Micro Finance, cooperative society software will print collection sheets. It can restructure and reschedule the loan repayment. There are unlimited numbers of savings products that can be managed through the software which can be associated with any type of customer. Current account can be managed, with or without interests.

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CHIT FUND AND BANKCHIT FUND AND BANK
LOANLOAN
ANALYSISANALYSIS

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•Many common people who foresee requirement of
money joins chits funds.
•They might want to source fund to construct
house or for daughter’s marriage or for business
purpose.
•Sometimes people use proceeds from chits to buy
vehicles and consumer goods. Most of them
believe it to be a cheaper option also
CHIT FUND AND BANK LOAN

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• Most of the time, people do not go to bank and
seek a loan thinking that it is a cumbersome
process.
• They think that banks will ask for lot of
documents which they will not be able to give
unless they have a salaried job
CHIT FUND AND BANK LOAN

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Let us analyze here if it is better to take a bank
loan or to go for chit. Let us first consider short
term chit and short term bank loan
According to KSFE (Kerala State Financial
Enterprise, which is a state owned company
running chit schemes) , for a chit for a period of
30 months, the total repayment will be 90% of the
salary amount.
ANALYSIS

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• The chit will be better if the bank interest rate is
higher than 16.25%.
• It will be also better if the reduction due to
bidding is lesser than 25% of the sala.
• In case of chitty, if there is more than 1 person
ready to bid for maximum reduction rate of 25%
of sala, then KSFE will conduct a draw and the
lucky one will get the bid amount.
• This means that you need luck also at the time
of urgency to get the chit amount.
CHIT FUNDS

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If the bank interest rate is lower than 16.25%
then, the loan from bank will be better.
For example a salaried person can get personal
loan at about 14 to 15%.
His total repayment will be less by Rs.700 to
Rs.1300 compared to chitty.
If there was vigorous auction during most of the
months, then the total chit payment will be low
which make it look attractive. But you will not
know how fierce will be the bidding, at the time of
joining.
WHICH IS BETTER?

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• A home loan for Rs.1.35 lacs for a term of 90
months at an interest rate of 10% will have EMI
of Rs.2138.
• The total repayment will be Rs.1.92 lacs.
• Suppose a person joined a KSFE chit with sala of
Rs.1.8 lacs for a term of 90 months.
• He won the bid in the second month at a
reduction of 25%.
EXAMPLE

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He got about Rs.1.35 lacs. His total repayment is
Rs1.35 lac which means that the interest rate is
zero.
This is not believable. This will happen only when
every bid is won at maximum reduction of 25%.
The maximum total payment to a chit is expected
to be 90% of the sala as per KSFE. If so for the
above mentioned chit, the total payment will be
Rs.1.6 lacs which is equal to a home loan at 4.62%
interest p.a.
EXAMPLE

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•Therefore it can be fairly assumed that for longer
period chit will be a low cost borrowing option
compared to bank loans.
•Only drawback is that you are not sure if you will
win the bid when you require the money.
•All the above analysis was done on the basis of
winning the bid at the beginning of the chit.
CONSLUSION

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But if you win the bid after a few months, then you
have to take into account the interest that you
would have got if you have saved the installment
amounts in a bank RD account.
So if you have taken the chit for borrowing, then
you should try to win the bid in the beginning
itself as it will be profitable for you.
CONSLUSION

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