Chit funds have been a part of the Indian financial landscape for centuries. These are informal types of savings schemes that are prevalent across different parts of India. In a chit fund, a group of people comes together and contributes a fixed amount of money periodically. The contributions are then used to provide loans to members of the group. Although banks and other financial institutions offer similar schemes, chit funds continue to be popular in India. In this blog post, we explore why chit funds are still preferred over bank schemes.
- Trust Factor: One of the primary reasons why chit funds remain popular in India is the trust factor. Many Indians are skeptical of the banking system, especially in rural areas. Moreover, most chit funds operate within closed social circles, where the members know each other. This familiarity instills a sense of trust and security that is often lacking in bank schemes.
- Convenience: Chit funds are also more convenient than bank schemes. In a chit fund, the members decide on the amount and frequency of contributions. This flexibility allows members to participate in the scheme as per their financial situation. Bank schemes, on the other hand, often have fixed contribution amounts and tenures, making them less flexible.
- Easy Access to Credit: Chit funds provide easy access to credit. In a chit fund, a member can apply for a loan and get it approved quickly. Bank schemes, on the other hand, require extensive paperwork and documentation, which can be a hurdle for many people, especially in rural areas.
- Less Stringent Requirements: Another reason why chit funds are popular is that they have less stringent requirements than bank schemes. In a chit fund, members can join without needing to have a good credit score or collateral. Bank schemes, on the other hand, often have stringent eligibility criteria, which can exclude many people from participation.
- Traditional Roots: Finally, chit funds have a strong historical and cultural connection with the Indian society. Many chit funds are named after Hindu gods, signifying their importance in the culture. Moreover, chit funds are often used for religious or ceremonial purposes. Best Investment Plans This traditional connection makes it difficult for bank schemes to replace chit funds in the Indian financial landscape.
Conclusion:
In conclusion, chit funds remain popular in India because of their trust factor, convenience, easy access to credit, less stringent requirements, and traditional roots. Although banks and other financial institutions offer similar schemes, these factors make chit funds the preferred option for many Indians, especially in rural areas. The challenge for banks is to create schemes that retain the flexibility and social connection of chit funds while offering the reliability and security of a formal banking system.