Chit Funds and Informal Credit in India
Ponzi Schemes and Illegal Deposit Schemes
Schemes that promise very high returns by using new investors' money to pay old ones collapse and hurt millions of savers.
The line between chit funds and frauds is important.
How a Ponzi works
Early investors are paid using money from new investors. When new money slows, the scheme collapses.
India’s cases
The Saradha and Rose Valley collapses in eastern India ruined many small savers.
The law
The Banning of Unregulated Deposit Schemes Act, 2019 makes running such schemes an offence.
Warning signs
Very high guaranteed returns, unregistered operators and pressure to recruit are red flags.
A firm promising a fixed 20 per cent monthly return should raise suspicion.
Registration and law separate them.
- Ponzis use new money to pay old.
- Saradha and Rose Valley collapsed.
- The BUDS Act bans unregulated deposits.
- High guaranteed returns are a red flag.
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