Origin & History Of Chits:

A totally Indian concept, the chit fund system has now been globally operated and won universal acclaim. In the villages of India, many years ago, a small group of farmers operated a unique scheme. Each farmer gave a fixed quantity of grains periodically to a selected trustee. The Trustee, after keeping aside a portion for himself, gave the rest to a member of the group to help him to meet his social commitments and other needs. The farmer who received the lot continued to give the fixed quantity till every member of the group received his lot. The additional benefits when receiving the lot earlier led to competition. Some members were even willing to forgo a certain portion (like a discount) of the lot, in order to get an earlier chance. So, an auction was held and the highest bidder got the lot. This was the basis of what we know today as the “chit fund scheme”. A chit fund, thus, is a financial arrangement or Institution based on mutual trust and confidence. The membership is voluntary. People join a chit fund either to obtain easy credit or to find an avenue for the investment of their savings. The main attraction is the availability of a lump sum either for expenditure or for saving. The expenditure may be mostly consumption expenditure, especially on consumer durables or for such purposes as marriages, religious ceremonies or to pay off an old debt and also for acquiring a house or plot of land. Thus, chit fund has become a mode of saving and a source of credit.