Legislative support, not regulation is needed for chit fund business that provides necessary funds for nearly 60 percent of the people who contribute to the country's GDP without any institutional fund support was the nearmajority view of speakers at a conference here Friday.
Governmental regulations are not for enforcement but for "encashment" by officials as the regulations cannot be enforced, they said.
"Nearly 60 percent of the people do not have access to institutional credit. But they contribute around 60 percent to the GDP. The weakness in the current system is that vast majority of the people do not have access to institutional funds," said R.Thyagarajan, co-founder, chairman of the Shriram group.
He was speaking at the conference Financial Sector Conclave-Chennai: Emerging Paradigms in South India, organised by Federation of Indian Chambers of Commerce and Industry (FICCI).
According to Thyagarajan, the chit fund industry is too small and difficult to regulate and it is better for the government to leave it.
"The number of registered chit fund companies failing is very small. Those finance companies that have failed are not chit fund companies," he added.
According to Thyagarajan, the size of registered chit fund industry in the country will be around Rs.10,000 crore which does not merit governmental oversight at a huge cost.
"The government regulations are not for enforcement but for encashment," he said making the audience have a good laugh.
Stressing that the chit fund business in the country is over-regulated, T.S.Sivaramakrishnan, general secretary, All India Association of Chit Funds said the companies have capital adequacy norms and do not accept public deposits.
"Chit fund business has survived for several decades and it needs legislative support and not legislative control," he contended.
According to Sailaja Kiron, managing director, Margadarsi Chit Funds Pvt Ltd, the industry also caters to upper class people like the software professionals and others in addition to the lower class.
She said it is the only industry that services several lakh of subscribers month-on-month unlike any other industry in the financial services segment.
In Tamil Nadu, there are 2,226 chit fund companies running 51,145 chit groups. The state government earns around Rs.8 crore as revenue from this sector, said K.V.Srinivasan, additional registrar of chits.
According to him the government has received several complaints about chit fund companies forcing their clients to park their funds with group insurance companies or do that themselves without the subscribers consent.
"We are investigating the complaints and action will be taken," Srinivasan told IANS on the sidelines of the meet.
