Kerala launched offshore chit fund for NRIs…

This is just a fascinating news in Mint (which I missed). Kerala has a long history of chit funds. Despite several misses and crises in chit funds industry, it continues to be an important source of financial intermediation in Kerala.

Now they are launching chit funds for NRIs. A pilot was launched last year in Gulf:

It is not often that Indian chief ministers engage western Left wing leaders on how to grow their state, but that seems to be exactly what Kerala’s communist chief minister Pinarayi Vijayan is doing.

Vijayan, who is set to visit the London Stock Exchange next week, has invited Jeremy Corbyn, the veteran Left wing leader of the UK opposition Labour Party, to launch the state’s offshore chit fund in Europe.

The chit funds are the latest in a series of measures taken by India’s only communist government to attract funds, working the market for capital expenditure back home.

Vijayan will fly to Europe for a two-week tour starting 8 May and attend the listing of another major financial instrument in London Stock Exchange on 17 May, a masala bond from the state-backed Kerala Infrastructure Investment Fund Board (KIIFB).

It will make Kerala, which is strapped for cash for funding development projects, the only Indian state to issue the rupee-denominated offshore bond and thus circumvent restrictions on borrowing.

Vijayan launched the pilot phase of the chit fund scheme in June 2018 in the United Arab Emirates, a favourite destination of non- resident Malayalees, to raise 10,000 crore in two years. The money is meant to finance their hallmark policy initiatives such as building wide roads and establishing better public schools, and hospitals, which is a priority as the state suffered one of its worst floods in 2018.

The state got 125,000 leads for the fund within a fortnight of the launch. This year, Isaac said, the state wants to raise25,000 crore by expanding the scheme to other markets.

The scheme is primarily aimed at Kerala expatriates, who form almost 10% of the state’s 30 million population and send home more than 1 trillion every year. At 8-18% return offerings, the chits are also sweetened with life-term insurance cover, pension, and other benefits.

The idea has been on for a while. This from 2018:

Kerala State Financial Enterprises, a profitable state-owned non-banking financial company, which has been running chits within Kerala for more than five decades, will run the new scheme overseas. The money made by broadening its base to Keralites working in the Gulf, who form about 10% of Kerala’s 30 million population and send home more than Rs1 trillion every year, will in turn trickle in for capital expenditure back home.

One instalment of every chit will be locked in and kept as a float for Kerala Infrastructure Investment Fund Board (KIIFB), a recently revamped state-owned company that will act like escrow mechanism to mobilize funds for large infrastructure projects. The chit scheme is sweetened with an insurance cover, pension offering, among others, possibly keeping in mind that the receding rate of Keralite migration to the Gulf after the Arab economy got fractured post the 2014 oil crisis.

More details here.

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