Despite RBI crackdown, instant loan apps continue to boom

Despite the Reserve Bank of India (RBI)’s crackdown on ‘Illegal’ digital lending apps, instant loan apps are still popular among Indian users. According to a report published by community driven social media platform Local Circles today, such apps keep charging customers as much as 500% interest rates and use extortion methods to collect money from borrowers or loan defaulters. 

The company surveyed over 27,500 citizens residing in 409 districts of India, and found that 14% of the respondents have used instant loan apps in the last two years. Of these, 58% said that they or someone in their household staff took a loan using instant loan apps since 2020, and were charged annual interest of over 25%.   

As per inputs from consumers, instant loan apps generally charge 30-60% interest rate against a loan of ₹3,000-5,000, and accordingly interest rates vary as per the loan amount and duration to pay back the loan. During the peak of the pandemic, some platforms reportedly charged as much as 400-500% interest rate. Also, over half (54%) of the citizens experienced extortion or data misuse during the collection process, said the study. 

Earlier in 2022, an RBI Working Group on digital lending found that more than half of about 1,100 digital loan providers were operating illegally and were available in app stores. With an aim to prevent illegal digital lending activities, RBI has proposed that the Government of India to formulate a new legislation.

Globally too, tech major Google has blocked hundreds of apps from its Android store to protect borrowers from “deceptive and exploitative terms.” Officials in China, Indonesia and Kenya had also reportedly shut down many lending firms that promised quick cash to the unbanked. 

The main factor that lures people into these apps is easy processing of loans without any surety. Details such as copies of Aadhaar card, voters ID and Pan Card submitted while loan processing can be misused. Most importantly, contacts and photos stored in victims’ mobile phones were found misused, as per various reports. Proliferation of smartphones and cheap data plans needlessly, helped in driving the process, it said. 

More recently, the Governor of RBI, Shaktikanta Das, cautioned people about unregistered digital loan lending apps, and therefore if people have complaints related to such entities, then they should lodge police complaints. However, if RBI receives complaints against lending platforms, which are registered with it, then the central bank will take action, he said. Further, the Governor said that the apex bank is likely to soon put out guidelines to regulate digital lending.  

The maximum number of complaints has been filed in Maharashtra, followed by Karnataka, Delhi, Haryana, Telangana, Andhra Pradesh, Uttar Pradesh, West Bengal, Tamil Nadu, and Gujarat, according to the RBI report. The Maharashtra police cybercrime team has written to Google Play Store asking to remove 69 loan apps after receiving hundreds of complaints of harassment and threats made by fraudulent loan recovery agents to customers.

LocalCircles said it has shared the findings with RBI, anticipating feedback so as to help individuals and businesses from falling prey to the growing number of unauthorised digital lending platforms and apps.