A chit fund is a kind of savings scheme practiced in India. A chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit Funds Act, 1982. It involves managing, conducting or supervising as a promoter, foreman or agent of any transaction or arrangement by which the company enters into an agreement with the specified number of subscribers that every one of them shall subscribe a certain amount in installments over a definite period and that every such subscriber shall in turn, as determined by lot or auction or tender, be entitled to a prize amount. Small enterprises have been historically wedged between the money lenders, with their exorbitant cost of loans, and banks, with their stringent procedures. Chit funds are a welcome measure for such enterprises to overcome their financial constraints. Small traders and businessmen participate extensively in chit funds. Chit funds provide an opportunity for them to save their excess cash on a daily or monthly basis and, at the same time, to have access to easy finance in case of emergency or other requirement. As and when the need arises, they bid in the auction and receive the loan out of their own funds. Once they receive the loan, they continue to pay the monthly contributions, and this accounts for the payment towards both the interest and the principal which makes the repayment easier and less arduous. Generally, the funds are used as either working capital, for expansion of business or as emergency funds. In view of the importance of this source of finance and the obvious advantages, it presents to the small enterprises it is only prudent to study the industry in more detail.

Conduct a survey of the chit members (mainly small traders) to understand why they use chit funds and how it affects their business.