Digital loan sharks set death trap for debtors – the New Indian Express
Express news service
NEW DELHI: A series of recent cases of borrowers reportedly killing themselves after being humiliated by app-based financiers have highlighted the risks of instant digital lending in India.
This year alone, the Reserve Bank of India (RBI) has warned people about unauthorized digital lending applications at least three times, but the coercive clawback tactics used by these lenders to get their money back continue in l absence of stricter regulations.
In fact, social activists, who come into contact with such borrowers facing similar issues, say that most of these apps are funded by Chinese companies. “We have received 45,000 complaints where borrowers are harassed for repayment by loan applications,” said Pravin Kalaiselvan, president of the Save Them India Foundation.
The foundation has also filed a public interest dispute in the Supreme Court against such applications. While there are illegal pawn shops that have been operating for ages and typically lend against gold ornaments or property to low-income groups, these entities provide loans for data.
Kalaiselvan says these apps download contact lists, photos, and other data from borrowers’ phones, the consent borrowers must give when taking loans through these apps. While these portals fill a very real need for quick and painless loans to help people out for short periods of time, predatory interest rates are a cause for concern. The users of these loan applications receive a very small amount and tenure with rates ranging from 25-38%.
Former RBI Deputy Governor R Gandhi compared the practice to the methods adopted by microlenders in Andhra Pradesh in 2007 that plunged an entire industry into crisis. “They violate the dignity of clients and basic principles are not respected,” he said.
During the pandemic, there was a sharp increase in borrowing and defaults. To lend, apps must be linked to an NBFC, but these apps are often start-ups with skeletal teams. The banking regulator also on Wednesday asked the public to check the background of the company offering loans online or through mobile apps.