ETtech Explainer: why are quick-loan apps under the government scanner?

Among the 94 quick-loan apps, there were some Indian apps as well, such as Nasper-owned PayU’s LazyPay, and Kissht.

While the reason behind the IT ministry’s orders was not immediately clear, the directive has left other lending platforms in a state of panic even as they have not yet received any official notification on the matter.

ETtech looks at what makes such apps popular and how people fall prey to them.

What is the current case and why is the ban? Who is impacted?

In total, the Ministry of Electronics and Information Technology banned 232 apps in its latest orders. Some of these apps are of Chinese origin and the blocking orders were issued by the IT ministry based on information and inputs received from the Union Home Ministry, a source told ET.

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This is the first time the government has moved to ban quick-loan apps with China links. Most of these apps, sources said, had Indians working there as employees and directors.PayU’s LazyPay and Kissht are among the non-Chinese apps that have found mention in the blocking order. While PayU is owned by South African and Dutch group Naspers, Chinese conglomerate Fosun owned more than 17% stake in Kissht, but later divested its stake to various Singapore government funds.

Why are instant loan apps so popular?

Quick-lending apps are popular among the middle-income group. These apps offer easy credit access to those needing urgent money on easier repayment terms in the beginning.

They bundle the offer with claims of minimum documentation and market their services as an alternative to salary. Since the target audience of such apps need quick cash and relies heavily on their salaries, they agree to avail of such credit facilities.

How do borrowers are taken for a ride? How to avoid credit traps?

The devil lies in the details when it comes to such quick-loan apps. Since they demand very few documents, they ask for deep permissions such as access to call logs, access to other numbers saved on borrowers’ devices, and the detailed terms and conditions go unnoticed.

For instance, a 32-year-old private firm employee alleged last month that he lost Rs 6.8 lakhs to miscreants who blackmailed him after he borrowed Rs 23,000 from a quick loan app, reported the Times of India. He provided his photo, PAN, and Aadhaar Card details, which the miscreants morphed and used to harass him for extorting money.

Borrowers can take certain steps to avoid such unwanted incidents. First, ensure that the lender is registered with the regulatory body. Check if the lender is transparent about fees, practices and policies. They can also find out the exact interest rate cap. Ensuring that the lender has a dedicated customer care helpline also helps..

How are national security and sovereignty involved here?

One of the sources told ET that the orders were on an “urgent” and “emergency” basis for “improper data storage and transfer” to other countries and money laundering.

“These apps contained material which is prejudicial to the sovereignty and integrity of India,” one of the officials said.

Over the last two years, the government has banned close to 400 gaming, photo-editing software, web browsers and other apps, which have China links and have been involved in the improper use of data of Indian citizens.

Nearly all these orders are under Section 69A of the Information Technology Act of 2000, which gives the government the power to exercise emergency measures to protect the “sovereignty and integrity, defence, security of the state and public order in India”.

What does the data show? What is RBI doing?

According to the latest available data, between April 1, and November 30 last year 12,903 complaints were received against banks and non-banking financial companies (NBFCs) about digital lending apps and against recovery agents or harassment by recovery agents.

In 2021, the Reserve Bank of India constituted a working group on digital lending, including lending through online platforms and mobile apps, to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players.

The group said in a report that a majority of complaints were about lending apps promoted by entities not regulated by the RBI.

The report also identified major concerns related to issues of mis-selling, breach of data privacy, charging of exorbitant interest rates, intrusive method of recovery, lack of transparency, and lack of grievance redressal mechanism.

Last month, the government informed Parliament that the RBI also issued advisories to state governments to keep a check on “unauthorised digital lending platforms and mobile apps through their respective law enforcement agencies”.