Value-added products include a pension and insurance scheme and Shariah-compliant products to widen the subscriber base across the Gulf countries and Europe.
“With this, a new chapter is being scripted in the centuries-long history of the chitty. Pravasi Chitty is the first and only option for NRIs to join a legally valid chitty fund from abroad,” said Thomas Isaac, Kerala’s finance minister.
The minister was in Dubai to discuss with the Foreign Exchange & Remittance Group (FERG), an association of the exchange houses in the UAE, to address the issue of direct remittance to the chitty, for which permission from the central banks of the UAE and India needs to be obtained.
Launched by state-owned non-banking company Kerala State Financial Enterprises (KSFE), pravasi chitty is designed for NRIs to save and get protection as well as to channel savings to the state’s infrastructure development.
The chitty scheme is a fund-raising instrument of the Kerala Infrastructure Investment Fund Board (KIIFB), a government institution that mobilizes funds for the state’s long-term developmental projects.
KSFE invests the chitty fund proceeds in the KIIFB as bonds, which are listed on the London Stock Exchange.
Several new schemes
The new pension scheme feature will help expatriates enjoy an independent and peaceful life by ensuring monthly pension when they return to India for good.
KSFE will remit the monthly premium towards the pension scheme offered by the Pravasi Welfare Board for the pravasi chitty subscribers who opt for the pension scheme.
The monthly premium for the entire mandatory duration of five years of the scheme will be paid by KSFE, provided the person remains a customer of pravasi chitty for the period.
Subscribers will get a life insurance cover from the state-owned Life Insurance Corporation (LIC) during the chitty’s tenure. If the subscriber dies without or after bidding the chitty, LIC will pay the rest of the instalments.
NRIs can now directly fund the infrastructure development without bearing any additional costs. The scheme is designed in such a way that the subscribers can get the chit prize money whenever they want.
The scope of the financial product is also being diversified with the introduction of ‘halal chitty model’ to reach out to more investors.
Halal chitty is an Islamic finance (Shariah)-compliant investment product. In the halal option, there will be no auction or implicit interest rate.
Each chit fund will have a maximum of 20 subscribers. Every month the full amount will be given to a subscriber, who will be selected after a discussion to ascertain the neediest person. If there is no consensus a draw will be held to select the beneficiary.
KSFE launched pravasi chitty in collaboration with KIIFB for the twin purposes of offering a safe and profitable investment option for NRIs and supporting the state’s infrastructure growth.
Within 10 months of chit commencement, 336 chits have been started and in excess of INR700m ($9.83m; £8.04m; €9.02m) have been collected. Around 118,000 persons have expressed interest to join and on average 50 people are enrolling daily by remitting the first installment.
Isaac said: “We are introducing some unique savings scheme to attract more subscribers by roping in companies, associations and community forums. More than 3,000 projects worth INR500bn ($7.02bn; £5.74bn; €6.44bn) are at implementation stage, which are partly financed by the chit fund.
“With all these new schemes, we hope that the subscriber number will cross 50,000 by the year-end.”
Mohamed A Al Ansari, chairman of FERG, and chairman and managing director of Al Ansari Exchange, said a committee has been set up to study the modalities for easy remittance of money to the chit fund.
Chitty amount given as ‘prize money’
The chitty is “a risk-free safe haven for the public” as it is governed by Indian federal government’s Central Chit Fund Act 1982. A chitty is a contract whereby each subscriber agrees to remit a fixed amount of money every month for a period of time.
In the case of Pravasi Chitty, the monthly instalments range from INR1,000 to INR500,000 ($7,025; £5,748; €6,448), with the usual duration of payments being over 30, 40, 50, 60 or 100 months.
The ‘chitty amount’ is given out as ‘prize money’ to the person who bids the least for it (up to a maximum of a 25% discount).
For example, if 50 people each pay a monthly instalment of INR10,000; , the monthly prize money is INR500,000. This amount is then put up for auction among the subscribers. The subscriber who agrees to take the lowest amount will get the prize.