Illegal chit fund companies are flourishing in islands situated in and around Kochi. The failure of many such companies in the past has not deterred islanders from joining new ones.
Established companies require customers to stand surety, but smaller firms promise easy funds. The islanders fall prey to such lucrative offers.
In Mulavukad island, many failed chit fund companies have reappeared, after a hiatus, under new names. P.V. Udayan, a resident of Mulavukad and an advocate who has handled cases of chit fund fraud, said cases against at least two such companies were registered in recent years. A chit fund company that operated in the island in the 90’s collapsed, but no punitive action was taken against the proprietors, Mr. Udayan said.
One of the proprietors launched a new firm a few years later, which also failed. When the matter came before the court, the company’s assets were ordered to be sold.
A multi-storeyed building belonging to the owners was auctioned to recover the customers’ money.
There were many instances of unregistered chit fund operators duping customers by extending gold loans.
Customers were given back duplicate ornaments, Mr. Udayan said. Chit fund operators generally deploy women to collect daily instalments from clients.
Then several chit funds are run simultaneously. The money received from one is used to run the others. The prize amount given to the winner of a chit is often the amount collected from another chit. The process finally reaches a stage where the manager fails to honour the commitment made to the subscribers.
Another fraudulent tactic adopted by operators is to offer a rate of high interest for deposits. The manager persuades the winner of the chit to reinvest the money for a high rate of interest. When the chit fund fails, the subscriber loses the entire money.
“Lavish spending by the fund operator and lack of security are the main reasons for the failure of chit fund firms,” said Mr. Udayan.
Local chit funds are run on the basis of mutual trust. Records of receipts for the daily collection are not mentioned in the agents’ books.
Thus, in the event of a collapse, the subscribers do not have evidence to prove they have been cheated. “The local police are hand in glove with chit fund operators,” said Mr. Udayan.