The Chit (Cheat!) Fund Saga in India

As the resentment against scam and corruption assumed unprecedented proportions, with thousands of crores rupees were siphoned by a few individuals and entities from gullible investors, it is also important to stock of corrupt practices in all form of businesses including the chit funds (Non-banking finance companies). Most of the Ponzi schemes and chit fund disasters commenced from ethical bankruptcy on the part of senior executives and chairpersons of such businesses as thy tend to show annual growth in business, caused by infectious greed brought in creative accounting and the philosophy of earnings management and promises of fabulous returns. The myopic profit-led approaches against value-led approach paved the way for this bust! The unscrupulous owners and key management people of the chit funds take advantage of grey areas in the rules in order to raise funds through Collective Investment Scheme (CIS)and to portray their bottom line in a misleadingly positive way. The lure of accounting gimmickry & exorbitant rate of returns, lack of financial literacy and industrialization, absence of formal banking system in rural areas, political patronage are the main reasons for mushrooming such Ponzy schemes and chit funds in India. While most of the stakeholders have become savvier to the gimmicks over the years, dishonest owners and managers of such chit funds continue to find new tricks to dupe the investors at large. This paper intends to find out the spectrum of chit fund frauds and trace out the preventive measures to overcome the situation permanently