Growing number of unauthorized digital lending platforms and mobile apps – a cause for concern
By: Priyanka Saurabh
Recently, the Union Finance Ministry held an important meeting regarding the business of illegal lending apps in the country and it was observed that unauthorized apps were distributing loans on a large scale by staying out of the scope of application of the rules and regulations of the Reserve Bank of India. In addition to intimidating people, they recover at high interest rates. Cases of suicides of people defrauded by illegal loan applications are also in the spotlight. The black money network was also dismantled in the ED raids. The problem is seriously with you, so understand this whole issue of illegal loan applications. It’s important to know. A digital loan involves lending through a web-based platform or mobile application leveraging technology for authentication and credit reporting. Banks have launched their own independent digital lending platforms to tap into the digital lending market by leveraging existing traditional lending capabilities. It helps to address the large unmet need for credit in India, especially in the segment of micro-enterprises and low-income consumers. It helps reduce informal borrowing as it simplifies the borrowing process. It reduces the time spent on work loan applications in the agency. The digital lending platform is also known to reduce overhead costs by 30-50%.
But taking advantage of this, the growing number of unauthorized digital lending platforms and mobile apps has become a cause for 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’ cellphones. The public should beware of unauthorized digital lending platforms and mobile apps. The public should check the background of the lending company/business online or through the mobile app. Consumers should never share copies of KYC documents with strangers or unverified/unauthorized applications. They can report the details of such app/bank account linked to the app to the relevant law enforcement agencies or use the Sachet portal (https://sachet.rbi.org.in) to file a complaint. There are many issues with digital lending apps. They attract borrowers with the promise of loans in a quick and hassle-free manner. But, borrowers are charged exorbitant interest rates and additional hidden charges. These platforms adopt unacceptable and high level recovery methods. They abuse agreements to access data on borrowers’ cellphones.
Google dominates India’s app market with 95% of smartphones using its Android platform, tighter controls from the Indian government and central bank to help curb the use of illegal digital lending apps in India have been called for to present. Even though Google does not fall under the jurisdiction of the Reserve Bank of India, it has been part of meetings of the US central bank and the Indian government over the past few months. The tech giant has been repeatedly called out and urged to introduce tougher checks and balances. Which can help eliminate these apps. Indian regulators have already asked lenders to check illegal loan apps, which have become 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 clawback practices that are not authorized by the central bank or violate money laundering and other government directives.
Warning people not to fall prey to ‘these dishonest activities’, the RBI said: ‘Legal public debt activities can be undertaken by banks, non-banking financial companies (NBFCs) registered by the RBI and other entities which The statutory provisions like the lending of money from the respective states are regulated by the state governments under the law. India is on the verge of a digital credit revolution and is ensuring that this lending 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 redress. It’s also important to educate customers to make them aware of digital lending, in addition to putting in place technical safeguards and training. Digital lending applications should undergo a verification process by a nodal agency to be put in place in consultation with stakeholders. Involve players in the digital lending ecosystem The establishment of a self-regulatory body (SRO) can solve this problem.
The use of unsolicited commercial communications for digital lending should be governed by the code of conduct to be applied by the proposed SRO.
The proposed SRO would maintain a “negative list” of credit service providers and the disbursement of loans directly to borrowers’ bank accounts.
All data should be stored on servers located in India and the algorithmic features used in digital lending for documentation should ensure the necessary transparency. Encourage more legitimate lenders while improving customer protection and making the digital lending ecosystem secure and innovative. The digital lending market in India is rapidly changing and with the fourth industrial revolution, it is time to move from digital to digital first to digital only. It is now up to digital applications to play by the rules and self-regulate.
RBI should be equipped with the technology and technical expertise to track loan applications in real time.
The author is a political science researcher, poet, freelance journalist and columnist