Chit funds beat MFIs, says study

Chennai, Oct 30: The registered chit fund industry is much bigger in size and “reaching to poor people”, providing good returns on savings and borrowings compared to the other financial vehicles available for the poor such as micro finance institutions (MFIs), according to a study.

Around 58 million households participated in chit fund schemes with an amount circulation of Rs 11,088 crore in 2006 in Tamil Nadu, Andhra Pradesh and Kerala, reveals a study released by the Institute for Financial Management and Research (IFMR).

The study was funded by the Bill and Melinda Gates Foundation.

Ms Preeti Rao and Ms Sharon Buteau of the Small Enterprise Finance Centre at IFMR said that the registered chit funds in the four southern states are well organised and matured.

The two researchers have been studying the industry in Tamil Nadu, Andhra Pradesh, Delhi, Kerala and Karnataka for the last three years.

The study also observed that the interest rate on the money lent through chit funds varies between eight per cent to 28 per cent a year, and is low compared to the other private financial institutions, at 24-36 per cent a year.

In addition, they provide better returns on investment than the other options available to the customers.