Chit Fund Companies: Were they looted or Were it a well-crafted plan?

By this time, many of us have started believing that Chit Fund companies which were headquartered at West Bengal were looted by a particular Political Party and its leaders. It happened to be one of the biggest scam related to Finance Market. It is so big that the exact amount collected form market collectively by WB based chit fund companies are yet to be ascertained by the investigative agencies. Leave aside the amount; they are yet to ascertain exactly how many companies collected money from market!

Let us have a closer look at the mode of operation of these Chit Fund Companies and try to find out what was it actually and who were at fault.

According to Ministry of Corporate Affairs (MCA), any two persons can form a Private Limited Company with their Director Identification Number (DIN), PAN Card, Address Proof and a No Objection Certificate (NOC) from the owner of the premises where the Company’s Head Office will be. DIN can be obtained by submitting a Photo, PAN Card and Address Proof. The Company formation process was relatively easy by Ministry of Corporate Affairs to promote entrepreneurship. These Chit Fund companies took the advantage of the situation and opened as many companies as they could in different names e.g. Saradha Realty, Saradha Tours & Travels, Saradha Media, etc. After this chit fund scam surfaced in 2013, MCA laid more stringent rules in the process of incorporation. But the damage was already done.

Now these companies were mostly formed during 2005-2008, during the prime of Left regime in West Bengal. If you recollect the result of 2006 poll, Left swept the poll by winning record number of seats, LF – 233, TMC – 30, INC – 24 and others – 6. It is always seen that people keep warm relation with political leaders of the ruling party for facilitation of growth of their business. But in this case the reverse happened; they started to get closely associated with opposition party. Why? Let us give a deep thought. In a recent report of CBI, regarding Nandigram stated that they have enough evidence to substantiate that Nandigram event was done by Maoist in collusion with a political party. It is attacking a government by anti-government elements. So Chit Fund Companies may be a well-crafted plan to attack the government financially also. Two prong attack on government – terror and finance.

Unemployment is a major problem in India. It was the biggest problem in West Bengal during Left regime. The Left Trade Union in WB was more concerned about their union and forgot that existence of Trade is essential for Trade Union to exist! In that process many manufacturing units in West Bengal was shut down or closed. The word “Employment” was like heaven to an unemployed youth during that period. Alluring them with hefty commission was comparatively easy. Let us see how hefty commission the commission structure was. An Insurance Agent gets 1%-2% commission for Single Premium and a Mutual Fund gets maximum 3-4% on Initial Fund and trail commission of 0.5% in subsequent years, these Chit Fund companies offered 20-30% commission for Single payment and some companies paid upfront commission even, i.e. if agent collected Rs. 100 from the client they use to deposit Rs. 70 to the company and company issued receipt of Rs. 100 to the client! So the unemployed youth started earning quick money. One of the MLA of that political party was President of Employee’s Union of a Company. Now the third prong got added to the attack – unemployed youth. So three prong attack on government – Terror, Finance and People!

It is not unknown to any one of us how that political party did election campaign during West Bengal Legislative Assembly Election 2011. Glamour, glitter and lavish expenditure were the essence of their election campaign in 2011. Their 3 prong attack on the government and ruling party worked wonders in Legislative Assembly Election 2011. The result is all known to us.

It’s payback time now! Or Collection time for that party!! These Chit Fund Companies started their operation in a massive way. Their collection form market grew in leaps and bound. Small savings at Post Office fell drastically in 2011-13, but who cares? Its minting time!! Leave aside Post Office, if you check records of Insurance, Mutual Fund and Stock-Broking companies operating in West Bengal during that period, you will find all showed de-growth during that period, many branches closed.

Ponzi scheme has never worked in entire world; I suppose none can site an example of a Ponzi scheme running successfully for years. Such schemes are bound to fail. When one is sure that this scheme will fail, why to keep all eggs (money) in one basket. All proceeds got distributed amongst the inner core of the company and the owner was made to flee the scene. What else will you call it? Wasn’t it a well-crafted plan? Hint for your answer, why state government announced Rs. 500 Crores package for robbed investors?