My life centered around the word and world of Chits since my
childhood. Whenever I asked my mother to buy any toy or ice cream, the answer
would be, ‘No money, we need to pay for the chits’. My sister and me hated
chits so much, as most of my mother’s salary was drained as subscription to
chits. But later we realized that it was a very good investment strategy. My
mother bought every consumer durable of the house like TV, Refrigerator, Water
pump, furniture etc. through her chit savings. She renovated the house and
invested in jewellery through careful and calculated bidding at chit auctions.
In fact, there used to be tacit understanding between her teacher colleagues at
the time of chit auction. They would have discussed and decided who was in dire
need for funds at that point of time so that others would never jack up the
bid. Even today, after several decades, she continues to invest in chits. But
she has been wise enough to invest only in the chits promoted by the government
companies and co-operative banks. She forces my professor sister and me to subscribe
to the chits of the Kerala State Financial Enterprises (KSFE). I agree, but boldly
default on the monthly subscriptions. I know, my mum will pay on my behalf
promptly! KSFE, which is state-run has a blemish-free record.
Millions of people use chit funds, a rotating savings and credits
association, as an avenue for savings, meeting expenses and for making
investments. This is because the chit sector is less sophisticated, more
transparent and easily accessible. This is one of the oldest financial sectors,
unique to India. However, after the Saradha scam, there is a lot of hue and cry
against chit fund companies. Thousands of people from the lower middle class
invested their hard earned money in the group and shocked to hear the news that
the company has been closed. Incidents of suicides were reported from various
parts of West Bengal as many lost their entire life savings.
Why chit companies became cheat companies?
Blame it on our regulatory enforcement. We are very good at
making rules. But fail in our enforcement. Apart from the Central Chit FundsAct (1982), most of the state governments have their own chit regulations. For
example, Kerala state enacted the regulations as early as in 1914. Thus, there
is no dearth of sector specific regulations. The rules and procedures of
Registrar of Companies, though not fully equipped to curb proliferation of
‘paper’ companies, are not complied. This has resulted in having multiple
companies registered from a single address with all possible permutations and
combinations in the names of Directors. Thousands of companies vanish every
year after collecting huge sums of money from millions of people.
 |
| (phooto source: PTI-New Indian Express) |
Where were the auditors of these companies, who were
supposed to be the watchdogs? Laugh with me! Most of these auditors are nothing
but predators that suck the blood of their clients. None to regulate them, as they
are ‘self-regulators’! (See my article). There are a few sincere and committed
auditors and audit firms. But they are side-lined by the mighty audit firms,
who never want to leave their large clients to whom they are more eager to
offer consultations than audit.
The need for stringent enforcement
In a greedy, unethical and lax environment that nurtures
shameless competition to amass wealth adopting any means, the hapless and
financially illiterate common people suffer the most. In India, though
investigations were conducted on hundreds of fraudulent banking companies, only
a microscopic minority of investors have got their money back. Then what is the
use of such investigations, when the victims have not been compensated and the
scams continue to happen at regular intervals across the country?
Authorities need to
enforce the rules stringently and ensure that every rupee invested by common
man is repaid back with interest. No individual or agency should be allowed to
engage in chit business without following the procedure. It is true that there
are thousands of genuine chit funds, both in private and public sector catering
to millions of people. These ventures need to be encouraged as they create the habit
of saving and also provide financial security.
(c) Sibichen K Mathew
Views are personal. Comments are welcome.
Click links below to read other articles in Cyber Diary on related subject
Satyam: A case of worst audit failure
Frauds, Scams and a Corporate Lokpal
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