A new financial scam is unfolding and many are already victims of its tricks. The foreclosure and the sluggish economy have pinched many pockets, leading to an increase in demand for small loans to deal with the temporary cash flow crisis. The ruse is simple – need small amounts of money? Instant loan apps will provide immediate loans in minutes with just your Pan card, Aadhar card, and a selfie photo. But the repayment is so expensive and people quickly find themselves in a quagmire of debt.
Despite this, the allure of quick loans and the general discouragement of people is driving business for these scam apps as gullible consumers continue to fall prey. You might be thinking what is wrong with quick cash? There are several dangers underlying this seemingly harmless easy loan. First, these instant loan apps charge huge interest; the interest rate is between 800 and 1000 percent of the principal amount and a high processing fee. The loan must also be returned within seven to 15 days. And if that fails, these apps free the collection agents from hell! These agents harass, abuse, blackmail the person who took out the loan. If repayment is delayed, debt collectors call family and friends, harass them too, circulate transformed photos, make obscene comments. They can do this since the customer would have given permission to access their directory and contact list. Press reports suggest that this harassment has already caused some suicide deaths and loss of borrowers’ crore.
The new threat emerged when the Hyderabad police froze 75 bank accounts, which had Rs 423 crore. It was established that through about 1.4 crore of transactions, a value of Rs 21,000 crore had taken place. The Law Enforcement Directorate is investigating the matter and several arrests in Gurugram, Bengaluru, Hyderabad and Chennai have taken place. But there is no way to deter these apps. Their appeal is so prolific that there are over 4000 of them on the Google India Play Store (just search with “rupee”, “cash”, “coin”, “loan”). Acting on its own, Google has unplugged about 100 instant loan apps, but more are coming almost immediately to take its place.
These instant loan applications are said to have a connection with China. All of these apps were apparently built in China and work through locally registered companies in India. Operating through regulatory loopholes, they are also able to partner with Indian entities that have an NBFC (Non-Bank Financial Company) license to offer loans. Indeed, there is something more dangerous than TikTok or CamScanner. Investigation agencies face the challenge of reserving foreign companies; they can only attack the Indian link.
While the wealthy willful defaulters got Rs 62,000 crore in bad debt canceled by the banks (according to the Reserve Bank of India in its response to an RTI query), the common man in India is still struggling to get approved. his meager real estate or business loan. When credit facility is out of reach for the most part, the attractiveness of these illegal lending transactions is unlikely to diminish anytime soon. The RBI for its part simply warned consumers not to share KYC (know your customer) documents with unverified apps, but no further action was taken by the central bank. Therefore, government action on the issue of instant loan applications is urgently needed before they become deadly traps for more innocent people.
The writer is an author and a media entrepreneur. Opinions expressed are personal