CHIT FUND AS AN

ISLAMIC TOOL IN
MICRO FINANCE

SHAHEER ANAZ TV
DUA College, Vazhakkad
What is Chit Fund?

Chit fund is a type of rotating savings and credit

association system practiced in India.

Chit fund schemes may be organized by financial

institutions, or informally among friends, relatives,
or neighbours.
Features of Chit Fund

• Easy to join as there is no formalities needed

• High Promised Return
• Option of small deposit
• High Liquidity
• Door to door collection by agents
Advantage of Chit Funds
• Chit fund gives the flexibility to borrow and save.
• You can get a chance to borrow money just by
paying first monthly installment.
• Best for needy people. You can get finance without
any documents like IT returns, PAN card etc.
• The non-prized subscriber who is a saving member
up to the last installments gets a lump sum amount by
way of other Deposit Schemes.
• You need not disclose for which purpose you will be
using the prize money.
Disadvantage of Chit Funds
• No guarantee of fix returns.
• Chance of fraud is high suppose foreman run away
with corpus amount.
• A winning subscriber may disappear after winning
the first bid.
• The subscriber may default and not ready to pay next
installments.
• There a chance to sacrifices Changing the value of
money who get the last lot
TYPES OF CHIT FUND IN INDIA
1 - Chit Funds run by State Government
These are run by state governments.
eg:- Kerala State Financial Enterprise (KSFE)
Mysore Sales International Limited(MSIL)
2 - Private Register Chit Funds
There are a number of privately held register chit funds. These
funds are registered as per Chit Funds act 1982
3 - Unregistered chit
It is illegal to run unregistered chit fund. However, you will find
many unregistered chit funds across the country. These funds are
usually run by a closed group such as relatives, friends, neighbors
etc.
Chit Fund in Islamic perspective

In light of Sharia, we can say that if in a chit

fund, every member gets the whole amount
which they pay in the form of installments, then
a chit fund is allowed (Mubah). If someone gets
more than that amount and someone gets less
then this is expressly forbidden. All the members
in such a fund are guilty of accepting and
consuming usury. The Holy Prophet (Sallallahu
alaihi wa sallam) has cursed all those who are
involved in usurious dealings.
Prohibited By Islamic Sharia
The money that is deducted (i.e. some amount is
taken by the person who runs this system of chit
funds) and this form of financial dealings is
completely prohibited by the Islamic Shariah.
If we examine it closely we find that it is a form of
interest, because a person is making money on
the capital fund, without the exchange of any
commodity
Chit Fund Run by Mahal Committee
A group of people gather and mutually pool some money
under the rule of Mahal committee. For a stipulated
period of time, a certain amount of money is pooled.
Then every month through drawing lots or depending
upon the need of the members, the whole amount is
given to a certain person. The other members of this
group keep on paying their installments. No extra
amount is taken from any member and no member loses
money in this.
Mahal committee may receive any sum of money as a
donation with no pre determined basis.
Conclusion
• Chit Fund is a good way to save money
• It can be organized in a very informal manner
• This is a method of helping out each other
• There is a good way to run by the accordance of
Sharia under the Mahal Committee.
• It also help to stay away from the Interest based
Banking transactions that is strictly prohibited
by the Sharia.