The government is all set to press for the passage of Chit Fund (Amendment) Bill, 2019 on day one of the winter session of Parliament beginning Monday to facilitate orderly growth of the chit fund sector and removal of bottlenecks being faced by the industry to enable greater financial access to people.
The Bill will put in place mechanism to ensure transparency in chit fund schemes and protect subscribers.
It is among 12 pending Bills which are listed for consideration and passing in Parliament. Currently, there are 43 Bills pending in the Parliament. Of these, 27 Bills are listed for introduction, consideration, and passing while seven are for withdrawal.
Union Finance Minister Nirmala Sitharaman will move the Bill to amend the Chit Funds Act, 1982, for its consideration and passing as it was introduced in the Lok Sabha on August 5 during the monsoon session.
The Bill which reduces the regulatory or compliance burden of registered chit funds industry was approved by the Union Cabinet in July for its introduction in Parliament.
The Bill seeks to achieve insertion of the words "fraternity fund", "Rotating Savings and Credit Institution" in clause (b) of section 2 which defines "chit" and also in section 11, to signify its inherent nature and distinguish its working from "prize chits" which are banned under a separate legislation.
It proposes to substitute the expressions "gross chit amount", "share of discount" and "net chit amount" for the expressions "chit amount", "dividend" and "prize amount" respectively in the Act to remove confusion with respect to illegal prize chits.
The Bill seeks to revise the prescribed ceiling of aggregate chit amount from Rs 1 lakh to Rs 3 lakh for individuals and from Rs 6 lakh to Rs 18 lakh for firms, which have not been revised since 2001.
It's focus is to allow the mandatory presence of two subscribers, as required under sub-section (2) of section 16, either in person or through video conferencing duly recorded by the foreman.
It proposes for the presence of the mandatory two subscribers through video conferencing, the minutes of the proceedings to be signed by them within two days of the date of the draw, and to increase the ceiling of foreman's commission from five per cent to seven per cent under section 21.
The Bill seeks to enable the foreman to have a right to a lien against the credit balance in other non-prized chits, and to amend clause (b) of section 85, so as to confer power upon the state government to specify the amount by notification, upto which any chit fund shall be exempted under the Act.
The Chit Funds Act, 1982, was enacted to provide for the regulation of chit funds which are indigenous businesses in India and have conventionally satisfied the financial needs of the low-income households.
The chit is a mechanism which combines credit and savings in a scheme, in which a group of individuals come together for a predetermined duration and subscribe a certain sum of money by way of periodical installments and each such subscriber, in his term as determined by lot or by auction or by tender or any other specified manner, gets the collected sum.
In this way, people who are in need of funds and those who want to save are able to meet their requirements simultaneously.
As various stakeholders had expressed concerns regarding challenges being faced by the chit business in the past, the Central government constituted a key advisory group on chit funds to review the existing legal, regulatory and institutional framework for chit funds and its efficacy and to suggest legal and regulatory initiatives required for orderly growth of the sector.
The key advisory group has submitted its recommendations relating to improvements in the institutional and legal structure to further develop the chit business in order to reduce the regulatory burden of the chit business and to protect the interests of the subscribers of the chits.
The Parliamentary Standing Committee on Finance (16th Lok Sabha), in its twenty-first report on "Efficacy of Regulation of Collective Investment Schemes (CIS) Chit Funds, etc" had also recommended to finalise the legislative and administrative proposals for strengthening and streamlining of the registered chit fund sector.
Further, the Committee, in its thirty-fifth report on the action taken by the government on the recommendations contained in the twenty-first report, has recommended the need to quickly firm up the legislative and administrative proposals for the chit funds sector.
The Chit Funds (Amendment) Bill, 2018 was introduced in Lok Sabha on March 12, 2018 and it was referred to the department related to Parliamentary Standing Committee on Finance on April 27, 2018 for examination and report. The Committee submitted its report on the Bill on August 9, 2018.
However, before the recommendations of the Committee could be examined, the term of the 16th Lok Sabha came to an end and the Bill was lapsed. After examination of the report, some of the recommendations of the Committee have been incorporated in the Chit Funds (Amendment) Bill, 2019.