The minefield of instant loan applications

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Unable to keep up with bills after losing his job as a gym trainer during the Covid-19 lockdown, Jatin (name changed on request) borrowed INR 15,000 all you need to know from a micro-loan app last year. The terms were straightforward and suited to his situation – he did not have to produce any income documents and his credit rating will be ignored, provided he paid 5,000 INR within 8 days.

Due to the lack of any regular income, the 27-year-old defaulted on payment.

What followed was an absolute nightmare for Jatin. “My phone keeps ringing all day,” recalls the Gurugram resident. “The agents flooded my Whatsapp with abuse and threats. They even threatened to publicly slander me if I didn’t pay immediately. I thought it was just a threat but they did!

The company pulled the contact details of his friends and family from his phone, which Jatin gave his permission by filling out a loan application, and messaged them through Whatsapp and Facebook flagging him as a cheater. Embarrassed and anxious, he raised funds to pay the initial sum of INR 5,000. But the harassment was far from over.

“By that time, I had reached the date of the second installment and they had slapped a high default fee, so the harassment got worse,” he says, adding that the borrowing from relatives living in Aligarh (Uttar Pradesh) was not an option as they depend on Jatin.

“I was so fed up that I considered hiding forever or just killing myself.

Jatin is not an isolated case. Several cases in which borrowers unable to endure the harassment and social shame of app-based lender agents have ended their lives have occurred in recent months. In one such instance, a screenshot of a Whatsapp conversation between an agent for a loan app named “ Udhaar Loan ” and a female borrower went viral when the former sexually harassed the woman when she did not make a payment on time. The woman allegedly attempted to kill herself as a result of the sexual abuse.

Chinese illegal lenders

These entities are different from digital lenders who are backed by non-bank financial corporations (NBFCs) or who partner with banks. These are illegal lenders who use the technology to create and obtain an app on the Google Playstore but are not registered as a legal entity – quite similar to the offline lenders, which have been around since time immemorial, which target low-income groups with limited access to banks for microloans.

A study by Cashless Consumer, a citizens’ initiative that raises awareness about digital transactions, shows that most of these applications are hosted on Chinese servers with familiar Indian names to project that they are locally registered businesses.

While micro-lending apps have been around for a long time, they gained traction during Covid-19-induced lockdowns when demand for loans increased due to job losses. With the increase in lessees, complaints of improper loan collection methods and outrageous interest rates on social media have also increased. Reports of suspected suicides were the ultimate nail in the coffin that caught the attention of the regulator, as well as that of Google.

According to L Srikanth, fintech researcher and coordinator of Cashless Consumer, the internet giant has so far removed nearly 450 loan applications from its Playstore, out of a total of 1,300 suspected of operating there.

Google has a policy against platforms offering high interest loans to protect consumers from deceptive and abusive personal loan terms. However, for Google to act, the company must flout national and local regulations in any region or country, as most instant loan apps targeting Indian consumers are hosted in the Chinese cloud.

Also, Google Play is just one of the distribution channels. “Mobile ads (on games, apps), Youtube, TikTok, etc. are other platforms on which they market themselves aggressively, ”says Srikanth. Since digital lending through mobile apps operates in a regulatory vacuum in India, there is no systematic way to separate the wheat from the chaff and control the disbelievers.

It was only recently, following reports of suspected suicides linked to harassment by agents of these apps, that the RBI established a six-member task force to regulate digital lending apps, in focusing on consumer protection, privacy and data security.

What the customer should know

Digital platforms that promise to offer quick loans usually lend for ultra-short periods of 15-30 days at sky-high interest rates that reach 60% or more at the end of the loan term. The average size of loan notes is less than INR 20,000.

There are other red flags that customers need to watch out for, experts say.

“Dishonest lenders offer credit without identity verification or proof of income, unlike legitimate lenders who go through a proper KYC (know-your-customer) process,” says Anuj Kacker, MoneyTap co-founder and secretary and president – website and communications, Indian Digital Lending Association (DLAI).

Quick money with minimal documentation is a convenience point that attracts borrowers and also helps overlook high rates (see: The most expensive of all).

“Another tactic used by them is to set an application deadline which creates urgency and prompts the borrower to act immediately without doing due diligence,” Kacker adds.

Borrowers can check the legitimacy of the lender by visiting their website.

“Most illegal loan apps don’t have a website,” says Anil Pinapala, founder and CEO of Vivifi India.If the website is listed, the borrower should check whether the company is registered with the RBI or works with a bank or is an NBFC registered with the RBI. All legal loan companies clearly state the same with their Business Identification Number (CIN) and Certificate of Registration (CDR) details with RBI. ”

Additionally, if the company claims to work with an RBI registered NBFC, customers should go to the NBFC website to verify if it is an authorized NBFC partner before downloading the app, Pinapala adds.

Fishy’s privacy policy on the website or app is another sign of fraud, Srikanth points out. “In the privacy policy section, the contact details for the grievance officer are either left blank or filled with incorrect details,” he wrote in a message on Medium.

This story first appeared in the February edition of Entrepreneur India magazine.

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