The term chit fund has now been globally operated and the system has won universal acclaim which is an Indian concept. Many years ago a small group of farmers started a unique scheme in the southern part of India. Every farmer gave a fixed quantity of grains periodically to a chosen trustee. The organizing person after keeping himself a portion gave the rest to a member of the group to help him meet his needs and other commitments. The farmer who received the lot earlier continued to give the fixed quantity until every member of the group received his lot. The competition took a high when receiving a lot earlier. So some members were even willing to forgo a certain portion (like a discount) of the lot to get an earlier chance. This opened the gate for an auction and the lowest bidder got the lot. And this is the origin of what we call today as the “Chit fund scheme”.
In Tamil Nadu chit funds are known as (Moyy Murai) means call money pooled systematically. Under this system, a group of people from the same locality known to each other join together to pool their resources to meet the need of an individual of the group. With a strong element of co-operative spirit, major needs such as marriage, buying of land, home and cattle were prescribed under the system. With time, Moyy was replaced by the term chit or olai (palm leaf), which was the notice of demand for payment of a members contribution to the pool. Later the names of the members of the group were written on small papers or palm leaf and shuffled to pick out the person to whom the amount is to be given.
Chit funds emerged at a time when banking and other credit facilities were inadequate. The common man had to rely to a large measure on indigenous sources for their consumption and productive needs. They have served as a medium of saving for many people and also been meeting a part of the genuine credit needs of the people from both urban and rural areas.