methods of chitties
TRANSCRIPT
ANNEXURE - I11
METHODS OF CHITTIES
Informal savings and loan associations are mainly two kinds, viz., fixed-
income associations and rotating funds. The most common form of informal savings
and c red~t association is Rosca (Rotation of Saving and Credit Association). The fixed
- iund association which are mostly like banks of the formal sector, in which
part~cipa~ir gives savings at regular intervals to a treasurer who i n turn holds them for
safe keep~ng them, return the sum at the end of the year or what ever period the group
has decided on. (Miracle et.al. 1980)
Most commonly officers of the group lend money held on deposit to members
sornerllne; at interest and possibly to non-members as well. If loans are made to non-
menlbers Interest seemed to be charged and at a higher rate than to the members
(Delancek. 1978: Savings and Credit Institutions in Rural West Africa: An
Introduction Rural Africans, No.2). Interest income ultimately is distributed among
the members. When loans are made to non-members savings and loan associations
may be much like formal sector banks.
3.1 Rotating Funds
In )he case of rotating funds each participant contributes a fund that is then
glven [o one member each time the group meets. The right to the fund rotates until the
fund has been received by every one. This is also called as Rosca. The way
participant:, are affected as savers, borrowers and lender creation of a fund that
rotation perhaps can be seen most readily by examination of a group with only a
rotat~ng fund. As borrowers participants in association with a rotating fund get loans
at Lero rate of interest for a duration that could be predicted only after the cycle
started and \equence of rotation was determined, if they had the fund before their turn.
they frequently paid something for the privilege whether as an amount negotiated with
the ~nd~v idus l whose turn they take, by auction or by some other device. Hence they
p,iid inrerehi bhether it hears that name or not.
3.2 Membership
Members participating in Roscas are selected by the organiser on ethnic lines
or geographical limitations such as same place of origin, same native language,
speaking person etc.
3.3 Contribution Amount
The amount to be contributed in each cycle is decided on the number of
participating members the total winning amount that each member can get and other
socio-economic factors. contribution can also be in the form of shares thus allowing a
member to have more than one share or contribution in a particular cycle. Increasing
his chances of winning the lump sum, but also increasing the regular contribution he
has to make. (Souman, 1979)
3.4 Cycle Period
Cycle period is frequency with which contributions have to be made. This can
be daily, weekly, bi-weekly, monthly, and half yearly depending on the amount to be
contributed, u!;ually smaller the amount shorter the cycle periods.
3.5 Mode of Selecting the Winner
The basis of deciding the winner of the lump sum is decided in any one of the
three ways. By consensus- whereby common agreement between members and the
amount is usually given to a member who needs finance urgently. By lot- where a
lottery determ~nes who gets the lump sum in a particular cycle members who have
received the lump sum do not participate in subsequent lotteries but continue their
contribution. In some cases after getting the prize amount the member need not pay
the subsequent amounts. By bidding- where the lump sum amount is bid for by the
members during each cycle. Thus the member who wins the bid will receive the lump
sum minus the bid amount.
Different methods of chitties are listed in the following Charts as found in the
study area with normally transacted amounts.
3.6 Methods of Chitties
*After 40 months 40 subscribers would be paid their prize amount. The major feature
of this chit is that once the member got their prize amounts they need not pay further
~nstalments. So after 40 months (with the assumption that no defaults) there would be
260 (300-40) subscribers. The following chart shows the process of the chit.
Chart 3.1
Type 1 ;" Periods Subscription Prize Amount
4o*t+,lX1 50 2000
At the end of the chit the remaining members (41 number onwards 260
subscribers) are to be given Rs.2,500/- each agreed to pay at the beginning of the chit.
So a total of Rs.6, 50, 1300/- (2,500 x260) has to be mobilised by the foreman to pay
off the prize amounts. From the above table it is clear that the foreman got
Rs.4,69,050 from the subscribers of the 40 instalrnents, and the balance to be found
out is equal to Rs.6,50,000 - Rs4, 69,050 = Rs. 1.80.950. In order to raise the money
needed to payoff the prize amounts, he lend out the amounts that he got from
subsequent instalments t i l l 4oLh one.
amounts* Months Total Amount
Rs.2500 1-20 50,000
No. of Subscribers
I I * Includes commission
1 50 months 1 100 I Rs.2.500 - Rs.5,500
Period
Rs.3500
Rs.4000
Rs.4500
Rs.5000
Rs.5500
Within 50 months 50 subscribers are paid their prize amounts. The distribution
of prize amount is shown in the following chart. Once they got the prize amount, they
need not pay further subscription.
Chart 3.2
Subscription (Rs)
26-30
31-35
36-40
41-45
46-50
Prize Amounts (Rs)
17,500
20,000
22,500 -
25,000
27,500 -
Total 1,77,500
After 50 months, the rest of the subscribers have to be given Rs.5, 500 each
(500 more than what is actually paid). So the total amount the organiser requires at the
end of the chitty is equal to 110~5,500 =Rs.6,05,000. The total amount collected over
the years is equal to Rs.5,04,950. Total amount advanced to the subscriber over 50
months 1s equal to Rs. 1.77, 500. So at the end of the chitty, the foreman requires:
Rs6,05,U00 - 5,04,950 = Rs.1,00,050
It was found that the balance amount the foreman gets after each chitty was
lend out on daily, monthly and 100 day's loans at high rate of interest in order to raise
Special features
1) Only a few subscribers (only close friends)
2) First prize amount (chitty) belongs to the foreman as commission
3) Winner is selected in advance by consensus
4) Each subscriber has 3 chitties at a time
the needed money at the end of the period.
Type 3 (Offer Chitties)
Period
25 months
Subscription (Rs)
4000
Prize Amount (Rs)
100,000
5) Other than the first chit as the commission foreman earns 5 % commission on
each chit
The turn or months of getting the chitties for each clients is outlined in the following
chart.
Chart 3.3
No. of Subscribers Period
24 months
Subscription
(b.)
5000
Prize 1
Amount (Rs.)
1,20,000
Chart 3.4
Total amount collected over 24 months =Rs.98,880 x 24 = Rs.23,73,120
Total amount of money disbursed over 24 months =Rs.21,93,000. The difference
between the two is profit.
Rs.23,73.120-Rs.21,93,000=Rs.1,80,120
Type 5
Chitty is drawn 1 auctioned on every 15" day. The maximum prize amount is
Rs.1,12,500-Rs.7,500=Rs1,05,000
m
The method is given in the following chart
Chart 3.5
* Rs.3750115 = 250 Rs.per day will be collected.
3 L
&
- h X
5 s 3 2 $ 5 m .A = E!
8
9 .
10 -
2. - 5 .- - a .- I. u 2 3 V1
2: F m
1 12500
73500
1 12500 .
aJ - 5 o m 3
* 2 2 r d S 0) V1
. 3 .s
g 3
73500
105000
73500
s - .- O .9 - a z .= 5 = $ 2 6 %
vl
* 2 . 0 c r; '= 6 i? -
OU
a - a V1
3 G
o 8 :: 2 m - r' ' ?
2 2 -
7500
7500
7500
Auction
Draw
Auction
39000
-31500
39000
69000
37500
76500
Total profit at the end of the chitty Rs. 1,51,500
I I 1 I
40 1 41 months I 5000 (initial) I Auction 200000
xlviii
Total Amount Subscribers
Period Subscription
(Rs.)
Mode of Selecting
the Winner
Features: - I . The first chit belongs to the foreman
2. The lower ceiling of auction is Rs1,40,000 (Rs.2,00,000 - 30 % of Rs.2,00,000)
3. Instalment depends on the auctioned amount Rs.3.500 x 40 = Rs.1,40,000
4. 5 % commission will be deducted from the auctioned amount.
5. If there are more than one person for auction, lottery I draw method will be used
The method is given as follows
Chart 3.6
Install.
No.
I
2
3
4
5
6
7
8
9
10
I I
12
13
14
15
16
17
18
19
* It is assumed that prize amount is auctioned at minimum rate
The total profit obtained by ICM Rs.5.41,000 over 41 months.
First draw Rs.2.00.000 - 5 % of Rs2,00,000 = Rs1,90,000
Second draw Rs.2,00,000 - 5 % of 2 Lakhs
= Rs. 1,90,000 - 40 % of Rs. 1,90,000 = 114000
No. of
Subscribers
[ C h i tties % deduction in Auction
Chart 3.7
Period
40
I I I
IOOOO ( Draw ( 10000 1 10000
10000 I Auction 1 86000 1 96000
Subscription
5000
-1 10000 Auction 86000 106000
I I I
10000 I Draw 1 -76000 ( 30000
Method of
Selecting
Winners
Alternate Draw /
Auction
I I I 10000 1 Auction 1 86000 1 116000
Total
Amount
(Rs.)
200000
I I I 10000 1 Draw 1 -76000 ( 40000
IOOOO Auction 86000 126000 -1
1 ' 0 1 5000 1 200000 ( 114000 1 10000 I Auction ( 86000 ( 136000 (
200000 114000 10000 Auction 86000 156000
114000 190000 10000 Draw -76000 80000
200000 133000 10000 Auction 67000 147000
3325 133000 190000 10000 Draw -57000 90000
" 2850
I I I I I I 1 200000 ( 133000 ( 10000 1 Auction 1 67000 1 157000
133000 190000 1OOOO Draw -57000 100000
200000 133000 10000 Auction 67000 167000
2 1 3325 133000 190000 10000 Draw -57000 110000
114000
200000
114000
200000 142500 1OOOO Auction 57500 167500
142000 190000 10000 Draw -47500 120000
5000 200000 142500 10000 Auction 57500 177500
142500 190000 10000 Draw -47500 130000
200000 152000 10000 Auction 48000 178000
152000 190000 10000 Draw -38000 140000
190000
114000
190000
I I I I I I
1 200000 ( 152000 ( 10000 ( Auction ( 48000 ( 188000
152000 190000 10000 Draw -38000 150000
200000 152000 10000 Auction 48000 198000
3800 152000 190000 10000 Draw -38000 160000
10000
10000
lOOOQ
I I I I I I 1 200000 1 171000 ( 10000 I Auction ( 29000 ( 189000
Draw
Auction
Draw
-76000
86000
-76000
60000
146000
70000
A total amount of Rs.2.29.000 has been collected as profit over the 40 month
assuming no defaults.
Subscriber
Chart 3.8
Instalm
No.
I
2
3
4
5
6
7
8
9
10
I I
12
13
14
15
16
17
18
Period
40 Months
19
20
Subscription (Rs)
2500
-
2075
2100
Method
All Auction
83000
84000
Total Prize
(Rs)
1OOOOO
78000
79000
5000
5000
95000
100000
2 1
22
23
24
25
26
27
28
29
30
3 1
32 -
3 3
34
35
36
37
3 8
39
40
Tota I
Total amount remitted by the client equal to Rs.62,250 and it is found that from the
fourth number prize amount is remunerative.
INo.ofubscribers I Period I Subscription (Rs) I Prize Amount (Rs) I
Features: - I . Even though maximum period is 40 months, the prize amounts will be distributed
w~thtn 10 months (4 per month). The clients are unaware of this settlement.
2 They deduct 30 % from the total prize amount Rs.50,000 - Rs. 15,000 = Rs35.000
I I I 1 40 Months I 1250 50,000
3. Prize amounts are given in advance after keeping sufficient security (collateral /
collaleral substitute)
4. In order to pay off all the clients they need Rs.35.000 X 40 = Rs. 14.00.000 within
10 months
5. After the loth chitty they subsequently raise the prize amount saying that
auctioned amount has been reduced. The following chart shows the details.
Chart 3.0
Prize amount
Type 10
100 96
Months
Chart 3.10
1- 10
11 -20
21 -30
31 -40
Total Amount Prize Total Instalment Subscription I I Commission
Collected I Amount I I Balance i
Total Collection
(Rs.)
Total Profit
Prize Amount Period
350000
425000
475000
500000
350000
Subscription
Requirement
(Rs.)
30
Additional
1400000 - 1050000
425000 -
475000
500000
2000 60000
6
7
8
9
10
I I
12
13
14
15
16
17
18
19
20
2 1
22
23
24
25
26
27
28
29
30
Total commlsslon Rs.83,400
Totdl amount of profit Rs 83,400 + Rs.60,000 = Rs. 1.43.400