Chit fund cos go tech-savvy with huge data at stake on getting legal status

Last week Lok Sabha passed the Chit Funds (Amendment) Bill, 2019, amending the Chit Funds Act, 1982

The recent passage of the Chit Funds (Amendment) Bill, 2019, has provided a firm footing to the sector and this is set to give a fillip to fintech companies surrounding the space.

This is likely to trigger a quest by several fintech firms to tap into the gold mine of data hidden in the sector, running into several crores.

Over the last couple of years, several fintech players are in the business of data analytics in the chit fund sector. 

They provide services like credit bureau checks, facilitating loans for chit fund subscribers and companies. 

Also, in recent years, with banks and non-banking financial companies (NBFCs) facing liquidity crunch, chit fund has turned a booming business.

According T S Sivaramakrishnan, president, All India Chit Fund Association, and managing director of Balussery Benefit Chit Fund, the sector has been growing around 10-15 per cent annually over the past few years.

“After demonetisation, we saw good growth in terms of value of chit funds. With banks and NBFCs shying away from lending, many small entrepreneurs are turning to chit funds,” he said.

 “Size of untapped data in the chit fund industry is mind boggling and credit profiles of several low and mid income groups lie here. We have come across several players seeking access to this data for cross selling,” Sivaramakrishnan added.

Size of the organised chit fund industry is close to Rs 60,000 crore, with 45,000 registered chit fund entities working in the country. However, size of the untapped chit fund sector is more than 30 to 40 times of the regulated one.

In 2016, Pavan Adipuram started ChitMonks, a platform which uses blockchain technology to smoothen flow of information from chit fund companies to regulators. 

Its flagship product, T-Chits, is now being used by the Telangana government for collecting regulatory information about chit fund companies in the state. The companies have to mandatorily use the software for filing regulatory documents.

“This is an amazing data, that of close to millions of subscribers in Telangana alone. Their (chit funds in Telangana) collective annual turnover is close to Rs 18,000 crore. Earlier, this data was totally missing from the system. Now, one can bootstrap the credit identities of these subscribers and help them in accessing more financial products. It will open a new domain of fintech solution services,” said Adipuram.

 

In 2017, Neeraj Bansal  started CredRight, a fintech company which provides credit check services and arranges loans for chit fund subscribers. The company analyses data of subscribers by chit fund companies, a segment with no links to credit bureaus due to lack of access to organised finance. 

It also arranges loans for those who are not successful in the initial chit fund auctions. “We arrange funds for both chit fund companies and subscribers, as both face liquidity issues. Also, most chit funds do subjective underwriting, as they don’t have any knowledge of factors beyond previous repayment history. We do data analysis like cash flows and financial sustainability of subscribers and give them ratings,” said Bansal.

According to Sridhar Narra, CEO, Kireeti Soft Technologies, which provides software for conducting chit fund operation, technology is helping in streamlining the sector, particularly, identifying good customers.

“These are real big numbers. The chit fund sector would roughly represent 20 per cent of the retail banking segment. There is a huge potential in analysing this data, as in rural areas there are a large number of subscribers who have excellent ratings. That is not captured by any credit bureau,” said Narra.

One of the key recommendations of the sector, ahead of the amendment in the Act, was to allow chit fund companies to undertake fee-based activities, like selling third party financial products, said Janardhan Reddy, member of the key advisory group for NBFCs, Union ministry of finance. Reddy was instrumental in bringing in the recent amendment.  According to Reddy, in Andhra Pradesh and Telengana, the biggest markets for chit funds, the industry growth has been around 25-30 per cent annually, surpassing national growth, in the last few years. Last week, the Lok Sabha passed the Chit Funds (Amendment) Bill, 2019, amending the Chit Funds Act, 1982. The prescribed ceiling of aggregate chit fund deposits for individuals has been raised from Rs 1 lakh to Rs 3 lakh and in case of firms, the limit has gone up from Rs 6 lakh to Rs 18 lakh.