Instant loan apps promising easy credit amid severe social distress have shown their fangs
At least five suicides in Telangana and one in Delhi – which have been linked to extreme harassment for defaulting on loans disbursed through instant loan applications – point to a new headache for law enforcement across the country . The proliferation of such applications without the recognition of the RBI as an NBFC, typically disbursing small unsecured loans at usurious interest rates and short payback windows, initially caught the police off guard. Last month, Telangana police asked Google to remove 158 of these apps from its Play Store. A Chinese link to numerous apps has also surfaced, with the arrest of four Chinese nationals by various police teams.
Given the decentralized nature of the Internet and the huge market for these risky loans, government agencies could always catch up. To make matters worse, there is a combination of poor digital and financial literacy amid a pandemic that has exacerbated financial distress without adequate institutional support for credit for cash-strapped youth. Customers who download the apps give up access to their phone contacts and photo gallery. Applying for a loan seems easy as it requires submitting a copy of Aadhaar, bank details, selfie, and other personal information – after which the loan is credited directly to the bank account.
But awareness comes late on to clients lulled into a false sense of security by the “faceless” nature of the loan transaction. Defaulters have had to deal with threatening calls from call centers and collection agents, in addition to being humiliated by messages to their phone contacts. In the immediate term, the offenders in the cases already recorded in Telangana, Tamil Nadu and Karnataka must be quickly prosecuted to dissuade other shadow operators from joining this racketeering. But that does not really solve the problem of regulating this emerging space.
RBI last month warned people about the risks of dealing with unregistered loan application entities. But he really needs to step up his communications strategy to both impart basic financial literacy and to warn people when he sees something on his radar. Digitization allows centuries-old frauds to unfold much faster and often with more damage, as the mobile phone is now the repository of sensitive information. There are arguments for greater cohesion in government weapons straddling the financial sector and other areas of the digital space. Online transactions will only develop from now on due to their inherent convenience. India’s regulatory system needs to be mindful of emerging risks.
This article was published as an editorial opinion in the print edition of The Times of India.
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