V. Rajapandian was fired from a heat treatment factory in India for no reason other than poor performance and declining revenue. Instead, his manager presented an odd explanation: Rajapandian had failed on a loan through a mobile app, and recovery agents had asked that the plant pays for him.
“They cost me my job,” Rajapandian said of CASHe, the app that helped him acquire a $132 loan. “I’m constantly worried that they’ll follow me out and harass me.”
Rajapandian’s story is becoming more typical as digital lending takes off in India and other developing economies. Apps offering instant cash have proliferated throughout the outbreak.
Many take advantage of borrowers’ lack of financial literacy by charging interest rates as high as 500 percent yearly and, in certain cases, using harsh collection tactics that have been linked to a wave of suicides in India, according to Indian activists.
An increasing number of Internet corporations and regulators have retaliated. To protect borrowers against “deceptive and exploitative terms,” Google has blacklisted hundreds of apps from its Android store around the world. Chinese, Indonesian, and Kenyan officials followed suit, shutting down a slew of businesses that promised quick cash to the unbanked.
India, which has one of the world’s greatest numbers of such apps, has also taken action. In November, the Reserve Bank of India hinted at new requirements for digital lenders. More than half of the approximately 1,100 digital loan providers were determined to be operating unlawfully, according to a commission set up by the bank.
But, given the country’s outdated personal bankruptcy rules and sheer population (more than one billion people lack formal credit), protecting consumers in India is exceptionally difficult.
While allegations of harassment by digital lenders have reached well beyond India’s borders, the country’s aim to become a tech innovation hotspot, paired with a cumbersome bureaucracy, makes broad regulatory involvement impossible.
According to Eswar Prasad, a professor at Cornell University’s Dyson School of Applied Economics and Management, “these platforms serve an unmet demand.” “The presence of digital lenders charging outrageous interest rates reveals a latent demand for loans and other products that the traditional financial system is failing to meet.”
However, enforcing harsher restrictions has turned into a whack-a-mole game. Digital lending is a wide, difficult-to-tame business, according to Rahul Sasi, who owns cyber security firm CloudSEK and was one of the experts who offered suggestions to the Reserve Bank of India.
Banned apps, he added, just migrate to third-party sites like Aptoide or promote via text messages. Consumers take out loans to never repay them. In turn, the apps employ mafia-style collection methods.
As personal lending becomes more stressful, there is a possibility that unethical companies would increase their deceptive techniques. Consumer credit delinquencies increased in September from a year earlier, according to Reserve Bank of India data released last week.
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