Bharat Singh, a resident of the eastern village of Ghosi in Uttar Pradesh, borrowed Rs 15,000 for his sister’s wedding through a loan app he came across on Instagram called UnicashX.
There was little guidance if this was a genuine lender. Instagram didn’t raise a red flag and nor did the Reserve Bank of India (RBI). Singh didn’t suspect much since the app claimed it was backed by a non-banking financial company (NBFC), and NBFCs are regulated by the RBI.
But soon enough, he had to pay a heavy price — not just usurious interest rates but also continuous mental harassment. UnicashX demanded Rs 50,000 back, more than thrice the borrowed amount. When Singh did not pay back beyond the Rs 15,000 borrowed, he received a message on WhatsApp, which left him terrified: “I will hurl such abuses at you that you will consume poison.” Over the days that followed, he was incessantly harassed on WhatsApp by unknown people.
Singh is not alone.
Over the last 11 years, the digital lending market has soared, and by 2023, it is estimated to have touched $350 billion, having grown at a compounded annual growth rate of almost 40 per cent, according to Experian, a credit information company. Of course, much of this is powered by genuine fintech companies backed by NBFCs and banks.
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But under the radar, hundreds of scrupulous players emerged. While there are no official estimates, industry players said the illegal lending market could be at least $700-800 million.
No RBI list of who’s real/fake
Over the last four months, The Indian Express spoke with a range of stakeholders including borrowers, fintech intermediaries, government functionaries, big tech companies and former RBI officials. A number of victims caught in the crosshairs of these apps and their testimonies point towards a common narrative: In the absence of any government and regulatory norms, online platforms carry out little due diligence and let fraudsters openly advertise predatory loan apps. The RBI doesn’t have a white list of registered loan apps, or even a negative list which is updated.
Over the years, fraudulent firms mushroomed on the back of rapid growth in digital lending given its convenience. The government has not been able to bring stakeholders to agree on a set of guidelines to counter the menace. In fact, The Indian Express has reported around a dozen cases since 2020 where some of those caught in the trap of such illegal loan apps have allegedly died by suicide.
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How Illegal Loan Apps Trap People
The latest meeting to discuss the menace was held on October 13, with the Ministry of Finance, the RBI and the Ministry of Electronics and Information Technology (MeitY) participating. During the meeting, MeitY suggested that the RBI can design detailed know-your-customer (KYC) norms for lending apps, similar to the process that users have to follow before opening a bank account.
“We refer to the process of company KYC as Know Your Digital Finance App (KYDFA),” Minister of State for Electronics and IT Rajeev Chandrasekhar told The Indian Express.
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