KOCHI: What’s in a term? Everything, especially when you are embarking on a mission to collect a whopping Rs 10,000 crore! This is exactly what the Kerala State Financial Enterprises (KSFE), the non-banking finance company of the state government, has done as it prepares for an ambitious bid to sign up 10 lakh Malayali expats in three years for the ‘Pravasi Chitty’ scheme. The KSFE’s chit fund schemes use the term ‘vihitha palisa’, which when roughly translated means ‘interest share’.
Now, this may face resistance from Muslim investors as ‘interest payment’ is a violation of the Islamic law. To avoid any issues, the word has been replaced with dividend, considering the fact that a large number of the prospective investors for the ‘Pravasi Chitty’ are based in West Asian countries.
Officials said though the correct word is ‘dividend’, somehow the KSFE has been using the word ‘vihitha palisa’.
“This issue was discussed at a meeting of senior KSFE officials and the state government in Thiruvanthapuram recently. It was decided to drop the word ‘vihitha palisa’ and replace it with ‘dividend’ in all the brochures, and other promotional leaflets,” said a senior government officer.
When contacted, KSFE Managing Director A Purushothaman said chit funds generate capital appreciation, and hence it cannot be considered as interest payments. “We don’t treat it as an interest payment. Strictly speaking, it’s capital appreciation,” he said.
According to him, the KSFE’s ‘Pravasi Chitty’ is modelled along the lines of Sukuk Islamic bonds, in such a way as to generate returns without infringing the Islamic law. Purushothaman explained, “It’s like our treasury bills or zero coupon bonds. You buy a Rs 100 face-value bonds at say Rs 60-70; similarly the chit-fund subscribers bid for an amount which is lower than the face value of the scheme”.
Commenting on the type of chit funds that will be launched under ‘Pravasi Chitty’, he said several chit fund schemes from Rs 5,000 at the lower end and going up to Rs 10 lakh will be unveiled every day for the expat community, which they can bid through online.
“There’ll be hundreds of chit funds that will be opening for auction every day. If we need to collect Rs 10,000 crore, we need to operate on that scale,” he said.
The funds collected will be routed into Kerala Infrastructure Investment Fund Board (KIIFB). “The KIIFB will float special bonds (general obligation bonds), which will be subscribed by KSFE. The KIIFB will utilise the funds for financing major infrastructure projects in the states. The government hopes at least 10 lakh Malayalee expats will invest in the chit fund in the first three years.
At present, NRI deposits in the state is to the tune of Rs 1.52 trillion, which is in the custody of various public sector and private banks in Kerala. There is a view that the money is not utilised for the development activities of the state. Through the ‘Pravasi Chitty’, the government hopes to attract a part of the deposits for undertaking development activities.