Chit funds are the Indian equivalent of the Rotating Savings and Credit Associations (ROSCA) that are famous throughout the world. ROSCAs are a means to ‘save and borrow’ at the same time. It is considered one of the best instruments to cater to the needs of the poor.

The concept of chit funds originated more than 1000 years ago. Initially it was in the form of an informal association of traders and households within communities, wherein the members contributed some money in return for an accumulated sum at the end of the tenure. Participation in chit funds were mainly for the purpose of purchasing some property or, in other words, for ’consumption’ purposes. However, in recent times, there has been tremendous alteration in the constitution and functioning of chit funds. With the advent of the Chit Funds Act, initially in the year 1961 (Madras Act) 3 and amended subsequently in the year 1982 (Central Act), 4 chit funds have been highly regulated and governed by stringent rules. The purpose of the said Act and its proposed benefit to the chit funds industry is, however, questionable.