New Delhi: Distancing themselves from illicit money pooling schemes, an apex body of chit funds on Tuesday said their business has taken a big beating because of the wrong 'perception' that all deposit-taking activities are illegal.
Claiming to represent an industry worth Rs 30,000 crore, the All India Association of Chit Funds said that the number of registered chit funds in the national capital alone has come down from 1,000 to 100 in last five years after Saradha scam in West Bengal wrongly painted 'chit funds' as illegal.
"Apart from regulatory hurdles, the most dangerous threat this industry is facing is a negative perception that has been created in the minds of people by reporting all financial scam as Chit Fund Scam," association's president PJ Krishna Murthy told reporters here.
He further said that investors should not confuse Ponzi schemes that offer unfeasible interest rates, cash prizes or gift articles for deposits with Chit funds which are traditional and highly regulated.
Murthy said that country-wide there are about 10,000 registered chit funds with an annual turnover of Rs 30,000 crore.
Following the Saradha scams and several other illegal money-pooling activities, it is becoming increasingly difficult for people to enter chit deposit schemes, he said, adding the industry is governed by Chit Fund Act 1982 and regulated by the respective state governments.
In fact, there is hardly any failure of a registered chit company, especially after the enactment of the Chit Fund Act 1982.
Further, apex body general secretary TS Sivaramakrishnan said that several regulatory hurdles are also effecting our growth.
"Instead of speeding up the process of amendment to the outdated Act, and facilitating smooth operations, the government on the contrary has come up with the levy of Service Tax which will collapse this model, at least the registered chit fund industry and force operators to migrate to the unregistered realm," he said.
Even the subscribing public will find this levy cost inefficient and will be lured by the unregistered operators, he added.