Expanding the reach of formal finance to rural areas will help curb the ponzi scheme menace in the country, top BSE official said today.
Besides, apart from financial inclusion, financial literacy will play a great role in tacking the problem, BSE Managing Director and CEO Ashish Kumar Chauhan said at the India Risk Forum here.
"Formal finance, that is banks, insurance, mutual funds, stocks have not reached Indian rural areas," he said, adding that once this happens, people have more choice than going to money lenders who charge high rates. "So it is our onus to reach out to these areas."
According to him, certain deficiencies in financial services space have been a key reason for mushrooming of illegal schemes.
Most of the people are lured by the promise of huge returns and in the absence of good savings product they invest in illicit schemes, Chauhan said.
Although technology has allowed the expansion of formal financing to rural areas, most of the beneficiaries are still city-centric, he said, adding that the onus to reach those places is on the system which is formal and better.
"There have been grey areas. Areas of innovation of financing risk takers, whether legal or illegal, have caused these sets of ponzi schemes. People find gaps in rules and regulations... We have to get better innovative standards," said C S Mohapatra, Adviser, Department of Economic Affairs, Ministry of Finance.
Former RBI Governor Bimal Jalan said it is for the government to take some steps.
"May be most important thing is to put a limit (on amount to be collected) on the Collective Investment Scheme (CIS). And it is a related issue with black money. Ponzi schemes thrive on black money," he said.
There is a need to create financial awareness that can help address the problem, said Badri S Bhandari, Whole Time Member, Pension Fund Regulatory and Development Authority.
He said: "On the demand side, seeing from the perspective of investors and their interests, it goes down to financial awareness as the investors are not fully aware of the rate of return that are offered by the market.
"On the supply side, our financial institutions have the mandate to provide financial access to the untouched section, but that has also not taken place.
