Borrowing is one of the main features of chit funds. Chit funds allow their members to borrow a lump sum amount without providing much formal collateral, as opposed to banks or other financial institutions. The rate of interest is also much lower than what a bank would offer.

Borrowing from a chit fund is done by bidding for the prize money, which is the total amount collected from the members every month. The member who offers the highest discount on the prize money gets the funds. This is called a reverse auction, because the lowest bidder wins. The discount amount is then shared among the other members as dividend, after deducting the organizer’s commission and other charges.

Borrowing from a chit fund can be useful for various purposes, such as:

Business needs: Chit funds can provide convenient access to business funds for expansion or working capital. Chit funds can also help entrepreneurs to start new ventures or diversify their existing businesses.

Reducing liability: Chit funds can help to repay high-interest debts, such as credit cards, personal loans, or mortgages. Chit funds can offer lower interest rates and flexible repayment options.

Family commitments: Chit funds can help to meet family expenses, such as education, marriage, health, or travel. Chit funds can also help to plan for retirement.
Grow investments and wealth: Chit funds can help to invest in various assets, such as gold, property, or stocks. Chit funds can also help to save for future goals, such as buying a car, a house, or a vacation.