Growing number of unauthorized digital lending platforms, mobile applications- a cause for concern
By: Priyanka Saurabh
Recently, the Union Finance Ministry held an important meeting regarding the business of illegal loan apps in the country and it was observed thatunauthorised apps were distributing loans on a large scale by staying outside the purview of the rules and regulations of the Reserve Bank of India. Along with intimidating people, they are recovering at high-interest rates. Cases of suicides of people who are victims of fraud by illegal loan apps are also coming to the fore. The black money network has also been busted in the ED raids. The issue is seriously related to you so understand this whole issue of illegal loan apps. It is important to know. A digital loan involves lending through a web platform or mobile app by leveraging technology for authentication and credit appraisal. Banks have launched their own independent digital lending platforms to tap into the digital lending market by leveraging existing capabilities in traditional lending. It helps in meeting the large unfulfilled credit requirement in India, especially in the micro-enterprise and low-income consumer segment. It helps in reducing informal borrowing as it simplifies the process of borrowing. It reduces the time spent on work loan applications at the branch. The digital lending platform is also known to cut overhead costs by 30-50%.
But taking advantage of this, the increasing number of unauthorized digital lending platforms and mobile applications have become a cause of concern. They charge exorbitant interest rates and additional hidden fees. They adopt unacceptable and high-level recovery methods. They abuse agreements to access data on borrowers’ mobile phones. The public should beware of unauthorized digital lending platforms and mobile apps. The public should verify the antecedents of the lending company/firm either online or through the mobile app. Consumers should never share copies of KYC documents with unknown persons or unverified/unauthorized apps. They can report the details of such an App/Bank account linked to the App to the concerned law enforcement agencies or use the Sachet portal (https://sachet.rbi.org.in) to complain. There are many problems with digital lending apps. They attract borrowers with the promise of loans in a quick and hassle-free manner. But, borrowers are demanded exorbitant interest rates and additional hidden charges. Such platforms adopt unacceptable and high-level recovery methods. They abuse agreements to access data on borrowers’ mobile phones.
Google dominates India’s app market with 95% of smartphones using its Android platform, more stringent checks by the Indian government and central bank to help curb the use of illegal digital lending applications in India asked to present. Even though Google doesn’t come under the purview of the Reserve Bank of India, it has been a part of the U.S. central bank and government of India meetings over the past few months. The tech giant has been called several times and urged to introduce stricter checks and balances. Which can help weed out such apps. Indian regulators have already asked lenders to check against illegal lending apps, which became popular during the pandemic. Regulators want to control the proliferation of apps that engage in unethical activities such as charging exorbitant interest rates and fees or in recovery practices that are not authorized by the central bank or violate money laundering and other government guidelines.
Warning people against falling prey to “such dishonest activities”, the RBI said, “Lawful public debt activities can be undertaken by banks, non-banking financial companies (NBFCs) registered by the RBI and other entities that The statutory provisions like money lending of the respective states are regulated by the state governments under the Act. India is on the verge of a digital credit revolution and is ensuring that this loan is done responsibly. Develop and commit to a Code that outlines the principles of integrity, transparency, and consumer protection with clear standards for disclosure and grievance redressal. Educating customers to spread awareness about digital lending, in addition to instituting technical safeguards and training is also important. Digital lending apps should be subjected to a verification process by a nodal agency to be set up in consultation with stakeholders. Involving participants in the digital lending ecosystem Setting up a self-regulatory organization (SRO) can solve this problem.
The use of unsolicited commercial communication for digital loans should be governed by the code of conduct to be enforced by the proposed SRO.
The proposed SRO should maintain a ‘negative list’ of credit service providers and disbursement of loans directly into the bank accounts of the borrowers.
All data should be stored in servers located in India and the algorithmic features used in digital lending for documentation should ensure the necessary transparency. Encourage more legitimate lenders while enhancing customer protection and making the digital lending ecosystem secure and innovative. The digital lending market in India is evolving rapidly, and with the Fourth Industrial Revolution, it is time to transition from digital-to-digital-first to digital-only. Now it is up to digital apps to play by the rules and self-regulate themselves.
RBI should be equipped with the necessary technology and technical expertise to track lending apps on a real-time basis.
The writer is Research Scholar in Political Science, Poet, Independent Journalist, and Columnist