26 April 2008
Registration of a chit scheme entails numerous fee payments and other formalities, such as filing of returns, maintaining minutes of the meeting, auditing of accounts and so on, that need to be satisfied by the chit manager. The Registrar of Chits of a particular jurisdiction is responsible for registering the chit funds in that jurisdiction. As a first step in the formation of a group or scheme, prior sanction needs to be obtained from the Registrar. The prior sanction is granted at the filing of an application and at the payment of fees of Rs.50. Subsequently the company needs to file a chit agreement with every member in that particular group. The fee for the purpose is around Rs.20 per member. Once the chit agreement is filed and approved, the certificate for commencement of the scheme is issued. The chit manager needs to deposit 100% of the chit value with the Registrar prior to the commencement of the scheme. This deposit will be refunded to the chit manager on the successful completion of the chit cycle. Normally, in the first month of each scheme, there will be no auction, and the amount collected from the members would be taken by the company to compensate for the deposit made. However, as this would be considered unfair to the members (who will lose the entire contribution in that particular month) the chit manager also takes part in the group and makes regular monthly contributions to the scheme. Therefore, in essence, the chit manager is the bidder in the first month who takes a loan to make the deposit.
26 April 2008
The registration process generally takes around two months to complete. There is no subsequent requirement for renewal of the registration. Once the scheme commences, thechit manager has to file the minutes of each auction with the Registrar every month along with a fee of around Rs.4. Other costs of registration include fees payable on transfer of membership and on any other filing requirement that may arise during the course of the scheme. The total quantum of fees to be paid by a chit manager was raised by 200% in 2003 by the Tamil Nadu Government’s order ’Revision of Fees under Chit Funds Act, 1982’.9 A registered chit fund needs to have its accounts audited by a qualified Chartered Accountant. The fixed deposit made at the beginning of the scheme will be refunded only on the submission of the audited Balance Sheet and Statement of Accounts. The Act also requires all registered chit funds to impose a 30% (now increased to 40%) cap on the bidding amount. This 30% (or 40%) is calculated on the chit value of the scheme. This bid-cap is administered to ensure that the bid does not rise uncontrollably leading to subsequent default by the bidder. The minimum bid is restricted to 5% of the chit value which is the foreman’s commission. According to the chit managers, the registration of chit funds ensures more transparency and accountability in its operations, which in turn helps to boost the confidence of the members. The risk involved in a registered chit fund is far less than in an unregistered fund, even though the cost involved is higher. And of course, in case of defaults by the parties involved, there is the possibility of legal recourse. More importantly, registration of chit funds leads to more revenue for the exchequer.
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