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," the association's President P J Krishna Murthy told reporters here.
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.
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In fact, there is hardly any failure of a registered chit company, especially after the enactment of the Chit Fund Act 1982.
"Instead of speeding up the process of amendment to the outdated Act, and facilitating smooth operations, the government on the contrary has come up with the levy of Service Tax which will collapse this model, at least the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.