Given the structure of the Insurance DAC which relies more the conventional fraternity structure than the current structure, I think a chit fund DAC also makes a case in BTS ecosystem.
So whats a chit fund? Its a type of fraternity based financial scheme practised in India.
(lifted straight from WIKI with some modification)
The basic necessity of conducting a 'Chitty' is a group of people called subscribers. These subscribers commit to a put in a fixed sum of money in a chitti (pot) for a specific period of time. This period of time, normally equal to the number of subscribers. The reason is each month one subscriber gets to place his needs before the quorum and take the pot money for his work -- emergency, business, anything.
The foreman—the person conducting the chitty—brings these people together and conducts the chitty. The foreman is also responsible for collecting the money from subscribers, presiding over the auctions, and keeping subscriber records. He is compensated by a fixed amount (generally 5% of gross chitty amount) monthly for his efforts. Other than that, the foreman has no specific privileges, he is just a chitty subscriber.
So a simple formula depicts the pattern of the chitty:
Monthly Premium × Duration in Months = Gross Amount
where,
monthly premium is decided before opening the citty
Duration of month = number of suscribers
Gross amount describes the size of chitty for an individual/sum insured
Ex. A monthly commitment of 200 from a group of 50 people, and runs for 50 months.
So monthly pot size is 200*50 = 10000 which is also the maximum sum assured.
On an announced date every subscriber comes together for the auction/lot and bid for the monthly take for their needs. In case there are more than 2 subscribers asking for the money, an auction is held. This is a reverse auction wherein each subscriber must lower the amount he is willing to take. So basically it goes like 10,000 >> 9000>> 8000 so and so forth, until a subscriber is willing to go no further.
In case auction discount, that is the difference between the gross sum and auction amount, is equally distributed among subscribers or is deducted from their monthly premium. For example if the auction is settled on a sum of 9000, then the auction discount of 1000 is divided by 50 (the total number of subscribers) and every one gets a discount of 20. The same practice is repeated every month and every subscriber gets a chance of receiving some money.
This is basically a form of microfinance and has helped people with getting seed money for their business. And a profitable one for the companies running the chit. The caveat here is, it has also proven to be unreliable and there have been scams perpetrated by the companies running these chits.
Topic: Chit funds DAC (Read 1703 times)
