Google axes personal loan apps from its Play store: As incomes shrink, lending scams on the rise in India

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Having undertaken a review of hundreds of loan apps on its Play Store, tech giant Google has identified several apps that have, reportedly, violated its safety policies, and moved quickly to suspend them from its platform. 

In a blog post, the company informed that it had directed developers of these loan apps to prove their compliance with local and federal rules and regulations within 5 days while also requesting further information specifically around repayment scheduling and interest rates. 

The latest development comes on the heels of a warning issued by the Reserve Bank of India that malevolent lending practices across the digital space had been escalating. The central bank also announced that it was putting together a working group to draft new regulations around digital lending. As recently as June 2020, the RBI had put forth a fresh notification with guidelines for digital lenders linked to NBFCs. 

However, these guidelines do not apply to digital lenders that remain unregistered. As per Section 45-1A of the RBI Act 1934, any non-banking financial enterprise requires registration to legally operate. 

The dire income and employment climate brought on by the COVID-19 pandemic has resulted in a huge spike in the number of instant loan apps, many of which do not require clients to provide their credit histories or KYC documentation in order to secure micro-loans. Often only asked to provide identity and photo verification, customers grow enticed by the simplicity and immediacy of the process. 

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There is a catch though. To make use of many of these apps, customers have to allow them access to sensitive information like their phone contact book, images stored on their mobile devices, location information and much more. 

These apps typically provide small loans that can range anywhere between Rs 2,000 to 10,000 with relatively large processing fees, setting short repayment schedules (sometimes under 2 weeks) and significantly high rates of interest. 

What's more, when individuals default on their loan repayments, there have been several instances where app operators have held their personal information hostage, issuing threatening calls. In some cases, pictures of women defaulters were morphed with pornographic material and shared with their personal contacts. 

These tactics bear marked similarities to those used by instant loan apps in China as recently as 2012 until a concerted government clampdown on the sector in 2016 sent many of these operators packing. But what it also seems to have done, is turn their gaze toward India. Several of these apps have been found to have a Chinese connection prompting the Enforcement Directorate to begin a probe of its own. 

In truth, India is not unfamiliar to such unscrupulous modes of lending having contended, for years, with a sizeable shadow loan market. Except, this time there is no physical interaction – everything is digitized. However, what appeared to draw the RBI's attention to these digital lenders was a series of suicides from defaulters. As per the latest reports, 7 Chinese nationals along with over 35 Indians have been arrested in connection with these digital lending scams. Investigators have stated though, that they may have barely scratched the surface in unearthing the true scale of these operations.