Add the following to your sshd_config file.
Usually either: /etc/ssh/sshd_config or /etc/sshd_config
Subsystem sftp internal-sftp
Match group filetransfer
  PasswordAuthentication yes
  ChrootDirectory %h
  X11Forwarding no
  AllowTcpForwarding no
  ForceCommand internal-sftpRestart ssh server.
Usually: /etc/init.d/ssh restart