IDEAS home Printed from https://ideas.repec.org/a/sae/revmar/v3y2011i3p287-333.html
   My bibliography  Save this article

Chit Funds as an Innovative Access to Finance for Low-income Households

Author

Listed:
  • Mudit Kapoor
  • Antoinette Schoar
  • Preethi Rao
  • Sharon Buteau

Abstract

Chit Funds are indigenous financial institutions in India that combines credit and savings in a single scheme. In a chit fund scheme, a group of individuals come together for a predetermined time period and contribute to a common pool at regular intervals. In order to understand the intricacies of the chit fund model in India, we studied the size of the registered chit fund industry and how it serves the members. We find that the money circulated in the registered chit fund industry ranges from 10 per cent to 50 per cent of bank finance when compared to the total deposits and credits in the bank. The number of chit schemes registered has been reducing over the years. The average percentage change in the number of schemes registered from 2003 to 2006 is approximately a negative 10 per cent. While the number of schemes has reduced, the total value of registered chit schemes increased by approximately 13 per cent from 2003 to 2006. Our survey of the chit fund members shows that as much as 72 per cent of the members participate in chit funds for saving. Additionally, 96 per cent of the current and non-current chit fund members think that chit funds are safe. Majority of the current and non-current chit fund members belong to low-income households. Our study also suggests that the institutional arrangements which govern the functioning of the chit scheme that have emerged seem to serve the interest of all participants irrespective of their socio-economic status. Perhaps, this could explain why this industry has survived for such a long period of time. Our findings point to the fact that though chit funds are an important source of finance for small businesses and low-income households in India, there has been a general exodus of low value chit schemes from the registered chit fund market. This is mainly because registered chit funds find it less lucrative to serve the poor due to the increased cost of operating such schemes imposed by the regulators. We find that the chit fund industry addresses the savings needs of people, is considered very safe and also offers loans at lower interest rates than moneylenders.

Suggested Citation

  • Mudit Kapoor & Antoinette Schoar & Preethi Rao & Sharon Buteau, 2011. "Chit Funds as an Innovative Access to Finance for Low-income Households," Review of Market Integration, India Development Foundation, vol. 3(3), pages 287-333, December.
    • Handle: RePEc:sae:revmar:v:3:y:2011:i:3:p:287-333
    DOI: 10.1177/097492921100300305
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/097492921100300305
    Download Restriction: no
    File URL: https://libkey.io/10.1177/097492921100300305?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. C. Badarinza & V. Balasubramaniam & T. Ramadorai, 2019. "The Household Finance Landscape in Emerging Economies," Annual Review of Financial Economics, Annual Reviews, vol. 11(1), pages 109-129, December.
    2. Czura, Kristina & Klonner, Stefan, 2023. "Financial market responses to a natural disaster: Evidence from credit networks and the Indian Ocean tsunami," Journal of Development Economics, Elsevier, vol. 160(C).
    3. Kavitha Ranganathan, 2018. "Does Global Shapes Of Utility Functions Matter For Investment Decisions?," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 341-361, October.
    4. Irudaya S. Rajan & Pooja Batra & Reddy Sai Shiva Jayanth & Tharatha Moolayil Sivadasan, 2023. "Understanding the multifaceted impact of COVID‐19 on migrants in Kerala, India," Development Policy Review, Overseas Development Institute, vol. 41(1), January.
    5. Kristina Czura & Stefan Klonner, 2018. "Financial Market Responses to a Natural Disaster: Evidence from Local Credit Networks and the Indian Ocean Tsunami," CESifo Working Paper Series 7354, CESifo.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:revmar:v:3:y:2011:i:3:p:287-333. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.idfresearch.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.