Shanthala Chits has long been a pioneer in the chit fund business. We started as a small family-owned business that managed the money of a few trusted friends and family. Now, after 24 years of successful operations and thousands of satisfied customers, our second-generation leadership is ready to take the company to the next level. Amongst our top priorities is Modernising Chit Funds for the new age investor.
Chit funds have long suffered from the twin problems of perception and scale. They are mostly run as family businesses with limited reach and manual operations. That is the reason the clientele has mainly been restricted to middle-class households and rural women. The challenge for chit funds is to scale up and attract other sections of society such as young earning adults, senior citizens, small/medium businesses, tech-savvy investors. The second challenge is to beat the perception of being insecure and prone to frauds and scams. Actually, the fraudulent ones were not properly registered chit funds at all! They were private firms and Ponzi schemes which exploited the ignorance of the investor.
The best way forward for chit funds to gain credibility and mass adoption is to embrace technological and policy changes. There is already a major positive step taken with the legislative changes brought about by the Government of India in its CHIT FUNDS (AMENDMENT) BILL, 2019.
The various aspects of chit fund operations that can be modernized are discussed below:
Mostly run as family businesses with tight control over the entry of investors, scaling of the customer base is an uphill task. There is a specific reason why most chit fund houses are reluctant to expand beyond the promoters’ direct control. Only customers with strong referrals are enrolled. A majority of chit fund investors are repeat customers.
That’s because there is zero-tolerance for payment default by an investor in the chit fund business. The promoters are merely custodians of the invested money and entitled to a fixed percentage commission. Every month, the chit money has to be awarded to one investor. So any payment default will directly affect the operations.
Enabling online enrolment into chit fund schemes based on credit scores, salary certificates, IT returns is one way of ensuring seamless and secure addition of new customers. This also requires a marketing budget to reach remote customers.
Shanthala Chits has been actively investing time and effort in providing a customer-friendly website. We are also engaging with our customer base through peer network groups and financial awareness programs.
Verification of a customer’s bona fide credentials and payment capabilities is a critical responsibility of chit fund houses. The KYC process followed by NBFCs such as mutual funds and home loan providers can be applied here too. The criteria can be fixed and published. Mobile OTP / Adhaar based verification are some easily doable steps. eKYC is quite prevalent in the financial sector nowadays. Adopting these methods can help chit fund houses expand without cumbersome manual contact verification complications. By formalizing these procedures, the chit fund business also gets much-needed credibility and transparency boost.
At Shanthala Chits, we follow complete KYC procedures. Thorough verification of all bidders and sureties is done before releasing the bid amount which ensures the safety of investor’s money.
E-payments during monthly installment schedules and prize money withdrawals can be considered for investor convenience. Allowing standing instructions for automatic installment payment can also ensure a reduction in payment defaults.
Chit fund companies can also evaluate the merit in providing a web application / or mobile app for registered investors. A dashboard of past withdrawals, the transaction history will help investors get a quick view of the scheme status they are invested in.
To facilitate investor convenience, Shanthala Chits permits investors to make e-payments of their monthly contributions.
There are several other initiatives that can bring about positive change. It requires industry-wide consensus and visionary leadership from companies and governments. Shanthala Chits has already started working in the direction of modernizing operations. We are also actively working on forging partnerships with promising fin-tech start-ups to help build a digital eco-system for our products. As a result of some of our initiatives over the recent years, we are already able to see the average age of our investors reducing over the years, it is now around 40 years.
With the current COVID crisis accelerating contactless operations all across the globe, we are working towards increasingly deploying technological and business solutions to improve user convenience and robust company growth. Watch this space for more of our initiatives. Contact us for any questions