In the south,there are are some remarkable,and legitimate,success stories in chit funds
Every dubious finance scheme continues to be called a chit fund by a large section of the media. Genuine chit fund companies are justifiably upset about this. Chit funds have existed in this country since pre-Independence times and are a precursor to self-help groups. The well-known names started small,have grown big over the years,followed tight rules and regulations,and have continued to survive and do well. Registered chit funds come under the chit fund act of 1982.
Chit funds were pioneered in the south,much before commercial banks made their entry,and have been operating in semi-urban and rural areas. When banks were nationalised in 1969,they were expected to bring about inclusive banking. Institutions like chit funds were expected to fade away. However,chit funds continued to flourish till the RBI laid down strict regulations. They still fill the credit gap wherever people do not have access to bank credit,given that banks do not have the infrastructure or expertise to go to every nook and corner of the country to provide banking facilities. This is why non-banking financial institutions (however shady many of them have been) continue to operate.
There have been some remarkable success stories in chit funds. Take the example of Andhra Pradesh-based Margadarsi Chit Funds,which celebrated its golden jubilee last year. It was founded in 1962 by Ramoji Rao in a small office with a staff of two. Today,it has 103 branches in Andhra,Karnataka and Tamil Nadu. Its turnover for 2012-13 was Rs 7,200 crore. It has 4,300 employees,with over four lakh subscribers. Most of our members are repeat customers who have been with us for the last 20 to 30 years. Our oldest subscribers make sure that their children save with Margadarsi,to meet their future financial needs. The majority of them want to save with us and are not in a hurry to withdraw their funds. That is the kind of trust that Margadarsi has built up over 50 years, says Sailaja Kiran,the chit funds managing director,daughter-in-law of the founder.
Chit funds are a cheap and easy source of funds for low- and middle-income people. There is a lot of financial discipline when you save through chit funds. Our subscribers have acquired properties,built homes,educated their children,conducted weddings of their children and made retirement plans with Margadarsi, she says. Margadarsi is a totally law-abiding company. We strictly follow the chit fund rules of the states we operate in. We are absolutely conscious of the fact that we are handling public money and are liable to make the payments every day to the members. We see ourselves as the custodians of public money. We exercise caution in every operation to remain totally transparent. We cannot delay our commitments to our members.
As stipulated by the chit fund act,if a member does not draw the bid within 30 days,Margadarsi transfers the funds into a separate account,where it remains until withdrawn by the member,subject to the submission of satisfactory sureties and documentation. These are essential for prompt recovery from members in case of default and court cases. Kiran feels that the government should take strong action against unregistered operators and firms taking public deposits by offering high rates of interest and benefits,which is a recipe for disaster. Not every chit fund operator takes deposits. Chit funds enable people to borrow at a much lower rate of interest compared to the private operators,who are known to be charging 3-5 per cent per month. Margadarsis profit margins are only about 1.5 per cent, according to Kiran. Margadarsi has continued to do business with its cautious approach in selecting members,being absolutely rigid in the documentation and security which has to be produced when it comes to bid payments. It has a record of 100 per cent recovery, she says.
Ramoji Rao started with Margadarsi Chit Funds. Today,he has built a huge empire and is a media baron. He started the Telugu daily,Eenadu,ETV cable channels (a substantial share of which he subsequently sold out to Reliance media),is involved in film production,hospitality and food,among other things. The Ramoji Rao Film City in Hyderabad is the largest in Asia. Although he keeps a low profile,it is well known that he was close to Chandrababu Naidu,and his newspapers and TV channels played a major role in the Telugu Desam Partys election victories.
When the Congress came back to power in Andhra,then chief minister Y.S. Rajasekhara Reddy did his utmost to bring about the downfall of Raos business empire. YSRs son,Jagan,launched the Sakshi group of newspapers and TV channels,which is doing very well,to take on the Eenadu group. But this didnt touch Margadarsi. In spite of Raos media and political activities,the chit fund company has not been tainted by scandal. Margadarsi members have stood solidly behind it. It must be doing something right.
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