Ms. Chetna Kadu panics every time her phone rings.
For three months now, she has been receiving calls from unknown numbers at all hours of the day and night and her WhatsApp is inundated with non-grammatical messages in all caps threatening to send her to jail.
All are demanding immediate repayment of a loan of 15,000 rupees (S $ 276).
“How can I repay the loan when I haven’t received my salary for three months? Asked the 32-year-old accountant at a restaurant in Mumbai.
As hotels and stores across India closed on March 24 and economic activity collapsed under a two-month government-ordered lockdown to fight the Covid-19 pandemic, Ms Kadu, like millions of other Indians, lost his job.
With no income and a sick mother to care for, she was forced to dip into her meager savings.
Five days after the lockdown, a loan of 15,000 rupees she took out from Cash Bean, an online loan application, matured. Struggling with interest of 33% per annum, she owed the lender 16,737 rupees. As if that wasn’t enough, she has had to endure sleepless nights and incessant phone calls ever since.
Hundreds of people like Ms Kadu have taken to social media in the past three months to complain about such cyberbullying by app-based lenders.
They say debt collectors swear at repeated calls and texts, send false legal opinions and police reports, and call borrower contacts to shame them.
India has more than 430 loan apps whose names are puns on money, such as Cash Bean, MoneyMore, CashBus, Kissht, CashMama, iCredit, FlashCash, iRupee, mPokket, KreditBee and HappyLoan. They offer “hassle-free” short-term, high-interest loans, starting as low as Rs 1,500, to individuals and small businesses.
To lend, applications must be linked to a non-bank financial corporation (NBFC) registered in India. But the apps themselves are often start-ups with skeletal teams and no regulatory oversight.
Most online lenders charge 25-40% interest (banks charge 12-20%). Their websites claim a repayment term of 30 to 90 days, but over 60 emails and screenshots reviewed by borrowers from 14 different apps showed repayment terms of seven or 15 days.
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About applications
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HIGH INTEREST, SHORT TERM
Amount of the loan: From 1,500 rupees (S $ 27.60)
Mandate: Seven to 90 days
Interest: 25 to 40 percent per year
Processing fee: 15 to 20% of the loan amount
Service tax: 18% of the loan amount
What it takes to qualify
Digital identification
taxpayer ID
Selfie / video
phone number
Access to all phone contacts, call logs, SMS
Borrower Profile
No credit history
21-40 years
Uses an Android phone
Active on social networks
Rohini Mohan
After downloading the app, borrowers submit their unique digital ID number, tax ID card, cell phone number, and a selfie or video for verification. They should give the app full access to their contacts and call logs.
“In less than half an hour I had the money,” said Ms. Priyanka Sharma, who sells cosmetics in Mumbai and took 6,000 rupees from iCredit on March 15. Unable to repay the sum after losing her job, she received harsh calls and is now considering pledging gold to end her ordeal.
Ms Mrin Agarwal, founder of the financial education organization FinSafe, said: “Despite the cost and the risks, these apps are often the only option for low-income Indians and students who will not get bank loans. without warranty.”
Many borrowers take loans from multiple apps and use one to pay off the other.
During the pandemic, there was a sharp increase in borrowing and defaults.
“Compared to the period before the lockdown, delinquency in April, May and June is 10 times higher. So we stopped disbursing new loans around early April and have only started modestly now,” said Ms. Ilica Chauhan, Vice-President. President of Compliance and Partnerships at PC Financial Services, the NBFC under which Cash Bean is registered.
India’s central bank has asked lenders to offer a moratorium on loan payments until August 31. But Ms. Kadu was denied any extension.
“In real cases, we grant moratoriums. But there are many who have cash flow but have no intention of repaying,” Ms. Chauhan said.
Many borrowers are now receiving threats and abuse.
Mr. Akash Kumar, 24 from Raigarh, said FlashCash agents called his worker father and several friends. “They told them I ran away with the money. I was so humiliated and sold my phone to pay back 3,000 rupees.”
Yesterday, the central bank announced stricter rules for digital platforms, responding to complaints about “exorbitant interest rates, non-transparent interest calculation methods, harsh collection measures, unauthorized use of personal data and bad behavior “.
Apps must now disclose the names of the NBFC they partner with, issue loan approval letters on NBFC letterhead, and adhere to fair practices while collecting dues.
Experts say the ongoing coronavirus pandemic is a good time to rethink the lending model of fintech companies.
“Do apps need more regulation? Or should they change some practices? Fifteen-day terms and over 30% interest are designed to defeat the borrower,” said MKJ Shashidhar, expert in financial technology at the Observer Research Foundation.
Ms Agarwal hopes regulators will do more, like cap interest rates. But much of the answer, she believes, lies in educating investors intensively about the risks involved.
