TOPIC

CHIT FUND AN INNOVATIVE

ACCESS TO FINANCE (INDIA)


PROJECT BY
MR.SUHAIL SIRAJ SHAH


2011-2012
T.Y.BMS (SEMESTER V)
ROLL NO.4453



PROJECT GUIDE
PROF. (MR) PRASHANT KANVINDE


COSMOPOLITAN EDUCATION SOCIETY
VALIA COLLEGE OF COMMERCE,
B.sc (IT) und B.M.S.
D.N.NAGAR ANDHERI (W),
MUMBAI - 400 053

CHIT FUND
AN
INNOVATIVE ACCESS
TO FINANCE
(INDIA)

DECLARATION

I, Mr. Suhail Shah, Student of Cosmopolitan Valia C.L.
college of Commerce, B.sc. (IT) & B.M.S. studying in
T.Y.BMS. Semester V, hereby declare that, I have completed
this project on CHIT FUND AN INNOVATIVE ACCESS TO
FINANCE (INDIA) for the academic year 2011-2012. The
information given in this project is true and authentic and to
the best of my knowledge.





Signature of student

CERTIFICATE
This is to certify that the project title Chit Fund an
Innovative Access to finance (India) has successfully
completed by Mr. Suhail shah seat no.4453 student of
TYBMS Academic Year 2011-2012 of Valia C.L.College of
Commerce, Bsc.IT & B.M.S
And I hereby certify that the information and report
provided by him is true and authentic as per knowledge.



-Thank you






PROJECT GUIDE PRINCIPAL
Prof. (Mr.) Prashant Kanvinde Dr.Vinayak.D.Paralikar


ACKNOWLEDGEMENT


It has been said that success has not been individual efforts.
Hence it would be a pleasure to take this opportunity to express my
gratitude to all those who contributed directly or indirectly in the process
of completing this project.
I would like to acknowledge Valia C.L. College of Commerce,
B.sc (IT) & B.M.S. with due respect for giving me an opportunity to
work on this topic of my interest. It was a thoroughly learning experience
to work on the project under the guidance of Prof. (Mr.) Prashant
Kanvinde, I would like to thank him for valuable suggestions and
guidance that helped me complete the project.
The information presented in this project is true and accurate to the
best of my knowledge. The complete process of analysis and study has
added value to my knowledge base. It has helped me to understand the
importance of Chit Fund as an Access to Finance (India)
I would like to express my gratitude towards my principal Dr.
Vinayak .D. Paralikar for his support provided to the BMS students. I
would also like to express my gratitude towards my parents and GOD for
their previous blessing and all the sources that helped me in the collection
of the primary data for this project.
Finally a special thanks to our college library and librarian for
providing various books to help me in this project.
EXECUTIVE SUMMARY
Chlt Funds ure lndlgenous flnunclul lnstltutlons ln Indlu thut cuter
to the flnunclul needs of the low-lncome households, whlch huve been
excluded from the formul flnunclul system. It ls u mechunlsm thut
comblnes credlt und suvlngs ln u slngle scheme. In u chlt fund scheme,
u group of lndlvlduuls come together for u pre-determlned tlme perlod
und contrlbute to u common pool ut regulur lntervuls. Every month, up
untll the end of the tenure of the scheme, the collected pool of money
ls louned out lnternully through u blddlng mechunlsm to the most
deservlng member. Thls wuy, people who ure ln need of funds und
those who wunt to suve ure uble to meet thelr requlrements. An
lnterestlng uspect of Chlt Funds ln Indlu ls thut the lndustry ls hlghly
reguluted und lnstltutlonullzed.
In order to understund the lntrlcucles of the Chlt Fund model ln
Indlu, studled the slze of the reglstered Chlt Fund lndustry, how lt
serves the members, whut ls the cost of funds und flnully whut ls the
slze of lts unreguluted counterpurts.
We flnd thut the money clrculuted ln the reglstered Chlt Fund
lndustry runges from 10% to 50% of bunk flnunce when compured to
the totul deposlts und credlts ln the bunk. The number of chlt schemes
reglstered hus been reduclng over the yeurs. The uveruge percentuge
chunge ln the number of schemes reglstered from 2003 to 2006 ls
upproxlmutely u negutlve 10%. Whlle the number of schemes hus
reduced, the totul vulue of reglstered chlt schemes hus lncreused by
upproxlmutely 13% from 2003 to 2006. Our survey of the Chlt Fund
members shows thut us much us 72% of the members purtlclpute ln
Chlt Funds for suvlng. Addltlonully, 96% of the current und non-current
Chlt Fund members thlnk thut Chlt Funds ure sufe. Mu|orlty of the
current und non-current Chlt Fund members belong to low-lncome
households. Accordlng to our deflnltlon of poverty (less thun USD 1.25
u duy), on un uveruge 50% of the Chlt Fund members full below the
poverty cut off.
We ulso flnd thut there ls no dlfference ln blddlng behuvlor
between the poor und the rest of the populutlon meunlng thut the poor
cleurly understund the Chlt Fund mechunlsm. Moreover, lt ulso
suggests thut the lnstltutlonul urrungements whlch govern the
functlonlng of the chlt scheme thut huve emerged seem to serve the
lnterest of ull purtlclpunts lrrespectlve of thelr socloeconomlc stutus.
Perhups, thls could expluln why thls lndustry hus survlved for such u
long perlod of tlme. Our unulysls of the blddlng dutu shows thut the
uveruge loun lnterest rute runges between none (when the member ls u
suver ln the scheme und does not bld) up to 3.5% per month for u 25
month scheme. Usuully the lnterest rute peuks when upproxlmutely
1/3rd to 1/4
th
of the tenure ls over.
Thls ulso reflects our flndlng thut 72% of the members purtlclpute
for suvlngs. Our estlmutes ln two mu|or metropolltun ureus suggest thut
on uveruge the slze of unreglstered Chlt Funds ls ubout 67 tlmes of the
reglstered lndustry ln Delhl und 3.1 tlmes ln Chennul. In the rurul
ureus, the proportlon of unreglstered to reglstered Chlt Funds mlght be
much hlgher. The results of the reseurch huve been eluboruted ln the
forthcomlng sectlons. Our flndlngs polnt to the fuct thut though Chlt
Funds ure un lmportunt source of flnunce for smull buslnesses und low-
lncome households ln Indlu, there hus been u generul exodus of low
vulue chlt schemes from the reglstered Chlt Fund murket. Thls ls
mulnly becuuse reglstered Chlt Funds flnd lt less lucrutlve to serve the
poor due to the lncreused cost of operutlng such schemes lmposed by
the regulutors. We flnd thut the Chlt Fund lndustry uddresses the
suvlngs needs of people, ls consldered very sufe und ulso offers louns
ut lower lnterest rutes thun moneylenders.

INDEX

Sr No. TOPIC Page No.
1. INTRODUCTION 1
2. EVOLUTION OF CHIT FUND 3
3. WHAT IS CHIT FUND? 5
4. HOW DOES CHIT FUND WORK? 7
5.
GENERAL CHARACTERISTIC OF CHIT
FUND
9
6. WHY SHOULD ONE GO FOR CHIT FUND? 12
7. REGISTERED v/s UNREGISTERED 13
8. REGULATION 13
9. DEFAULTS HOW THEY ARE HANDLED? 17
10.
CHARACTERISTIC AND NEED OF CHIT
PARTICIPANT.
18
11. AUCTION IN CASE OF LOAN 20
12.
SOURCE OF INCOME TO CHIT MANAGER 21
13.
USE OF CHIT MONEY 22
14. CHIT FUND & SMALL BUSINESS 23
15.
SCOPE FOR FUTURE RESEARCH AND
PRELIMINARY FINDINGS
24
16.
CONCLUSION 28
17.
CASE STUDIES 30
18.
BIBLIOGRAPHY 33
18
APPENDIX 34
19
GLOSSARY 37