Digital loan sharks lay death-trap for debtors

During a two-day meeting with heads of banks, including the private sector lenders, the governor emphasised on the need to remain vigilant and make provisions against bad loans proactively.
For representational purpose.
For representational purpose.

NEW DELHI:  A spate of recent cases where borrowers allegedly ended their lives following humiliation by app-based financiers have brought into sharp focus the risks of instant digital lending in India.

This year alone, the Reserve Bank of India (RBI) has cautioned people against unauthorised digital lending apps at least thrice, but the coercive recovery tactics being used by these lenders to get their money back continue in the absence of a sharper regulation.

In fact, social activists, who are in touch with such borrowers facing similar issues say, most of these apps are funded by Chinese companies. “We have received 45,000 complaints where borrowers are being harassed for repayment by loan apps,” said Pravin Kalaiselvan, chairman of Save Them India Foundation.

The foundation has also filed a public interest litigation in the Supreme Court against such apps. While there are illegal moneylenders who have been operating for ages and typically lend against gold ornaments or property to low-income groups,  these entities give loans against data.

Kalaiselvan says that these apps download contact lists, photos and other data from borrowers’ phones— the consent for which the borrowers need to give while taking loans through these apps. While these portals fulfil a very real need for quick and painless loans to tide people over for short periods, the predatory interest rates are a cause of worry. Users of such loan apps are given a very small amount and tenure with rates ranging from 25-38 per cent.

Former RBI deputy governor R Gandhi likened this practice similar to methods adopted by microlenders in Andhra Pradesh in 2007 which plunged an entire industry into crisis. “They are violating customers’ dignity and basic principles are not being followed,” he said.

During the pandemic, there has been a sharp rise in both borrowings and defaults. To lend, the apps must be tied up with a NBFC, but often these apps are start-ups with skeletal teams. The banking regulator on Wednesday also asked the public to verify the antecedents of the company offering loans online or through mobile apps.

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The New Indian Express
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