Chit fund firms in Kerala cheer Supreme Court ruling

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The apex court ruling to bring chit funds under a uniform Central law will mean much to the whole business so unique to the state. Deccan Chronicle looks into the gamut of the big business

The around Rs 85,000-crore chit fund business in Kerala has reasons enough to cheer with the Supreme Court ruling that all chit fund operations would be brought under a common Central rule. Soon people will not see operators here running chitty firms headquartered in Srinagar or Faridabad.

Efforts by the state government way back in 1975 to bring the operations of the whole business of chit funds, so distinct of Kerala, under control and subsequent amendments have now come to naught with the apex court ruling that the Central Chit Fund Act, 1982, would be applicable to all chit funds.

This means that the law would be applicable to the around 5,000 firms, of which more than 3,000 in Thrissur district alone, that operate in the state.

According to Davis K., general secretary of the All-Kerala Kuri Foremen’s Association, it was when the business was flourishing that the authorities thought about bringing control and came out with rules like the Cochin Kuries Act, 1932, and Travancore Kuries Act, 1945. Finally came the Kerala Chitties Act, 1975, aimed at bringing the business under a uniform law in the state.

“Kerala government brought the law after complaints of malpractices in the business,” he said. However, he admitted that it was not that there were no frauds like in other businesses.

But the new rules were not favourable to the business, Mr Davies says. Provisions like auction discount should not exceed 50 per cent of net-owned funds of the chitty company and security to be furnished by the company slowly made the companies move out of the state, first to Karnataka and later to Haryana and Jammu and Kashmir.

The passing of the Central Chit Fund Act, 1982, made the state government challenge it. And finally, the Supreme Court has now ruled in favour of the Act, a long-standing demand of the association, says Mr Davies.

“Under this Act, companies will not have to go out of the state to run their business. There is a uniform law and business can be run smoothly. While under the State Act there was the condition of discount not exceeding 50 per cent of the net-owned funds, the Central Act will allow the companies up to 10 times the funds,” he adds.

However, Mr K.R. Vivekanand, inspector-general of registration and director of the KSFE, says that the government was looking into the order of the apex court and would accordingly frame rules.

All exemptions given to KSFE would now need the sanction of the Reserve Bank as the enterprise had gone beyond mere chitty business and was into several banking operations, chitty operators in the state say.

this Rs 85k cr business had a royal birth

The genesis of the whole business of chitty can be traced to the early 19th century when the concept of collecting a handful of rice from homes to support them during times of famine slowly extended to collecting small amounts and helping trade and business through loans.

Says Mr Davis K., general secretary of the All-Kerala Kuri Foremen’s Association, “The whole business of chits started in and around Thrissur during early 1800.”

Chit fund operators say that once the ruler of the erstwhile Cochin state in 1800, Raja Rama Varma, gave a small loan to a Christian trader in Thrissur.

He held back a certain amount of the loan citing that it was for meeting the administrative expenses. But when more people came asking for loans, a scheme was devised where lots were taken and loans given.

This then developed to the present format which is big business, and the state government-sponsored Kerala State Financial Enterprises targets a chitty business of `14,400 crore by the end of two years.

This continued for around two to three decades when the Chaldean Church stepped in launching its own chitties or kuries as known locally. Passbooks and contracts were introduced giving chitties some legal standing.

From helping the needy, this soon developed into big business across the state, especially in Thrissur. People made monthly contributions and those in need would bid every month.

The amount received will be after holding back a percentage of the total prize money and the commission of the company or group running the chitty. Several churches across Thrissur got into this business giving it the much-needed ‘credibility’, Mr Davies says.