shiney c n

CHIT FUNDS; AN ALTERNATIVE SOURCETO LOAN - A COMPARATIVE STUDY OF

CHIT FUNDS WITH CONSUMER LOANS INKERALA

Minor Research Project Submitted By

SHINEY C.NASSISTANT PROFESSORMES ASMABI COLLEGE,

P.VEMBALLUR, KODUNGALLUR,THRISSUR DIST

KERALA

Submitted toThe University of Grants Commission

South West Regional OfficeBangalore

CERTIFICATE

This is to certify that Smt. Shiney C.N., Assistant Professor,

PG Department of Commerce, MES Asmabi College,

P.Vemballur, Kodugnallur has carried out the project entitled

“Chit funds; an alternative source to loan - a comparative

study of chit funds with consumer loans in Kerala”

undertaken by a minor research project under UGC. This

project is an independent work and does not constitute part of

any material submitted for any project.

Principal

Place : P.Vemballur MES Asmabi College,

Date: P.Vemballur, Kodungallur

Thrissur, Kerala

DECLARATION

I, Shiney C.N, do hereby that this written account entitled “Chit

funds; an alternative source to loan - a comparative study of chit

funds with consumer loans in Kerala” is a bonafide record of

research work done by me. I also declare that the minor research

project report has not been submitted by me fully or partly for the

award of any degree, diploma, title or recognition before.

Shiney C.N

Date:

ACKNOWLEDGEMENT

The project titled “Chit funds; an alternative source to loan - a

comparative study of chit funds with consumer loans in Kerala” is a

minor research project work done under UGC.

First of all I would like to express my sincere and profound

gratitude to God Almighty for making this project a reality.

I take this opportunity to thank Dr. K. Shaji, Principal in charge,

MES Asmabi College, P.Vemballur for his constant encouragement,

guidance & invaluable support throughout the course of this project are

being thankfully acknowledged. I am also grateful for his moral support

in taking much interest in this project.

I express my gratitude to Sri. K.A. Abdul Kalam (Head of the

Department, PG Department of Commerce), Dr. K.P. Sumedhan & and

other faculty members of the commerce department for their valuable

support and guidance. I am also greatful to Ramisha K.C, Research

scholar for her valuable advise and support.

I express also my gratitude to the Librarian MES Asmabi College,

P. Vemballur for providing me the library facilities.

I would also like to express my sincere gratitude to my family and

all my friends for their love, affection, co-operation & support throughout

my project work period & making this project successful.

Shiney C.N

LIST OF TABLES

TABLE

NO.

TITLES PAGE

NO

Table

4.1

Age wise classification of Respondents

Table

4.2

Gender wise classification of respondents

Table

4.3

Religion wise classification of respondents

Table

4.4

Marital Status wise classification of respondents

Table

4.5

Educational Qualification wise classification of respondents

Table

4.6

Occupation wise classification of respondents

Table

4.7

Monthly Income wise classification of the respondents

Table

4.8

Monthly Expenditure wise classification of the respondents

Table

4.9

The factors influencing the respondents to take chitty

investment

Table

4.10

The type of chitty, selected by the respondents

Table

4.11

The period of chitty selected by the respondents

Table

4.12

The nature of chitty, selected by the respondents

Table

4.13

The purpose of taking chit investment by people

Table

4.14

The approach of respondents towards saving mentality after

taking chitty

Table

4.15

Daily collection system, easy payment etc. Influences the

respondents to take chitty

Table

4.16

Satisfaction of respondent by taking chitty

Table

4.17

The details regarding the return from chit fund

Table

4.18

The popularity of chitty influences the respondent to take

chitty

Table

4.19

Any benefit received from chitty to the respondents

Table 4.20 Whether the chit funds are formulated according to the needs of

the people

Table 4.21 Comparison of chit funds with SBI car loan at an interest rate of

10.45%.

Table 4.22 SBI pre owned car loan upto 3 years at an interest rate of 16%

Table 4.23 SBI pre owned car loan 3-7 years at an interest rate 16.5%

Table 4.24 Used car loan (Upto 3 years) At an interest rate of 17.25%

Table 4.25 Comparison between chit fund auction and SBI loan.

Comparison of chit funds with consumer loan 13.5% x press

credit (full check off)

Table 4.26 Comparison of chit funds with consumer loan 14.5% x press

credit Partial check off (14.5%)


credit No check off (15.5%)


credit Loan against NSC (14.5%)

LIST OF CHARTS

TABLE

NO.

TITLES PAGE

NO

Chart

4.1

Age wise classification of Respondents

Chart

4.2

Gender wise classification of respondents

Chart

4.3

Religion wise classification of respondents

Chart

4.4

Marital Status wise classification of respondents

Chart

4.5

Educational Qualification wise classification of respondents

Chart

4.6

Occupation wise classification of respondents

Chart

4.7

Monthly Income wise classification of the respondents

Chart

4.8

Monthly Expenditure wise classification of the respondents

Chart

4.9

The factors influencing the respondents to take chitty

investment

Chart

4.10

The type of chitty, selected by the respondents

Chart4.11

The period of chitty selected by the respondents

Chart4.12

The nature of chitty, selected by the respondents

Chart

4.13

The purpose of taking chit investment by people

Chart

4.14

The approach of respondents towards saving mentality after

taking chitty

Chart

4.15

Daily collection system, easy payment etc. Influences the


Chart

4.16

Satisfaction of respondent by taking chitty

Chart

4.17

The details regarding the return from chit fund

Chart

4.18

The popularity of chitty influences the respondent to take

chitty

Chart

4.19

Any benefit received from chitty to the respondents

Chart 4.20 Whether the chit funds are formulated according to the needs of

the people

Chart 4.21 Comparison of chit funds with SBI car loan at an interest rate of

10.45%.

Chart 4.22 SBI pre owned car loan upto 3 years at an interest rate of 16%

Chart 4.23 SBI pre owned car loan 3-7 years at an interest rate 16.5%

Chart 4.24 Used car loan (Upto 3 years) At an interest rate of 17.25%

Chart 4.25 Comparison between chit fund auction and SBI loan.



Chart 4.26 Comparison of chit funds with consumer loan 14.5% x press






TABLE OF CONTENTS

CHAPTER

NO

TITLES PAGE

NO

1 Introduction

2 Review of literature

3 Chit fund; an overview

4 Data analysis section A

4 Data analysis section b

5 Findings, suggestions & conclusion

References

Appendices

CHAPTER I

INTRODUCTION

INTRODUCTION

Chit funds are indigenous financial institutions in India that caters to

the financial needs of low-income house holds, which have been excluded

from the financial system. It is a mechanism that combines credit and savings

in a single scheme. In a chit funds scheme, a group of individuals come

together for a predetermined time period and contribute to a common pool at

regular intervals. Every month, until the end of the tenure of the scheme, the

collected pool of money is loaned out internally through to the most deserving

customer.

An interesting aspect of chit funds in India is that industry is highly

regulated and institutionalized. People considered chit funds are very safe and

also offers loans at lower interest rate than money lenders. In the case of prize

money, maximum reduction possible is 25% as per prevailing Chitty Act and

if there are more than one subscriber interested in bidding at 25% reduction,

the number of such bidders will put to draw.

Many of the people take consumer loans for the purchase of consumer

durables without comparing its interest with chit funds. In Kerala, there are a

number of chit funds companies are successfully run their business and

participated in the financial development of the state. Many of the public &

private chit companies were operated through out the whole districts of

Kerala.

More than 60% of population invested in chit funds and meet their

financial requirements through it. In the case Thrissur district, Cultural city of

Kerala, there are number of chit companies operating and it is the birth place

of most of the chit companies and people started investing in chitties to meet

their specific needs.

In Thrissur district, the financial status of the house holds can also be

measured in terms of their investment in chitties. The salient feature of chit

funds is that legal formalities for getting fund are much lower than that of

commercial loans. Hence it will be worthwhile to make a comparative study

on chit funds and consumer loans in Kerala.

STATEMENT OF PROBLEM

The study focuses on the following important problems.

Many of the consumers, particularly low-income households purchase

consumer goods, hence it will be worthwhile if a separate study is carried out

to examine whether the chit funds are an alternative source to loan or not

particularly low-income house holds purchase consumer durables by taking

consumer loans at a high interest rate and they are not able to repay the loan,

even the interest amount. So the consumer loans become a burden to the house

holds. Hence it is worth while to make a comparative study on chit funds and

consumer loans.

NEED AND IMPORTANCE OF THE STUDY

Today’s environment is mainly characterized by the people who make

bulk purchase of consumer durables by the pressure of advertisement and

other promotional tools purchase it by taking loans from financial institutions.

Without considering interest. Hence it is more useful in the present scenario to

make a comparative study of chit funds and consumer loans in Kerala.

OBJECTIVES OF THE STUDY

1) To find out whether the chit funds are an alternative source to loan.

2) To find out whether the chit funds provides an adequate source of

finance to customers.

3) To find out whether the chit funds are formulated according to the

needs of the consumers.

METHODOLOGY

In order to achieve the objectives of the study, both primary and

secondary data were collected. Primary data were collected by using well

structured questionnaire from 100 chit costumers in Thrissur, Malappuram,

and Kozhikode Districts. Customers were selected by using convenient

sampling method. Secondary data were collected from KSFE, SBI, other

financial institutions, journals, books, websites and other magazines.

Data collected were analysed by using percentages, tables and charts.

SCOPE OF THE STUDY

The study deals with the chit funds which can be considered as the

financial opportunity for low- in-come households. Chit funds half to increase

the standard of living of people. The study covers the whole districts of Kerala

but the main focus is given to Thrissur, in which number of Pvt. & public

companies is operated.

LIMITATIONS OF THE STUDY

1) The study is an exploratory one. So the solutions may not be generalized.

2) The study covers only the state of Kerala especially focusing on Thrissur,

Kozhikode & Malappuram district. So it does not represent the nation.

SCHEME OF THE REPORT

1) Introduction

2) Review of literature

3) Chit Fund; An Overview

4) Data analysis

5) Findings, Suggestions and Conclusion

CHAPTER II

REVIEW OF LITERATURE

REVIEW OF LITERATURE

1. According to Mudit Kapoor, Antoinette Schor and Preethi Rao, in their

study chitfunds an innovative access to finance for low income

households, “reveals that chit funds are important source of finance for

small business and low income households in India. According to

survey 72% of the members participate in the chit fund savings.

2. According to Dr. Peer Smets, in their study “Rosca as a source of

housing finance for the urban poor : an analysis of self help practices

from Hyderabad , India reveals that

a. Chit funds are the only source of housing finance for 9.3% of the

slum population

b. Other items in their portfolio includes own-savings, moneylenders,

borrowings from friends and relatives and gift and dowry received

3. According to Tinothy Besley and Alec R Lovenson(1995) in their

study “ The role of informal finance in household capital accumulation

evidence from Taiwan “ – Rosca the informal saving system among

households will create a huge amount of finance creation which may

alternatively lead to meet the expenses ranging from household

expenses to house construction expenses. This study intimately reveals

that in Taiwan people are using chit like savings for shelter.

A few empirical studies have been conducted to examine the trend in the

growth of KSFE. A study especially with a time reference the post reform

period growth of KSFE is rather scarce in compared to other chitfund studies.

1. Narasimham Committee recommendations itself stated that it aims to

strengthen the Indian Financial System in to globally competitive and an

efficient booster of development (1998). This second generation financial

sector reforms have introduced a lot of measures in order to strengthen

existing financial instruments and institutions, which led to the sluggish

growth of chitfund in kerala. Thus the slogan of ‘continuity with change’ has

brightened with the development of a numerous micro financing institutions

rather than the chit fund companies.

2. Another study of Sallya mma job (2001) concluded that the role of chit fund in

the value of financial system in Kerala is higher especially during the pre-

reform period. Traditionally the ‘Kuries’ were the large source of capital for

the agrarian villages of kerala, which squeezed with the hands of local monely

lenders. Thus the growth of chitfunds during the pre-reform period have

shown a bullish trend. Her study gives a surprising result that the growth of

chit fund during the post reform period have shown bullish trend. Her study

gives a surprising result that the growth of chit fund during the post reform

period shows a declining trend or sluggish trend in the response to the pre-

reform period. But in contrast to this, she further examines that the KSFE has

shown tremendous growth in its chit business during the post reform period.

3. The study of Preethi Rao found the regulatory hurdles that chit companies face

due to the stringent rules proposed by the Government progressively; have

been a setback to the growth of the industry. The effect of the increased casts

of operations for the registered chit companies has been to push these

companies ‘underground’. Further this study accepts the chit funds as a very

good tool for financing the activities of small business.

By analyzing various articles and research papers, it is found that there

is no extensive study has been conducted to know whether chit fund is an

alternative source to loan and and to know the perception and satisfaction of

customers towards chitfund alternatives.

CHAPTER III

CHIT FUND; AN OVERVIEW

CHIT FUND; AN OVERVIEW

A chit fund is a kind of savings scheme practiced in India. A chit fund

company means a company managing, conducting or supervising, as foreman,

agent or in any other capacity, chits as defined in section 2(b) of the Chit Fund

Act 1982. According to section 2(b) of the Chit Fund Act 1982, “chit means

a transaction whether called chit, chit fund, chitty, kuri or by any other name

by or under which a person enters into an agreement with a specified number

of persons that every one of them shall subscribe a certain sum of money (or a

certain quantity of grain instead) 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 by tender or in such other manner as may be specified

in the chit agreement, be entitled to the price amount.

The basic principle underlying the chit fund is accumulation of saving.

The operation of chit fund business involves enrollment of members,

disbursement of bid payable amount and recovery of monthly installments.

The sole purpose of chit is to help an individual or an organization to build

wealth and create a buffer in times of needs.

Origin of chit fund

This indigenous financial institution had its origin in the state of Kerala

as grain chit, centuries back. ‘Chit’ means a written note on a small piece of

paper. In Tamil language, it is known as ‘chits’. The ‘chits’ is a derivative, the

root being the ‘lot’. The chit fund business is administered by the respective

state governments through the offices of the registrar of chits. The chit fund

companies are exempted from the requirements of registration under the RBI

Act. However the deposit acceptance activities of these companies are

regulated under the miscellaneous non-banking company’s directions, and

those relating to the advertisement for soliciting deposits are governed by the

non-banking companies (Advertisement) Rules, 1977 framed by the

government of India under section 58 A of the companies Act, 1956.

History of chit fund

Chit fund evolved years ago when the present system of banking did

not exist. Few families in a village would get together to form a chit save

money and to avail of loan amongst the group formed. Origin of chit fund is

linked with Portuguese missionaries from china, who visited Muziris

(kodungallur) for evangelization and established a seminary at Vypeencotta

village in 1577. The modern operation of chit fund started between 1830 and

1835 when Chaldran Syrian Church in Thrissur started kuries under its name

and issued pass book to subscribe as evidence of enrollment.

It is said that the chits are more advantageous as they require less

collateral and documentation. Chit amount is collected from the participants at

their door step on a flexible basis when the participants able to pay, the

business man also find it more useful for easy money rotation than bank loan

and the chit the only financial product that allow to save and borrow.

According to all Kerala kuri foremen’s association, Kerala has around

5000 chit companies with Thrissur District accounting for the maximum of

3000. These chit companies provide employment to about 35,000 persons

directly and equal number indirectly.

Advantages of chit business

Creates regular saving mentality.

High return of investment as auction discount.

Easy and flexible procedure.

Chit fund investments are not affected by any market fluctuations.

Finance options through chit funds are easier to re-pay through the

remaining monthly installments.

Features of chit fund

Chit funds have the advantage both for saving a need and as an

investment. Money can be readily drawn in an emergency or could be

continued as an investment.

Interest rate is determined by the subscribers themselves, based on

mutual decisions and varies from auction to auction.

The money that chit holders borrow is against their own future

contribution.

The amount is given on personal sureties too, unlike in banks and other

financial institutions which demand a tangible security.

Chit funds can be relied upon to satisfy personal needs. Unlike other

financial institutions chit holders can drawn upon their chit fund for

any purpose i.e. marriage, religious functions, and medical expenses

etc.

Cost of intermediation is the lowest.

Types of chit funds in India

Chits run by State Governments:

Some chit funds are run by State Government. For instance, the Kerala

State Financial Enterprises (KSFE) and Mysore Sales International Limited

(MSIL) are PSUs that run the chit fund business in clean and transparent

manner.

Private Registered:

There are a number of registered chit funds, some run by prominent

business houses like the Hyderabad based Margadarsi chit fund, part of the

Ramoji Rao group, or the shriram chits of the Shriram Group. Some co-

operatives societies also run chits.

Unregistered:

Though not legal, there are many unregistered chit funds. These should

be avoided there is no recourse for the member; such chit funds usually

include close friends, colleagues or neighbours.

Online chit fund:

With the advent of e-commerce in India, chit funds have also started

going online. Online chit funds conduct auctions online and subscribers can

pay their monthly dues and receive price amount online through online

transactions including electronic fund transfers. Each member will have an

online account through which they can manage their chit funds.

Acts

Chit funds in India are governed by various state or central laws

organized chit fund schemes are required to register with the registrar or firms,

societies and chits.

Union Government : Chit funds act 1982(except the state of Jammu &

Kashmir).

Kerala : Kerala chitties act 1975.

Tamil Nadu : Tamil Nadu chit fund act1961.

Karnataka : The chit funds (Karnataka) rules 1983.

Andhra Pradesh : The Andhra Pradesh chit funds act 1971.

New Delhi : The chit funds act, 1982 and Delhi chit funds rules

2007.

Maharashtra : Maharashtra chit fund act 1975.

Uttar Pradesh : Uttar Pradesh Chit funds Act, 1975

Goa, daman & Diu : The Goa, Daman and Diu chit funds Act, 1973

Pudducherry : The Pondicherry chit funds Act, 1966

With the collapse of big chit companies in the early seventies, the

government of India constituted a special committee to undertake the study of

chits, its implications and benefits or problems to the Indian economy. On the

recommendation of this committee a special chit act 1982 by the Parliament of

Union Government. In Karnataka this Central Chit funds Act was promulgated

in 1984 along with the chit fund (Karnataka) Rules 1983. Under the chit fund

Act, this industry has been highly regulated and is governed by stringent rules.

This institutionalization of the chit funds.

a. Makes it easier for poor or illiterate people to know exactly what

different chit schemes the chit companies offer,

b. Provides an option to people to participate in schemes where members

need not know each other; hence there is a larger diversification of the

idiosyncratic risks. This makes it easier to provide chit schemes in

urban settings where social linkage among members might be weak,

c. To some extent ensures transparency in the operations;

d. Given that the law determines the size of the bidding and the

commission the company can charge, it encourages competition among

chit fund firms to improve services to clients, and

e. Legal recognition also helps the chit fund operators to scale their

operations.

Most of the provisions of the Central Act apply to the chit funds run in

different parts of India. However, the state Acts may override certain

provisions as deemed necessary. For instance, the Andra Pradesh chit fund Act

1971 had previously required the chit managers in that state to deposit only

50% of the chit value with the Registrar of chits prior to the commencement of

the chit scheme. This provisions has been amended recently with the adoption

of the provisions from the Central Act that requires 100% deposit from chit

managers. Similarly, The Kerala Chitties Act was amended recently to include

a provision which stipulate that companies can float chit schemes only

amounting to 50% of the foreman’s asset, whereas other states that adopt the

Central Act, companies are allowed to float chit schemes upto 10 times the

foreman’s assets. The Kerala Act also imposes other stringent rules that have

resulted in many companies registering themselves outside the state (primarily

in Jammu and Kashmir where the Central Act does not apply). One should

also note that in states which do not enact a State Chit Fund Act, the Central

Act automatically prevail.

Chit fund model is an innovative method of access to finance in low

income households, which could turn their fates other way if they manage to

utilize it correctly. This has been proved by the state of Kerala, where chit

funds are the most popular. People not only contribute their on benefits, but

also they do it for the society’s welfare. Due to the immense popularity from

the pre-independence era, the state government of Kerala constituted a public

sector non-banking financial company, Kerala State Financial Enterprises Ltd.

In 1969 mainly to regulate and cater the needs of the residents investing or

interested in investing in chit funds. It’s head office is in Thrissur. According

to Reserve Bank of India, Thrissur in the 1930s boasted of head offices of 58

banks and was recognized by RBI as Banking town. Prior to 1975, leading

Thrissur headquartered scheduled banks like Catholic Syrian Bank Limited,

South Indian Bank, Dhanalakshmi Bank and erstwhile Kodungallur-based

Lord Krishna Bank conducted chit fund for subscribers. Most of these banks

have now a national presence and are much more financially stable than

earlier. The rapid growth in the business saw enactment of Cochin Kuries Act,

1932 and Travancore Kuries Act, 1945, besides a uniform law for the state-

Kerala Chitties Act, 1975, being enforced since August 25, 1975. However,

the Kerala Government has exempted its state-owned Kerala State Financial

Enterprise, the only government owned chit company in India, from the

purview of this act. According to all Kerala Kuri Foreman’s Association,

Kerala has around 5,000 chit companies, with Thrissur district accounting for

the maximum of 3,000. Besides providing relief to that class of public, these

chit companies also provide employment to about 35,000 persons directly and

an equal number indirectly.

In the State of Kerala, the major players in chit business are the

primary co-operative banks and Kerala State Financial Enterprises Ltd. After

the formation of Kerala State, a coordination of the co-operative societies act

was passed in 1969, which came into being with effect from 15.5.1969. the

Governance of co-operative Banks in Kerala is based on the three-tier system,

viz, the Apex Society, the DCB and Primary Credit Societies. There are more

than 1200 primary co-operative banks in Kerala, 14 District co-operative

banks and an Apex Bank known as the Kerala State Central Co-operative

Bank, situated in Thiruvananthapuram, the capital city of the state.

Different Methods of Chitties

The chit funds system as it originated was “grain chit” or “Dhaanya

chit” where the chit capital was a certain measure of grain grown locally. The

subscribers in such cases personally took the periodical contributions to the

house of the foreman who acted as a passive honorary president and the prize

was disbursed immediately after the drawing of lot. The “Grain chit” or

“Dhaanya chit” became popular among women, even without the knowledge

of the men at home. Many housewives joined the chits and paid the

contributions by sparing a fistful of rice from everyday meal. When the prize

accrued, the prize winner mostly sold the quantity of rice either to the foreman

himself or to others and got money instead and finally invested it in gold.

Later on, a new class or women promoters emerged and started weekly and

monthly chits, extending for a short period, and introduced them to neighbours

of their own rank.

a. Lot Chit or Simple Chits

A member is selected from among the eligible members on the basis of

lot. In this method, chance plays a crucial role and a member who has interest

in taking the prize amount at a particular installment may not get it. The

member, who gets the prize amount in the initial period of chit, can earn

interest on it for the remaining period of chit compared to one who gets it last.

Because of these drawbacks, lot chits became unpopular and gave way to

auction chits or auction-cum lot chits. As chits proved profitable, more and

more promoters came forward and the number of chits multiplied chits was

introduced among Christians. It might have spread to other Christian centers.

The chit was initiated originally to help members of the church who were in

financial distress. Thus in the villages around, several churches started chits. It

is the popularity as well as the experience that inspired independent ventures

in chits.

b. Business Chits

Business chits is capital, less of foreman’s commission is kept open for

bidding. The members present or by proxy, offer discount on the amount and

the one who offers the highest discount (or accept the lowest prize amount) is

declared the prize winner. It becomes possible for needy members to bid for

an amount depending upon the urgency of their need. Auction chits are highly

beneficial to business men who need credit. By joining an auction chit of their

choice and paying subscription for one or two months, they can bid for a fairly

big sum. The difference between chit capital and the bid amount is distributed

as dividend to the members –both prized and non-prized. When more than one

member offers the ceiling rate, there would be a draw among such members to

decide the prize-winner. The auction chits are also known as Business chits.

c. Tender Chits

The members wrote their name and the discount amount in the

prescribed tender form, seal it and hand it over to foreman on the day of

tender. The tenders are open in the presence of members and the highest offer

of discount is accepted.

d. Auction-Cum-Lot Chits

Many chit funds follow the method of mixing of the advance of lot

chits and auction chits in the same chit. Such mixed varieties are of two types.

It may be a scheme where auction is held in the first installment and draw of

lots held in the second installment and again auction in the third and draw in

the fourth and so on. In the second type, there shall be a draw and auction at

every installment of the chit, as one ticket (one fraction of the capital) draw

and the remaining tickets auction. The advantage in mixed chits is that a

member is unsuccessful at the draw; he can participate in the bidding and take

the prize amount. There are provisions for fractional membership. Each

member is given a number of inclusions in the draw and auction. If a number

representing fractional membership wins or succeeds at bidding, the prize

amount is distributed on pro-rata. The Kerala chitties Act,1975 and the chit

fund Act,1982 permit a method of “draw” i.e., the mode of ascertaining the

prize winner at any installment of the chit by lot or auction or by tender or in

such other manners as may be provided. When the prize winner is to be

determined by auction and more than one person bids for the same amount, the

prize winner shall be determined by lot among them. According to the chitties

Act, 1975 the amount of discount in a chit shall not exceed 30% of the chit

amount.

Chit foremen in the informal sector follow different methods for

selecting the prize winner in accordance with their business tactics and

imagination. Besides monthly chits, daily chits, weekly chits, bimonthly chits,

the foremen mobilize substantial volumes of savings from different categories

of people. Even though chit business in the informal sector is flourishing very

well, no reliable data is available on the actual number of chits and the volume

of business.

e. Cost and Return on chits

The cost and returns on chit has revealed that the economics of chits lie

in viewing them as savings-cum-borrowing instruments. The financial return

and cost of chit depend on the prevailing rate of interest, installment at which

prize money is obtained, the method of discount followed, the “sale” size and

the duration of the chits. Subject to these, it was found that, as pure savings

avenue, the rate of return on chits is not attractive for most of the subscribers

when we consider the opportunity cost of the subscription money. The actual

return or gain or loss they make from chits will depend, as mentioned earlier,

on the prevailing interest rates, how early they get the prize money, the

method of discount followed etc.

There is also another dimension to this question, i.e., for many

subscribers chitty is a forced saving. For such persons these funds would not

have been saved otherwise and hence there is practically no opportunity cost

involved. In such cases, the gain on the chits will be higher and can be

estimated as the sum of the compound interest that could be earned on prize

amount and the difference between the loss on bidding and the total of

discount accrued to the subscribers.

Following are the main reasons for preferring chit funds.

a) Obtaining a loan from a financial institution or bank is not an easy task. So it

is quite natural that the common man resorted to chits and kuries for meeting

his/her financial obligation or realization of their financial goal to a certain

extent. The process to obtain loan from banks and financial institutions are

very cumbersome, needs lot of documentations, collaterals and guarantors.

b) Though different saving and borrowing avenues are available to the people,

but people still prefer chitty basically for the reason that it provides future

savings in advance and also it is very convenient and easy to operate.

c) The concept of dual option for saving and borrowing in one instrument and the

monthly dividend obtained through the sharing of discount amount with

reasonable return at low risk.

d) The formalities to open chit fund accounts are very simple. Chit companies do

not require much documentation, which is one of the advantages over banks

and other financial institutions. Some of the companies, however, ask for

income proof and address proof from new member but most of the cases is not

a mandatory requirement. No business or address verification is undertaken by

the chit funds unless it is felt absolutely necessary. In short the KYC (Know

Your Customer) requirements are not presently applicable for chit companies.

Most chit companies admit only members who are either connected to other

existing chit members or known to the foremen personally.

e) Most of the chit businesses are happening in the unorganized sector without

proper registration or approval, so the income from these businesses is out of

the scope of Income Tax or any other applicable taxes. As a result the actual

return generated from chitty business is more attractive than bank deposits or

other investments where the tax is deducted at source or the depositor is liable

to disclose the income In his/her tax returns.

Use of the chit price money

When you wanted to take a loan from a bank you need to specify the

purpose and provide necessary proof required by them, chit fund do not

require the members to state the purpose to which they wanted to use the

funds, it is their liberty to use this money for the marriage of their children,

buying TV, fridge, land &residential properties, utilize for children education,

buying vehicles, meeting medical expenses, settling loans which were taken

from the money lenders at higher rates etc. Small traders and businessmen

subscribe largely in chit funds. Chit funds provide an opportunity for them to

save their excess cash on a daily or monthly basis and at the same time, to

have access to easy finance in case of emergency or other requirement. Banks

are hesitating to provide financial assistance to individual businessmen or

small entrepreneurs due to non-transparency in their operations and lack of

proper record keeping. These businessmen are highly exploited by the local

money lenders charging exorbitant rate of interest for the money borrowed.

Chit funds to a certain extent help these small scale entrepreneurs to overcome

their financial problems.

DIFFERENT CATEGORIES OF CHIT INSTITUTIONS

Chit Funds are of different categories, which come under the broad

heading, 'Chit Finance'. In Kerala they include the public sector Chit Company

(The Kerala State Financial Enterprises Ltd.), Co-operatives, Private Chits and

those in the informal sector.

1. ERALA STATE FINANCIAL ENTERPRISES (KSFE)

The Kerala State Financial Enterprises Limited, commonly known as

KSFE, is a Miscellaneous Non-Banking Business fully led by the Government

of Kerala. It is one of the most profit making public sector endeavours of the

State. KSFE was developed by the Government of Kerala with the objective of

offering an alternative to the exclusive chit developers for generating

collective command over the chit finance company, so as to save everyone

from the rule of unethical unreliable chit account firms. The earning and

income of the KSFE has been increasing remarkably. Chitty is the main

product of KSFE. It is a unique financial product, which blends the advantages

of both investment and advance. It is a risk free safe haven for the public as

KSFE conducts only chitties fully governed by the provisions of Kerala

Chitties Act, 1975. The instalment per month for chitties range from Rs. 500

to Rs. 2,50,000 and the usual duration of chitties are 30 months, 40 months, 60

months and 100 months.

The share of KSFE in the total volume of Chit business registered in

Kerala is 77 percent as on March 2000, though the number of Chits registered

is only 37.5 per cent. It is a risk free safe haven for the public as KSFE

conducts only chitties fully governed by the provisions of Kerala Chitties Act,

1975. There are over 11 Lakh subscribers in various schemes of KSFE. The

number of Chits runs by KSFE amounts to 7,446 with a total capital (sala) of

over Rs.952 Crore.

NEED OF KSFE

Chit business in Kerala was under private monopoly till 1969. The

Business of ‘ Chit’ had been exposed to a wide variety of malpractices from its

very inception. There existed ample scope for exploitation of the needy

people by unscrupulous promoters for their own selfish interest. Lack of

Government control offered many opportunities for new entrants in this

lucrative field of business. The government wanted to introduce some

restrictions on the unbridled growth of such Chit institutions with a view to

safeguarding the interests of the subscribers and to channelize the savings for

productive purposes. Another justification for State control was the need to

avoid the concentration of wealth and power among a few. Besides, if the

State participated in Chit business directly, the profit generated would flow

back to the public in the form of utility services.

OBJECTIVES

The objectives of the company are listed in the Memorandum of

Association of the company.

The important objects are as follows:

1. To start, conduct, promote, manage and carry on the business of cities in

India or elsewhere

2. To promote, undertake, organize, conduct , manage and carry on the

business of general and miscellaneous insurance of any kind in India

or

3. To start, promote, conduct, operate, carry on and manage the Business

of dealers, agents and traders under hire purchase system of articles,

vehicles, machinery, materials goods and tools, of all Capital goods

and consumer goods and property of all nature and Description for

personal, domestic, office, commercial, industrial and community use

and consumption as a business of the Company or as agents of the

Government, State or Central or anybody or Organization there under

or of any other Company.

4. Besides these objects, there are many other objects, which are

incidental or ancillary to the main objects such as to advance, deposit

with or lend money, securities, property or to receive loans or grants or

concession of any nature or deposits from Banks, Government or

Governmental organisations or others.

FEATURES OF KSFE CHITS

Any Indian citizen, who has attained maturity, can subscribe to KSFE

Chits

The due date for the payment of prize money is the 45th day after the

auction, but with effect from 13-08-2001 it has been changed by KSFE

to the 30th day after auction.

Advance payment of prize money as a loan is available at the

prevailing rate of interest

New Chitty Loan (NCL) has been introduced to bridge the gap

between the real need of the subscriber and the uncertain point of time

in future when the ticket gets prized.

Passbook loan scheme has been introduced from 1975 onwards to

provide quick loan to non-prized subscribers to meet the urgent needs

on the security of paid up subscription in their Chits

Monetary range of KSFE Chits extends up to Rs. 10Lakhs with

monthly subscription of Rs. 25,000 each. The duration ranges from 40

months to 100 months.

REASONS FOR OPTING KSFE

There are large number of chitty companies like private chits,

cooperative chits etc. the reason for opting KSFE is nothing but the trust and

confidence in KSFE. The important success factors of KSFE Chits, in order of

priority, have been the safety and security aspect, transparency and Openness

in auction. The investment in KSFE is protected by the Government of Kerala.

The company has been functioning for nearly 4 decades now.

Another reason is the social commitment of KSFE. A major part of

their profit goes to Government of Kerala, who utilizes it for carrying out

development work, running public service organization and providing for less

fortunate and privileged among us. Thus the money of people of Kerala is

used for the benefit of the people of Kerala. A remarkable tip is that all the

money collected by KSFE by its numerous set down offers are delivered

completely to everyone in Kerala only; while additional financial

establishments and banks deposit their sum collected from Kerala for funding

out of the State.

KSFE is considered as the most popular chit funds because of the

following reasons:

1. The Kerala State Financial Enterprises Ltd. Is a unique experiment as

the only public sector Chit Fund Company in the whole of India, which

is fully owned by a state government.

2. KSFE is the dominant foreman in the Chit business in Kerala

managing about 77 per cent of the total Chit capital (sola)

3. The presence of KSFE is believed to check the unscrupulous operation

of Private Chit business.

4. The KSFE is one of the few profit making public sector enterprises in

the State and also generates direct employment opportunities to more

than 3000 persons.

SERVICES OFFERED

KSFE has actually marked fantastic improvements in chit business by

offering an entire variety of quality services and products, adopting

technology and benchmark standards in customer service and performance and

dispersing their wings beyond the borders of Kerala, on an international level.

KSFE maintained the pre-eminent part in Chitty business, Continued focus on

extending resources to the Govt. of Kerala and sustained commitment to the

weaker areas of culture, as the neighbourhood establishment for support, count

on and safety.

The main schemes of the company as of now are :

1. Chit scheme

2. Passbook loan

3. New Chitty loan

4. Hire purchase scheme

5. Hire purchase (House modernization scheme)

6. Employment oriented hire purchase scheme

7. Gold loan scheme

8. Trade financing scheme

9. Fixed deposit scheme

10. Sugama deposit scheme

11. New fixed deposit loan scheme

12. New housing finance scheme

13. Reliable customer loan

Some of the services offered by KSFE is chitty loan.

1. CHITTY

“ Chitty” means a transaction, whether called Chit or Kuri, by which one or

more persons, hereinafter called the “ Foreman” or “Foremen” enter into an

agreement with a number of persons such that every one of the contracting

parties shall subscribe a certain amount of money or quantity of grain or other

commodity by periodical instalments for a certain definite period and that each

in his turn, shall be entitled to the prize amount, whether payable in cash, kind

or any other article of value or in such other manners that may be provided for

in the agreement

2. CHITTY LOAN

Another service provided by KSFE is chitty loan. This facility is availed if

there is a time gap between actual financial need and the delay in getting that

particular chitty. Any person who is a non prized subscriber in chitty and has

paid 10% of the total instalment amount promptly is eligible to avail this

facility. Such a person will receive 50% of the total chitty amount as chitty

loan. The interest on such loan should be provided monthly and the principal

amount is recovered from the chitty prize money.

3. PASS BOOK LOAN

It is available to non prized chitty subscribers depending upon the gross

instalments paid up without producing any additional security for advance.

GROWTH OF KSFE

BUSINESS

(IN CRORES)

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

CHITTY

TURNOVER

1451 1595 1647 1691 1787 1993 2570 3642 6183

A FUTURE PLAN OF KSFE CONTEMPLATES

1. Centralized Chitty Registration

2. Online Chitty Auction

3. Chitty payments at the Door step of subscribers

4. Opening Branches outside Kerala

5. Spreading weekly chitties to all the KSFE branches

6. E-remittance facilities for all customers

7. Foray into the field of M-commerce

8. Introducing ATM facilities and any time anywhere transaction

facilities

9. Implementation of core solutions software in the company

10. Going for CRISIL rating to obtain FAAA

11. Working as a Nodal Agency for distribution of pension of

State/Central Government and other PSUs

12. Undertaking trading of Gold

1. Co-operatives

Co-operative Institutions are also conducting Chit business as one of their

most profit making schemes. Wide prevalence of co-operatives even in the

remote villages enables the mobilization of the scattered savings among the

common people. To escape from certain provisions of the Kerala Chitties Act,

the co-operatives have started 'Chit like' schemes 5 such as Monthly Deposit

Scheme (MDS) and Mutual Benefit Scheme (MBS) without getting Chits

registered with the Registrar. Though the number of registered Chits with the

co-operatives forms 44.2 per cent, the share of it in the total volume of Chit

business is only 17 percent.

1. Private chits

Private Chit Funds have flourished in Kerala from time immemorial. Though

the share of private Chits forms 18.3 per cent in the number of Chits

registered, their share in the total volume of Chit business is only 6 per cent.

This is due to the reason that a considerable volume of Chit business in the

private sector are conducted without registration in the State and therefore

outside the purview of official records.

2. Informal chits

Along with the formal Chit Fund sector, there exists a highly heterogeneous

and dynamic informal sector, with huge volume of business. This includes

Chits conducted by the associations of traders/merchants, employees in the

offices and those informal Chits in urban and rural localities, churches,

temples, educational institutions, small and medium Chits in the neighbor-

hood run by housewives, etc. In every nook and corner of Kerala, one can find

'Chit collectors'" mobilizing substantial amounts of savings daily for which

authentic data is not available. Though the presence of informal Chit sector is

significant, there have been numerous cases of fraud, misappropriation,

disappearance of foremen, etc., which cause loss to the subscribers and

damage the reputation of Chit Funds Industry in the State.

Women and chit funds

Chit funds are said to have a role in the building of social capital.

Social capital is of particular interest for the study of women and

microfinance, and rotating schemes. In the review of financial system most of

economists are interested to connect the role of women and their financial

system in the development of rural areas.

There are few articles that deal specially with women’s associations.

Women certainly have a poor record of obtaining credit from the formal

sector, including access to Government schemes. It would see that in some

countries they make very few applications for loans. The cultural, legal and

educational reasons are behind hesitation the poor are not a risky group in the

informal setter and the poor women are very loyal to the rotating schemes

such as chit funds.

The base of saving habits is raised form the poor women who have low

income and more responsibility to their family. They are forced to spend less

and save more for the future needs of their own marriage and their children’s.

Many literature dealing with Saving Credit and Rotation describe the role of

women. Women in village are primarily formed their own groups to solve

their financial problems together. There are number of examples on woman’s

group for saving credit and rotation of their money. Most of them are very

successfully fulfills their role. The importance of women can not be reduced in

the historic achievements and developments of informal financial sector in

developing countries.

Now a day educated unemployed women prefer agency of reputed chit

funds which provide them regular income through canvassing commission.

Chit fund companies utilize the network connection of women formed through

‘Kudumbasree’ association for their business promotion. Some times it

becomes the field of exploitation. Women usually bid in chit scheme to meet

marriage expenses either their own or their family members especially for

their childrens. Most of them use chit fund as a saving tool to purchase a house

or household articles and jewellery. For the purpose they depend on formal

organizations such as KSFE, service societies, co-operative banks and post

office recurring scheme. Mahila Pradan agents and kudumbasree workers are

highly influencing them to their range.

Chit Fund and Small Traders

Small traders and business man participate extensively in chit funds.

Generally they use the fund as either working capital for expansion of business

or as emergency funds. Small enterprises have been historically wedged

between the money lenders, with their exorbitant cost of loans, and banks with

their stringent procedures. Chit funds are a welcome measure for such

enterprises to overcome their financial constraints. It is evident from the

enthusiastic participation of small business men in the chit funds.

Small businesses usually have free cash which they can profitably invest

in chit funds to earn returns. Some chit fund allows small traders to make daily

contributions instead of monthly, to coordinate with their income cycle. As

and when the need arises, they bid in the auction and receive the loan out of

their own fund. Once they receive loan they continue to pay the monthly

contributions and this is accounted towards both the principal and interest of

the loan, which makes the repayment easier and less arduous .Also in chit

funds, small traders can decide their own interest rates depending on the need.

Chit fund could be used as a financial tool in the hands of small or medium

traders, and they can efficiently manage their working capital cycle,

emergency capital requirements, contingency expenditure and rotational

funding needs with chit funds. It can nurture a business concern having

seasonal nature.

Although the Indian financial market has actually made enormous

leaps in terms of supplying a number of profitable and impressive economic

products and services to a large section of the population, chit funds continue

to be the most preferred choice among the inexpensive – and middle – class

sections. Additionally, chit funds need less certification and are fairly stress –

free. Moreover, the account sum is also taken from the customer’s doorstep.

One of the most important objectives in setting up KSFE Ltd that it

would take up the leadership in Chit Funds business as a whole and thereby

safeguard the interests of subscribers by offering effective competition. The

presence of KSFE is believed to check the unscrupulous operation of private

chit business. The KSFE is one of the few profit making public sector

enterprises in the State and also generates direct employment opportunities

along with providing finance to carry down many public utility services.

CHAPTER IV

DATA ANALYSIS - SECTION A

Data for the purpose of the study were collected from 100 chit

costumers in Thrissur, Malappuram, and Kozhikode Districts. The data is

analysed with the help of following tables. Ratios and percentages are used for

analysis and interpretation.

Table 4.1

Table showing age wise classification of Respondents

Age Number Percentage

20-30 30 30

30-40 20 20

40-50 18 18

50 above 32 32

Total 100 100

Source: Primary Data

Interpretation

Table 4.1 shows that 30% of the respondents are in the age group of

20-30, 20% of the respondents are in between 30-40, 18% of the respondents

are in between 40-50 and rest of the respondents (32%) are 50 and above.

Thus most of the respondents are in between the age group of 20-30 and 50

and above.

Chart 4.1

Chart showing Age wise classification of respondents

30

2018

32

0

5

10

15

20

25

30

35

20-30 30-40 40-50 50 and above

Age

Per

cent

age 20-30

30-4040-5050 and above

Table 4.2

Table showing Gender wise classification of respondents

Gender No. of respondents Percentage

Male 46 46

Female 54 54

Total 100 100

Source : Primary Data

Interpretation

Table 4.2 shows that 46% of respondents are male and 54% respondents are

female.

Chart 4.2

Chart showing Gender wise classification of respondents

4654

MaleFemale

Table 4.3

Table showing Religion wise classification of respondents

Religion No. of respondents Percentage

Hindu 48 48

Christian 2 2

Muslim 50 50

Total 100 100


Interpretation

Table 4.3 explains that 48% of the respondents belongs to Hindu

community, 50% of the respondents are Muslims and only 2% of the

respondents belong to Christian community. Thus majority of the respondents

belongs to Muslim and Hindu community.

Chart 4.3

Chart showing Religion wise classification of respondents

48

2

50

0

10

20

30

40

50

Per

cent

age

Hindu Christian Muslim

Religion

HinduChristianMuslim

Table 4.4

Table showing Marital Status wise classification of respondents

Marital Status No. of respondents Percentage

Single 12 12

Married 86 86

Widow 2 2

Total 100 100


Interpretation

This table shows the marital status of respondents. Out of 100%, 86%

of the respondents are married, 12% of the respondents are unmarried and the

remaining 2% is widow.

Chart 4.4

Chart showing Marital Status wise classification of respondents

Table 4.5

Table showing Educational Qualification wise classification of

respondents

Educational

Qualification

No. of respondents Percentage

Below SSLC 40 40

SSLC 20 20

Plus Two 18 18

Degree 10 10

PG 8 8

Technical 0 0

Professional 4 4

Total 100 100


Interpretation

Table shows that 40% of the respondents were below SSLC, 20% of

respondents belongs to the educational qualification of SSLC, 18%

respondents are plus two holders, 10% are degree holders, 8% are post

graduate, the rest 4% of the respondents are professionals and no respondents

are in technical holders.

Chart 4.5

Chart showing Educational Qualification wise classification of

respondents

40

20 18

10 8

04

05

1015202530354045

Below S

SLCSSLC

Plus T

wo

Degre

ePG

Technic

al

Profes

siona

l

Educational qualif ication

Per

cent

age

Below SSLC

SSLC

Plus Tw o

Degree

PG

Technical

Professional

Table 4.6

Table showing Occupation wise classification of respondents

Occupation level No. of respondents Percentage

Agriculture 6 6

Business man 8 8

Govt. Employee 10 10

Private Employee 12 12

Self –Employed 36 36

Daily wages 18 18

Abroad 10 10

Total 100 100


Interpretation

Table 4.6 shows that 6% of respondents are belonged to agriculture,

8% of the respondents are businessman. Then comes 10% Govt. Employees,

12% are private employees, 36% of respondents are self – employed, 18% of

respondents are daily wagers and the rest 10% of the respondents are in

abroad.

Chart 4.6

Chart showing Occupation wise classification of respondents

68

1012

36

18

10

0

5

10

15

20

25

30

35

40

Agriculture Businessman

Govt.Employee

PrivateEmployee

Self–Employed

Daily w ages Abroad

Agriculture

Business man

Govt. Employee

Private Employee

Self –Employed

Daily w ages

Abroad

Occupation Level

Table 4.7

Table showing Monthly Income wise classification of the respondents

Monthly Income No. of respondents Percentage

Less than 5000 26 26

5000-10000 40 40

10000-15000 14 14

15000-20000 4 4

Above 20000 16 16

Total 100 100


Interpretation

This table shows that 26% of the respondents are in monthly income of

less than 5000, 40% of respondents are in between Rs. 5000-10000, 14% of

the respondents are in between 10000-15000, 4% of the respondents are in

between 15000-20000 and the rest 16% of the respondents are in above 20000.

Chart 4.7

Chart showing Monthly Income wise classification of the respondents

40

14

4

16

26

05

1015202530354045

Less than5000

5000-10000 10000-15000 15000-20000 Above 20000

Monthly income

Perc

en

tag

e

Less than 50005000-1000010000-1500015000-20000Above 20000

Table 4.8

Table showing Monthly Expenditure wise classification of the

respondents

Monthly Expenditure No. of respondents Percentage

Less than 5000 46 46

5000-10000 34 34

10000-15000 18 18

Above 15000 2 2

Total 100 100


Interpretation

The above table shows that 46% of the respondents are in the monthly

expenditure of less than Rs. 5000, 34% of the respondents are in between

5000-10000, 18% of the respondents are in between 10000-15000 and the rest

2% of the respondents are in above 15000. Thus most of the respondents have

a monthly expenditure in less than 5000.

Chart 4.8

Chart showing Monthly Expenditure wise classification of the

respondents

46

34

18

20

10

20

30

40

50

Less than 5000 5000-10000 10000-15000 Above 15000

Monthly expenditure

Per

cen

tag

e Less than 50005000-1000010000-15000Above 15000

Table 4.9

Table showing the factors influencing the respondents to take chitty

investment

Particulars No. of respondents Percentage

More return 24 24

Investment 52 52

Security 24 24

Economic Status 0 0

Total 100 100


Interpretation

Table 4.9 shows the factors influencing chitty investment. 24% of the

respondents takes chitty because of getting more return, 52% of the

respondents are influenced by investment factor, the rest24% of the

respondents are influenced by the factor of security. Economic status is not an

influencing factor to take chitty.

Chart 4.9

Chart showing the factors influencing the respondents to take chitty

investment

24

52

24

00

10

20

30

40

50

60

More return Investment Security EconomicStatus

Particulars

Per

cent

age More return

Investment

Security

Economic Status

Table 4.10

Table showing the type of chitty, selected by the respondents


Lot chitty 54 54

Business chitty 16 16

Tender chitty 8 8

Cost and return chitty 22 22

Total 100 100


Interpretation

Table 4.10 shows, most of the respondents (54%) prefer lot chitty, 16%

respondents prefer business chitty, 8% respondents prefer tender chitty and the

remaining 22% of the respondents choose cost and return chitty.

Chart 4.10

Chart showing the type of chitty, selected by the respondents

Table 4.11

Table showing the period of chitty selected by the respondents

Period No. of respondents Percentage

Daily 6 6

Weekly 16 16

Monthly 70 70

Quarterly 8 8

Total 100 100


Interpretation

Table 4.11 shows 6% respondents take chitty on daily basis, 16% take

chitty on weekly basis. 70% and 8% of the respondents are paid the chitty

amount on monthly and quarterly basis

Chart 4.11

Chart showing the period of chitty selected by the respondents

Table 4.12

Table showing the nature of chitty, selected by the respondents.


Public 6 6

Co-operative 12 12

private 28 28

Informal 54 54

Total 100 100

Source: Primary Data

Interpretation

Table 4.12 shows, majority of the respondents (54%) select informal

chitties and only 6% select public chitty to their savings and investment

Chart 4.12

Chart showing the nature of chitty, selected by the respondents.

Table 4.13

Table showing the purpose of taking chit investment by people

Purpose No. of respondents Percentage

Saving purpose 48 48

House constructions 28 28

Educational purpose 6 6

Marriage purpose 14 14

Other purpose 4 4

Total 100 100


Interpretation

The table 4.13 shows that out of 100 respondents, 48 respondents take

chitty investment for saving purpose, 28 respondents are in house construction

purpose, 6 respondents are in educational purpose, 14 respondents are for

marriage purpose and remaining 4 respondents are in the category of other

purpose.

Chart 4.13

Chart showing the purpose of taking the chit investment by people

Table 4.14

Table showing the approach of respondents towards saving mentality

after taking chitty


Increase 82 82

Constant 18 18

Decrease 0 0

Total 100 100


Interpretation

Table 4.14 shows the saving habit of people after taking chitty. Saving

habit of 82% respondents are increased, 18% of respondents are in constant

savings mentality and the savings habit of respondents are not decreased after

taking chitty.

Chart 4.14

Chart showing the approach of respondents towards saving mentality by

taking chitty

Table 4.15

Table showing daily collection system, easy payment etc. influences the



Yes 72 72

No 28 28

Total 100 100


Interpretation

This table shows that 72% of the respondents are take chitty because of

the daily collection system and easy payment features of chitty. 28% of the

respondents are not influenced by these features.

Chart 4.15

Chart showing daily collection system, easy payment etc. influences the


Table 4.16

Table showing the satisfaction of respondent by taking chitty


Highly satisfied 30 30

Satisfied 70 70

Dissatisfied 0 0

Highly dissatisfied 0 0

Total 100 100


The above table shows the satisfaction of respondents by taking chitty.

30% of the respondents are highly satisfied and remaining 70% of the

respondents are satisfied. No respondents are in the category of dissatisfied

and highly dissatisfied.

Chart 4.16

Chart showing the satisfaction of respondent by taking chitty

Table 4.17

Table showing the details regarding the return from chit fund


High 42 42

Moderate 58 58

Low 0 0

Total 100 100


Interpretation

This table shows opinion of the respondents regarding the return from

chit investment. 42% of the respondents believe that they get high return from

chit fund and 58% of the respondents believe in moderate return. No

respondents believe or expect low return from chitty.

Chart 4.17

Chart showing, the details regarding the return from chit fund

Table 4.18

Table showing the popularity of chitty influences the respondent to take

chitty


Strongly agree 36 36

Agree 36 36

Neither agree nor disagree 20 20

Disagree 8 8

Strongly disagree 0 0

Total 100 100


Interpretation

Table 4.18 shows that the popularity of chitty is an influencing factor

to take chitty. Out of 100%, 36% of respondents are strongly agreed and

agreed. 26% of the respondents are in neither agree nor disagree category and

8% are in disagreed category. There is no respondent in strongly disagreed

category.

Chart 4.18

Chart showing, the popularity of chitty influences the respondent to take

chitty

Table 4.19

Table showing any benefit received from chitty to the respondents


Yes 82 82

No 18 18

Total 100 100


Interpretation

Table 4.19 shows that 82% of the respondents are received benefit and

the rest 18% respondents are not received any benefit from taking chitty.

Chart 4.19

Chart showing, any benefit received from chitty to the respondents

Table 4.20

Table showing whether the chit funds are formulated according to the

needs of the people

Response Number Percentage

Strongly Agree 40 40

Agree 30 30

Neither agree Nor disagree 15 15

Disagree 10 10

Strongly disagree 5 5

Total 100 100


Interpretation

Table 4.20 shows that whether the chit funds are formulated according

to the needs of the people Out of 100%, 40% of respondents are strongly

agreed and 30% of the respondents are agreed. 15% of the respondents are in

neither agree nor disagree category and 10% are in disagreed category. 5% of

the respondents are in strongly disagreed category.

Chart 4.20

Table showing whether the chit funds are formulated according to the

needs of the people

DATA ANALYSIS - SECTION B

CAR LOAN

The secondary data collected from SBI and KSFE are analysed in this

section.

Table 4.21

Comparison of chit funds with SBI car loan at an interest rate of 10.45%.

particulars 70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 83,199 4,33,208 8,31,990

Source: Secondary Data

Interpretation

Table 4.21 shows the comparison between chit funds and SBI car loan

at an interest rate of 10.45%. for an amount of Rs. 70,000 the total amount

payable under chitfund is Rs. 91334 and under SBI Car loan, the loan amount

is Rs. 83199. So it is better to take a car loan from SBI at an interest rate of

10.45%.

For an amount of Rs. 3,50,000 the total amount payable under chit

fund is Rs. 4,41,273 and under SBI loan, the loan amount is Rs. 4,33,208. So it

is better to take a car loan from SBI at an interest rate of 10.45%.

For an amount of Rs. 7,00,000/-. The total amount payable under chit

fund is Rs. 8,86,872 and under SBI loan, the loan amount is 8,31,990. So it is

better to take a car loan from SBI at an interest rate of 10.45%

Chart 4.21

Comparison of chit funds with SBI car loan at an interest rate of 10.45%.

Table 4.22

SBI pre owned car loan upto 3 years at an interest rate of 16%

particulars 70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 90,760 4,81,779 9,07,600

Source : Secondary Data

Interpretation

Table 4.21 shows the comparison between chitfunds and SBI pre

owned car loan up to 3 years at an interest rate of 16%. For an amount of Rs.

70,000 the total amount payable under chitfund is 91334 and SBI is 90760.

There is no significant difference between chit fund loan and SBI loan.

For an amount of Rs. 3,50,000; Total amount payable under chitfund

auction is 4,41,273 and under SBI loan, the total amount payable is 4,81,779.

So it is better to take a chit auction than SBI loan.

For an amount of Rs. 7,00,000 , total amount payable under chitfund is

8,86,872 and under SBI loan is 907600. So it is better to take a chit auction

than SBI loan.

Chart 4.22

SBI pre owned car loan upto 3 years at an interest rate of 16%

Table 4.23

SBI pre owned car loan 3-7 years at an interest rate 16.5%

Particulars 70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 91,474 4,86,300 9,14,740


Interpretation

Table 4.22 shows loan for a period of 3 to 7 years at an interest rate of

16.5% . For an amount of Rs. 70,000 total amount payable under chitfund

auction is 91334 and under SBI loan total amount payable is Rs. 91,474. There

is no so much difference between these two alternatives.

For an amount of Rs. 3,50,000, total amount payable under chit fund

action is Rs. 441273 and under SBI, loan, total amount payable is 4,86,300.

So it is better to take a chit fund auction than SBI loan.

For an amount of Rs. 7,00,000 total amount payable under chitfund

auction is 8,86,872, but under SBI loan, it is Rs.9,14,740. So it is better to take

chit auction fund than SBI loan.

Chart 4.23

SBI pre owned car loan 3-7 years at an interest rate 16.5%

Table 4.24

Used car loan (Upto 3 years) At an interest rate of 17.25%

70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 92528 4,93125 9,78506


Interpretation

Table 4 shows comparison between chit fund auction and SBI loan for

purchasing used car at an interest rate of 17.25% for a period up to 3 years.

For an amount of Rs. 70,000 total amount payable under chit auction is

Rs. 91334 and under SBI loan, total amount payable is 92528, so it is better to

take a chit auction fund than SBI loan.

For an amount of Rs, 3,50,000, total amount payable under chit auction

is 4,41,273 and under SBI loan, total amount payable is 4,93,125. So it is

better to take a chit auction than SBI loan.

For an amount of Rs, 7,00, 000 total amount payable under chit auction

is 8,86,872 and under SBI loan, total amount payable is 978506. So it is better

to take a chit auction than SBI loan.

Chart 4.24

Used car loan (Upto 3 years) At an interest rate of 17.25%

Table 4.25 shows comparison between chit fund auction and

SBI loan.



70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 87,280 4,59,500 8,73,120


Interpretation

Table 4.25 shows the comparison between chit funds with consumer

loan (x press credit full check off) at an interest rate of 13.5%.

For an amount of Rs. 70,000 total amount payable under chit auction is

91334, and SBI is 87250. So it is better to take an SBI loan than chit auction.

For an amount of Rs. 3,50,000 total amount payable under chit fund is

4,41,273 and under SBI, total amount payable is 4,59,500, so it is better to

take a chit auction than SBI loan.

For an amount of Rs. 7,00,000 total amount payable under chit auction

is 8,86,872 and under SBI total amount payable is 8,73,120. So it is better to

take SBI loan than chit auction fund.

Chart 4.25 shows comparison between chit fund auction and

SBI loan.



Table 4.26



70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 88,680 4,68,359 8,86,880


Interpretation

Table 4.26 shows the comparison of chit funds with consumer loan at

an interest rate of 14.5% (partial check off). For an amount of Rs. 70,000, total

amount payable under chit fund is 91334 and under SBI loan, is 88680. So it is

better to take a SBI loan than chit auction.


is 4,41,273 and under SBI loan is 4,68,359. So it is better to take SBI loan

compared with chit fund.

For an amount of Rs. 7,00,000, total amount payable under chit fund is

8,86,872 and under SBI loan, is 8,86,880. There is no significant difference

between these two alternatives.

Chart 4.26



Table 4.27



70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 91,474 4,86,300 9,14,740


Interpretation

Table 4.27 shows the comparison of chit funds with consumer loan at

an interest rate of 15.5% (no check off). For an amount of Rs. 70,000, total

amount payable under chit fund is 91334 and under SBI loan, is 91,474. So it

is better to take a chit auction than SBI loan.


is 4,41,273 and under SBI loan is 4,86,300. So it is better to take chit fund

compared with SBI loan.

For an amount of Rs. 7,00,000, total amount payable under chit fund is

8,86,872 and under SBI loan, is 9,14,740. So it is better to take a chit auction

than SBI loan.

Chart 4.27



Table 4.28



70,000 3,50,000 7,00,000

Chit funds 91,334 4,41,273 8,86,872

SBI 88,680 4,68,359 8,86,880


Interpretation

Table 4.28 shows the comparison between chit funds with the loan

against NSC for purchasing consumer durables at an interest rate of 14.5%.

For an amount of Rs. 70,000, the total amount payable under chit

auction is 91334 and under SBI loan, the total amount is 88680. So it is better

to take SBI loan compared with chit funds.


auction is 441273 and total amount payable under SBI loan is 468359. So it is

better to take chit funds than SBI loan.


auction is 8,86,872 and under SBI loan, total amount payable is 8,86,880.

There is no significant difference between these two alternatives. So the

customer can take consumer loan or chit fund according to their own

convenience.

Chart 4.28



CHAPTER V

FINDINGS, SUGGESTIONS &

CONCLUSION

FINDINGS (SECTION A)

Findings (Section A)

1. Majority,ie, 70 % of the respondents are agreed that chitty is

formulated according to the needs of the people.

2. The study reveals that most of the respondents (82%) received benefit

from chitty. So chitty is beneficial to the people and it provides

adequate source of finance to the customers.

3. The study reveals that most of the respondents (72%) are highly

influenced to take chitty because of daily collection system, easy

payment etc.

4. Majority of the respondents are takes chitty as an investment need. It is

the highly influencing factor to take chitty.

5. Majority of the respondents ie 70% prefer monthly chitty.

6. Most of the respondents (54%) prefer lot chitties.

7. Most of the respondents (54%) select informal chitties for their savings

and investment purpose

8. The study reveals that 82% of the respondents saving mentality is

increased by taking chitty.

9. It is observed that all respondents are satisfied with chit investment.

FINDINGS (SECTION B)

I. Comparative study of SBI bank loan with chit fund for an amount of

Rs. 70,000 (40 months)

1. At an interest rate of 10.45% in 40 instalments, it is better to take SBI

loan than chit fund.

2. At an interest rate of 16%, there is no significant difference between

SBI loan and chit fund.

3. For a period of 3 to 7 years at an interest rate of 16.5% . There is no

significant difference between two options.

4. For purchasing used car loan at an interest rate of 17.25% for a period

upto 3 years, it is better to take chit funds compared with SBI.

5. In the case of consumer loan at 13.5% interest (X press credit ) check

off. It is better to take SBI loan than chit fund.

6. In the case of consumer loan at an interest rate (Partial check it ) of

14.5%. It is better to take SBI loan than chit fund.

7. In the case of loan against NSC at an interest rate of 14.5%, it is better

to take SBI loan than chit fund.

II. Comparative analysis of SBI loan with chit fund for an amount of Rs.

3,50,000 (50 months)

1. At an interest rate of 10.45% in 40 instalments, it is better to take SBI

loan compared with chitfunds

2. In the case of pre owned car loan up to 3 years at an interest rate of

16%, it is better to take chit fund than SBI loan.

3. In the case of used car loan at an interest rate of 16.5% , it is better to

take chit auction than SBI loan.

4. In the case of used car loan at 17.25%, it is better to take chit auction

than SBI loan.

5. In the case of consumer loan at 13.5% interest (X press credit ) check

off. It is better to take chit fund than SBI loan.

6. In the case of consumer loan at an interest rate ( Partial check it ) of

14.5%. It is better to take chit fund auction than SBI loan

7. In the case of loan against NSC at an interest rate of 14.5%, it is better

to take chit fund than SBI loan

Over all if the rate of interest of a loan of Rs.3,50,000 is above 13%. It

is better to take to take chit auction fund than SBI loan.

III. Comparative Analysis of SBI loan with chit auction fund for an

amount of Rs. 7,00,000 (40 months).

1. In the case of car loan at an interest of 10.45% for 40 months, it is

better to take SBI loan than chit auction fund.

2. In the case of preowned car loan upto 3 years at an interest of 16%. It

is better to take chit auction fund than SBI loan.

3. In the case of preowned car loan for period of 3 to 7 years at an interest

rate of 16.5% it is better to take chit auction fund than SBI loan.

4. In the case of used car loan at an interest rate of 17.25%,it is better to

take chit auction fund than SBI loan.

5. In the case of consumer loan at an interest of 13.5% (X press credit full

check off) it is better to take SBI loan than chit fund.

6. In the case of consumer loan at an interest rate of 14.5% (Partial check

off) it is more or less same in two alternatives..

7. In the case of loan against NSE at an interest rate of 14.5%. total

amount payable is more or less same in two alternatives.

Overall, it the rate of interest for a loan is above 14.5%. it is better to

take chit auction fund than SBI loan.

SUGGESTIONS

1. From the study, it is observed that informal and pvt. Chit funds are

preferred by the customers. So public chit financial institutions should

start promotional strategies to expand their chit funds business and

generate fund from low – income households.

2. If the overall rate of interest for a bank loan is above 13% customer

can take chit auction to meet their future needs. So for purchasing

consumer durable especially used cars, customers can depend chit fund

business because of its easy procedures and profitability.

3. The low income households prefer chit fund as their source of finance.

So the chit fund institutions should provide finance at cheaper rate of

interest.

CONCLUSION

The study entitled chit funds; an alternative source to loan focuses on

whether the chit funds are an alternative source to consumer loans. Reveals

that on an average if the interest rates are 13% and above, is better to take a

chit fund rather than consumer loan. In addition, it is found that the formalities

to open chit funds accounts are very simple, convenient and simple to operate,

many people depends chit funds as a source of borrowing. If the chit fund

provides adequate source of finance at the right time, it becomes a new source

and it will definitely improve the standard of living of the customers. If more

and more people are attracted towards chit fund, it will increase their saving

habit and it will increase the growth rate of the economy as well.

REFERENCES

REFERENCES

1. Hoop. M.L. “Economic Significance of Chit Funds in Kerala” M.Phil,

Dissertation, Cochin University of Science and Technology, Cochin

(1990).

2. Indira, Rajaraman. “The Role of ROSCAS” – Seminar on Economic

Liberalisation and Chit Funds, Delhi Chit Funds Association. Chamber

of Commerce and Industry, New Delhi. April (1995).

3. Jean, Yves Gourvez. “Intermediation and Traditional Circuits:

Conditions for Mobilizing Financial Savings.” Savings and

Development Proceeding of a Colloquium, Paris

4. Anderson Siwan, Baland Jean-Marie, “The Economics of Intra

Household Allocation” August 2002, Vol. 117, No. 3, Pages 963-995

5. Banerjee, Abhijit, Duflo Esther “The Economic Lives of the Poor”

October 2006, Journal of Economic Perspectives, Vol.21, No.1, Winter

2007, pgs 141-167

6. Besley, Timjothy, Stephen Coate, and Glenn Loury, “The Economics

of Rotating Savings and Credit Associations”, American Economic

Review, LXXXIII (1993), 792-810.

7. Besley, Timothy, Stephen Coate, and Glenn Loury “Rotating Savings

and Credit Associations, Credit Markets and Efficiency”, Review of

Economic Studies, LXI (1994) 701-719

8. Central Chit Fund Act 1982: http://gov.ua.nic.in/society/acts/hchit.htm

9. Klonner, Stefan, “Rotating Savings and Credit Organizations as

Insurance”, mimeo, Yale University, Economic Growth Centrer,

(2000)

10. Kovsted, Jens and Peter Lyk-Jensen, “Rotating Savings and Credit

Associations: The Choice Between Random and Bidding Allocation of

Funds”, Journal of Development Economics, LX (1999), 143-172 X

11. Levenson, Alec and Timothy Besley, “The Anatomy of an Informal

Financial Market: Rosca Participation in Taiwan”, Journal of

Development Economics, LI (1996), 45-68.

12. Mudit Kapoor and Antoinette schoar “Chit fund as an innovative

Access to Finance for Low- Income Households” IFMR Research,

Chennai

13. Samlararaman Ganapathyraman, (2012), “Chit Fund – is an Investment

Destiny?” Research Journal of Social Science and Management, Vol.2.

14. Business Line, (2005), “KSFE Set Aside Rs. 30 Crore for

Computerization”

15. Business Line, (2010), “KSFE to Launch Subsidiary in Gulf”.

16. Anderson Siwan, Baland Jean-Marie, “The Economics of Intra

Household Allocation” August 2002, Vol. 117, No. 3, Pages 963-995.

17. Kionner, Stefan, 2002, “Understanding Chit Funds: Prize

Determination and the Role of Auction Formats in Rotating Savi9ngs

and Credit Associations”, yale University Mimeo.

18. Indian Journal of Marketing, Volume 42 February 2012.

19. Research Scholar Volume 2, March 2012

20. Sampadhyam-Malayala Manorama, Monthly August 2012

21. Bajaj R, Draft Code on Corporate Governance, Confederation of

Indian Industry, 1997

22. http//www.Kaumudiglobal .com

23. times of India, Saturday July 20, 2012

24. Manuel of Procedure-kerala State Financial Enterprises Ltd;,

Government of Kerala

25. Audit Reports of KSFE for 2010-11, 2011-12

26. Nayar, CPS. Chit Finance: An Exploratory Study on the working of

Chit funds, Vora and Co. publishers Pvt.Ltd., Bombay, (1973), p.3

27. Sekharan, U. (2003), Research Methods for Business: A Skill Building

Approach, Wiley, New York, NY.

28. Prasanna Chandra (2007), Financial Management Theory and Practice,

Tata McGraw-Hill Publishing Company Limited, New Delhi

29. www.ksfe.com

30. www.centralkeralakuries.com

APPENDICES

QUESTIONNAIRE ON THE ROLE OF CHIT INIMPROVING SAVING HABIT AMONG PEOPLE

1. Name :

2. Age :

3. Sex :

4. Religion: Hindu Muslim Christian

5. Marital Status: Married Single Widow

6. Educational Qualification

Below SSLC SSLC Plus Two Degree PG

Technical Professional

7. Occupation : Agriculture Businessman Govt. Employee

Private Employee Self Employed Daily Wagers Abroad

8. Monthly Income: Less than 5000 5000-10000 10000-15000

15000-20000 Above 20000

9. Monthly Expenditure: Less than 5000 5000-10000 10000-15000

Above15000

10. Do you have saving habit: Yes No

11. What are the factors influencing your chitty investment:

More Return Investment Security Economic Status

12. Which type of chitty you Prefer:

Lot Chitty Business Chitty Tender Chits Cost and return on

chits

13. Period of Chitty: Daily Weekly Monthly Quarterly

14. Nature of chitty : Public Co-operatives Private Informal

15. State the purpose of taking the chit investment:

Saving purpose House construction Educational purpose

Marriage purpose Other purpose

16. Is Chits increases your saving mentality : Increase Constant Decrease

17. Do you think daily collection system, easy payment etc.. influences you to take

chitty: Yes No

18. Are you satisfied with chit investment

Highly satisfied Satisfied Dissatisfied Highly Dissatisfied

19. Do you believe that chit company gives a high return of investment:

High Moderate Law

20. Are you ensure, the chit funds can be relied upon to satisfy your personal needs:

Yes No

21. State your opinion whether chit fund investment is more convenient or not :

Yes No

22. Do you think popularity of chit fund influence you to take chitty:

Strongly agreed Agreed Neither Disagreed

Strongly disagreed

23. Do you think you earn befit from joining chitty company:

Yes No

24. Do you think that the starting procedure is simple:

Yes No

25. If yes, it influences you to take chitty:

Yes No

26. Is your chit company offers lotting or prizing :

Yes No

shiney c n

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