The origin of the Chit Funds can be traced
back to many centuries in the rural parts of Southern India.
Chit Fund is one of the oldest forms of indigenous financing in
India. It is also a means of saving. In the ancient form of a
Chit Fund scheme, a group of persons would deposit a fixed
measure of grains with a trustee periodically, and the total
quantity of grains collected at the end of any given period
would be given to one among them, by drawing lots, is called 'kurippu'
in malayalam from which the word 'kuri' is derived. The
words 'kurippu' and 'kuri', translated into English, means
'Chit' from which the term 'Chit Fund' was coined.
The Chit Fund schemes have remained much the same even today as
they were in the beginning. One difference that has arisen
over the centuries is that now the subscribers contribute in
terms of money instead of agricultural produce as it used to be
in the earlier days. The basic characteristics of a Chit
Fund scheme, namely ,all subscribers contributing to common fund
which is given to one of the subscriber is rewarded with the
Chit amount (known as 'Chit prize amount') by the end of the
scheme, remain without any change even today.
In the olden days, when banking facilities were not available in
the rural parts of the country, the needy people mainly depended
on Chit Funds, as a mutual benefit activity for satisfying their
financial needs. Even now, the procedural difficulties in
availing bank finance make Chit funds an attractive and easy
source of finance to a common man. In recent years, the
Chit Fund activity has assumed the characteristics of a business
and it has spread from the rural areas to urban areas.
A Chit Fund is, thus, a mutual benefit saving scheme of a group
of people who are the subscribers to the scheme. All
subscribers contribute to the scheme in installments.
After receipt of every installment, a lump sum amount is given
to one of the subscribers by draw of lots or by auction,
so that everyone of them is awarded the amount by the end of the
scheme. The Hon'ble Supreme Court has held in M/s Shriram Chits
& Investments (P) Ltd v. Union of India (AIR 1993 SC 2063) that
Chit Fund business cannot be termed as money lending businesses.
Most of the subscribers to the Chit Fund schemes are individuals
who use these schemes to channelise their savings or are
planning to meet their financial commitments in future.
Whenever a subscriber needs money, he may bid for the Chit to
receive the Chit amount. Since the installments may be
spread over many years as per a Chit Fund scheme, the
prize amount is repaid over the years. Small traders form
a sizable chunk of subscribers who use Chit Fund schemes as a
means of financing their businesses.
The popularity of Chit Fund schemes is on the increase in
certain parts of the country. More and more Chit Fund
enterprises are coming up with attractive prizes. Many of
such Chit Fund schemes are fully subscribed