackdown began. A host of BMWs, 13 per cent from 2003 to 2006. Our survey of the chit Jaguars and Mercedes Benzs have been seized and fund members shows that as much as 72 per cent of luxury villas and farmhouses sealed by the police. the members participate in chit funds for saving. Some of them have been found to have invested their Additionally, 96 per cent of the current and non- ill-gotten money in the Odia film industry. Narayan current chit fund members think that chit funds are Chandra Nayak, the promoter of Umamani Creations safe. Majority of the current and non-current chit fund which has duped investors of at least Rs 50 crore with members belong to low-income households. Our promise of land in Bhubaneswar, has produced two study also suggests that the institutional films – ‗Prema Rogi‘ and ‗Prema Adhei Akshara‘. Chit arrangements which govern the functioning of the chit fund companies like Saipragati went bust in scheme that have emerged seem to serve the interest November last year after making a cool Rs 500 crore of all participants irrespective of their socio-economic in Odisha. No wonder almost every major chit fund status. Perhaps, this could explain why this industry company with its headquarters in Kolkata has has survived for such a long period of time. operations in the state -- Saradha and Rose Valley Our findings point to the fact that though chit being the better known ones. Saradha alone has funds are an important source of finance for small raked in Rs 50 crore from investors in Balasore— businesses and low-income households in India, there which, for reasons that remain to be investigated, has has been a general exodus of low value chit schemes emerged as the chit fund capital of Odisha—and Rs from the registered chit fund market. This is mainly 15 crore in Puri. because registered chit funds find it less lucrative to In the wake of the current spotlight on the chit serve the poor due to the increased cost of operating fund business, the finance department of the Odisha such schemes imposed by the regulators. We find government has drawn up a list of about 20 that the chit fund industry addresses the savings companies which have operations in the state.The needs of people, is considered very safe and also Economic Offences Wing (EOW) began tightening the offers loans at lower interest rates than screws around it in the wake of the melt down of moneylenders. Saradha. As chit funds do not form part of collective Sectors like real estate, agriculture (it even investment schemes, SEBI cannot systematically signed a MoU with the state-owned Agriculture regulate such activities in accordance with the CIS Promotion and Investment Corporation of Odisha Regulations. Limited for food processing), insurance, IT, telecom, The present case drives home the point that retail trade, FMCG, education, hospitality, transport, while we have a robust legal and regulatory cooperatives, tourism, healthcare, entertainment machinery for administering CIS or, for that matter, and—perhaps inevitably—media are chosen by the chit funds, we must ensure that the powers given to chit fund companies as a source of investment. appropriate authorities have the necessary ‗bite‘ to The Orissa Self Help Act framed in 2001 ensure enforcement and prosecution under applicable by the BJD government was thought as a reformist laws. law that would boost the cooperative movement in the SEBI chairman U K Sinha told that there's a state. Till March 31 last year, 1,634 self-help need for separate regulator for chit funds and nidhis. cooperatives were registered with Registrar of any kind of scheme that requires raising funds from Cooperative Societies of Orissa. Of them, 979 were the public, irrespective of the number, should be credit and multipurpose self help cooperative approved and regulated by the regulator. 34

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In India, where banking penetration is still very low (40 7. Audit programs and supervision by the Income per cent of the households still remain unbanked), chit Tax Dept is essential for such companies. funds have been one of the major means of 8. A chit fund grievance cell must be initiated in multiplying money, especially in the rural parts of the each District of Odisha By Economic Offence country. wing or by the Government. 9. SEBI must declare the names of Registered Chit Findings funds which are safe for the investors. The researcher has analyzed the chit fund 10. Chit fund institutions may be prohibited from companies activities in the state of Odisha. As there is conducting any other type of business except no concrete data available regarding the financial chit business or granting of loans to subscribers policy of the chit funds due to the ongoing against their paid up subscriptions. investigation so the Hypothesis taken above could not be tested. However the information captured above 11. Chit fund companies should obtain the prior are analyzed and summarized as below. approval of the Director of Chits within whose  District administration has no control over the jurisdiction their registered offices are situated. operating of chit fund companies. The Director of Chits should take certain criteria  The rural investors put their heard earned money into account before granting permission for the due to insufficient knowledge about such opening of offices. Unincorporated bodies companies and for high rate of return in short should not be allowed to conduct business at time. more than one place.  It is seen educated and salaried individuals also 12. The duration of chits should not ordinarily invest in chit funds only because of high and exceed five years; but chits of a longer duration quick return on investment. up to ten years may be started in very special  Lack of Banking facility and poor financial cases only by chit fund companies/banks with assistance to rural people are also main reasons. the prior approval of the State Government  There is no clear instruction from the state concerned which should take into account financial secretary to the district administration to factors such as the financial position and enquiry or to report about such companies. methods of operation of the company in  The involvement of politicians, renowned persons question, interests of the prospective at the inaugural function of such companies subscribers, requirements, as to security, etc. drizzle flower on the road of success of such 13. Ceiling in respect of the aggregate amount of fraud companies. chits that may be conducted at any point of time:  The role of the local representatives of such chit The aggregate amount of chits conducted by a fund companies must be checked. chit fund company at any point of time may not  SEBI must strengthen the chit fund act and exceed 50 per cent of the net worth of company, guidelines regarding fund utilization policy, i.e.; the paid up capital free reserves less financial products of chit fund companies, audit the balance of accumulated loss and other process and many important aspects of such intangible assets such as deferred revenue companies. expenditure and goodwill, if any.  Absence of Odisha chit fund Act and absence of 14. The central chit fund act must be implemented state chit legislation are also important factors. in every state. According to this act a person  Huge communication gap between the investors who desires to set up a chit fund company and SEBI needs to deposit 100 per cent security at the Recommendations time of registration of the chit group with the After a thorough study about the activities of registrar of chits, whereas under the state chit chit fund companies and it‘s effect on the rural act one requires to deposit only 50 per cent. innocent and needy investors in Odisha the following 15. The formal paper work in Banks and registered suggestions concluded. chit fund companies delays the financing facility 1. Adequate awareness programs must be initiated to the needy customers as a result they prefer by the State Govt. in collaboration with SEBI unregistered chit funds. through district administration in rural areas Conclusion regarding the lucrative offers of chit fund Lots of unregistered chit fund companies companies. operating without any control by the Government. 2. Strict rules must be made for the administrative Because of these unregistered chit funds, Registered personnel on attending public interactive companies stopped operating small ticket schemes. programs initiated by the chit fund companies in Another reason that the established registered their locality. companies away from small value chits is high 3. Enhancement in banking facility and easy operating costs (rent of the office building, salaries to financing process for the rural people the employees, stationery, stamp duties and power). 4. The unemployed educated youths must be Because of this reason low income people educated about the registered and unregistered approaching their neighborhood unregistered chit chit fund operation. funds, where accessibility of money is even easier but 5. SEBI should initiate a Help Line to assist the very risky. Keeping the credit needs of the low income gullible investors. people, Government should take an effective action or 6. Property attachment act should be implemented pass a rule to protect the interests of the poor and quickly. safe guard their money from the hands of these 35

ISSN NO.: 2321-290X RNI : UPBIL/2013/55327 SHRINKHALA : VOL-1 * ISSUE-9*MAY-2014 foremen. The Government should provide the required facilities in the form of subsidy to the industry to conduct small value chits and encourage the chit fund industry which is so far working independently without Government‘s support. Reference 1. Chit Funds, the evolution, operational scenario, Role and Regulatory Framework 2. Chit Funds - A boon to small Enterprises By Preethi Rao (Research Associate of Institute of Financial Management and Research) 3. The co-operative movement in Odisha 4. Financial Sector in India, Regulation and Reforms 5. The Orissa Self Help Act 2001 6. Odisha Chit Fund Scenario ( Times of India) 7. 'Don't confuse 'Ponzi schemes' with chit funds' Times of India May-2013 8. SFIO recommends body to curb fraudulent chit funds, MLMs (Multi Level Marketing Scheme) The Economic Times - April 2013 9. Odisha Chit Fund Scam – The Hindu – Sep 2013 10. Orissa chit fund scam: Investigation panel gets 7 lakh petitions The Financial Express – Nov 2013 11. Odisha Chit Fund Scam – www.nuaodisha.com

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