July 5, 2022, New Delhi: 2 weeks ago, Reserve Bank of India (RBI) Governor Shaktikanta Das warned people against unregistered digital loan lending apps, and so if people have any complaints regarding such entities, they must file a complaint against the police. However, if RBI receives complaints against lending platforms, which are registered with it, the central bank will take action, the governor said. Additionally, the governor said the apex bank is expected to issue guidelines soon to regulate digital lending.
There are many loan fraud case reports by many mobile apps that offer instant loans. The Maharashta Police Cybercrime Team has written to the Google Play Store demanding the removal of 69 loan apps after receiving hundreds of complaints of harassment and threats made by fraudulent loan collectors to customers. According to reports, these apps offer easy and fast loans, trap people with high processing fees, irrelevant taxes and exorbitant interest rates.
India has witnessed the emergence of instant loan providers through smartphone-enabled fintech lending companies to help people deal with shortages of funds. Individuals (employees or not) opt for these short-term loans because of the speed with which the application is processed within the same day or within a few days. The documents sought usually include an ID such as Aadhaar card or Pan card or voter ID card, bank statement and access to social media accounts, contacts, gallery, etc., which must be submitted on their mobile app. For those who are salaried, they look for payroll details for the last 3 months, membership letter, employee id, etc. the amount borrowed and only for the duration of the loan.
Most of these apps were primarily built during the height of the pandemic, offering loans to people who had lost their jobs, among others. Some instant loan apps, according to consumers, charge up to 500% interest rates and use extortion methods to collect money from defaulting borrowers or debtors. Some consumers reported receiving phone calls for repayment of loans taken out more than a year ago, even though they had paid the amount taken out or more. In order to protect citizens’ data, the RBI “Cyber Dost” portal contains information that can help citizens verify loan companies. The RBI Governor assured that law enforcement is taking action and urged citizens to file a complaint about such unregistered apps with the police, and advised a person to ensure that the The digital lending app she uses is registered with the RBI.
Considering all the complaints received over the past 12 months, LocalCircles has decided to conduct a survey to get the pulse of citizens who themselves, their family members or household staff may have taken out loans instant loans through these instant loan apps. He also sought to understand the annual interest rate they were paying relative to the principal amount of the loan. The survey also tried to figure out if extortion and data breaches were something many were experiencing. The survey received over 27,500 responses from citizens residing in 409 districts of India. 68% of respondents were men while 32% were women. 47% of respondents were from Tier 1, 35% from Tier 2, and 18% from Tiers 3, 4 and rural districts.
14% of citizens surveyed said they or a family member/domestic staff have used an instant loan app in the past 2 years to get a loan
The first question in the survey asked citizens “In the past 24 months, have you or any member of your family or household staff used apps that offer instant loans to secure a loan?” In response, 14% of citizens surveyed said “Yes”, they or a family member/domestic staff have used an instant app in the past 2 years to get a loan. The majority of 79% of citizens answered “No”, and 7% of citizens could not answer. This survey question received 8,555 responses.
Given that these apps are relatively new and most of them appeared in 2020, 14% of respondents confirming that they, their family members or household staff have used these apps in the past Last 2 years is a significant number.
58% of citizens surveyed said that when they or a family member/household staff took out a loan using instant loan apps in the past 2 years, they had to pay annual interest of more than 25%
According to consumer inputs, instant loan apps usually charge an interest rate of 30-60% on the loan of INR 3,000-5,000, and accordingly the interest rates vary depending on the loan amount and the repayment term of the loan. At the height of the pandemic, some platforms reportedly charged up to 500% interest. The next question aimed to understand the minimum annual interest rate charged to citizens by loan applications. The question posed to citizens was: “During the past 24 months, when you or a family member/household staff used apps that offered instant loans to secure a loan, what was the rate of annual interest? In response, 26% said they were charged “10-25%” as the annual interest rate. 16% answered “25-50%”, 26% answered “50-100%”, and 16% answered “More than 200%, while 16% could not answer. Overall, 58% of citizens surveyed said that when they or a family member/household staff took out a loan using instant loan apps in the past 2 years, annual interest of more than 25 % had been charged to them. This question received 9,672 responses.
54% of citizens surveyed said that when they or family/household staff took out a loan using instant loan apps in the past 2 years, they were victims of extortion or misuse of data during the collection process
There are many reports of how lending apps have used extortion methods to recover money from borrowers or defaulters. Some citizens also claim to receive phone calls for repayment of loans taken out more than a year ago, even if they have paid the amount taken out or more. On the other hand, there are many reports of sharing personal information of borrowers including Aadhaar card, Pan card, etc. with third-party platforms. People have also reported in a few cases, how their relatives in a different place received messages about the repayment of the loan they had already made some time ago.
The final question asked citizens: “In the past 24 months, when you or a family member/household staff used apps that offer instant loans to secure a loan, did you feel a sense of extortion or misuse of data during the collection process? In response, the majority of the 54% of citizens surveyed answered “Yes”, and 33% said “No” while 13% could not answer. This question received 9,388 responses.
In summary, 14% of citizens surveyed said that they or a family member/domestic staff have used an instant loan app in the past 2 years to get a loan. The survey further states that instant loan apps charge a high rate of interest on the main loan amount. This is evident with 58% of citizens surveyed saying they have been charged annual interest of more than 25% by loan applications in the past 2 years. Moreover, with 54% of citizens surveyed stating that they or family/household staff have experienced data extortion or misuse during the collection process, this suggests that it is urgent that the Indian government and the Reserve Bank of India come up with regulatory options that could prohibit coercive recovery procedures, cap the interest rate and require mandatory registrations of these apps operating in India.
LocalCircles has escalated the findings of the inquiry to the Reserve Bank of India and hopes that public comments will be taken into account in developing the guidelines for instant loan or digital loan applications.
The survey received over 27,500 responses from citizens residing in 409 districts of India. 68% of respondents were men while 32% were women. 47% of respondents were from Tier 1, 35% from Tier 2, and 18% from Tiers 3, 4 and rural districts. The survey was conducted through the LocalCircles platform and all participants were validated citizens who needed to be registered with LocalCircles to participate in this survey.