Bharat Singh, a resident of the eastern village of Ghosi in Uttar Pradesh, borrowed Rs 15,000 for his sister’s wedding through a loan app he came across on Instagram called UnicashX.
There was little guidance if this was a genuine lender. Instagram didn’t raise a red flag and nor did the Reserve Bank of India (RBI). Singh didn’t suspect much since the app claimed it was backed by a non-banking financial company (NBFC), and NBFCs are regulated by the RBI.
But soon enough, he had to pay a heavy price — not just usurious interest rates but also continuous mental harassment. UnicashX demanded Rs 50,000 back, more than thrice the borrowed amount. When Singh did not pay back beyond the Rs 15,000 borrowed, he received a message on WhatsApp, which left him terrified: “I will hurl such abuses at you that you will consume poison.” Over the days that followed, he was incessantly harassed on WhatsApp by unknown people.
Singh is not alone.
Over the last 11 years, the digital lending market has soared, and by 2023, it is estimated to have touched $350 billion, having grown at a compounded annual growth rate of almost 40 per cent, according to Experian, a credit information company. Of course, much of this is powered by genuine fintech companies backed by NBFCs and banks.
But under the radar, hundreds of scrupulous players emerged. While there are no official estimates, industry players said the illegal lending market could be at least $700-800 million.
No RBI list of who’s real/fake
Over the last four months, The Indian Express spoke with a range of stakeholders including borrowers, fintech intermediaries, government functionaries, big tech companies and former RBI officials. A number of victims caught in the crosshairs of these apps and their testimonies point towards a common narrative: In the absence of any government and regulatory norms, online platforms carry out little due diligence and let fraudsters openly advertise predatory loan apps. The RBI doesn’t have a white list of registered loan apps, or even a negative list which is updated.
Over the years, fraudulent firms mushroomed on the back of rapid growth in digital lending given its convenience. The government has not been able to bring stakeholders to agree on a set of guidelines to counter the menace. In fact, The Indian Express has reported around a dozen cases since 2020 where some of those caught in the trap of such illegal loan apps have allegedly died by suicide.
The latest meeting to discuss the menace was held on October 13, with the Ministry of Finance, the RBI and the Ministry of Electronics and Information Technology (MeitY) participating. During the meeting, MeitY suggested that the RBI can design detailed know-your-customer (KYC) norms for lending apps, similar to the process that users have to follow before opening a bank account.
“We refer to the process of company KYC as Know Your Digital Finance App (KYDFA),” Minister of State for Electronics and IT Rajeev Chandrasekhar told The Indian Express.
In September 2022, the RBI did release a set of guidelines for digital lending, but these were only for regulated entities — banks and NBFCs. So, whatever wrongdoing by a lending app and service provider (those engaged in recovery of loans among other activities), RBI will knock on the doors of the bank or the NBFC.
But this doesn’t address the issue of fraudulent apps, which do not have any bank or NBFC association and thrive on a large pool of unsuspecting mid- to low-income people — including students, small shop owners, salaried people working with small establishments in Tier III and Tier IV cities — who are turned down by banks.
The RBI did initiate some steps, but withdrew. In fact, in a meeting on illegal loan apps chaired by Union Finance Minister Nirmala Sitharaman in September 2022, it was decided that RBI would prepare a white list of legal lending apps and MeitY would ensure only these are hosted on Google and Apple app stores. The RBI finds this “cumbersome” and hence has not moved on it so far, The Indian Express has learnt.
Similarly, an RBI working group had in August 2022 proposed creating an independent multi-stakeholder body called the Digital India Trust Agency to verify digital lending apps. This agency, too, is yet to see the light of day.
The RBI did not respond to a detailed questionnaire.
Ads that deceive
With neither the government nor regulators looking over their shoulders, these fraudsters are abusing a confluence of the most popular online platforms — Meta, Google and Apple app stores, and WhatsApp — to advertise and distribute their dubious apps and eventually harass users for payments.
Dubious loan apps advertise on Instagram and Facebook, and despite whatever filters they claim to use, many such apps including those clearly red-flagged by the government itself continue to offer their services. On October 11, this paper spotted an advertisement on both platforms for a loan app called Windmill. Just a month before, the app had been tagged as fake by the Ministry of Home Affairs’ Cyberdost initiative for having been hosted from “hostile foreign entities”.
Google and Apple have blocked thousands of such apps from their app stores. But fraudsters find ingenious ways to find their way back online. For instance, when a user clicks on the ad by a dubious loan app called PaisaWorld on Instagram, she is redirected to a site asking her to download a program which looks deceptively similar to Google Play Store.
Fake apps are good at deceiving Google and Apple about the nature of their services. They present themselves as mere loan calculators or loan aggregators, and, in one case, even a food recipe recorder, to fly under the radar of the companies’ review process.
Apple took down an app called Cute Sweet Food Record and another called Kevin Basketball Train Plan which offered instant loans from a platform called Trust Loans after these were specifically flagged to it. These apps projected themselves as general health and fitness apps with no connection to loan services, Apple told The Indian Express. After a review, they maliciously changed their features and functionality.
Responding to queries sent by The Indian Express, a Google spokesperson said the company “continuously updates policies across all our products to keep users safe from emerging threats and bad actors”. The company also said it does not allow apps attempting to deceive users or enable dishonest behaviour including but not limited to apps that misrepresent or do not accurately and clearly describe their functionality.
But such apps continue to find a place on the Play Store.
Meta did not respond to queries asking if the company reviews such advertisements before publishing them, and if it solely relies on automated means for the review or involves humans in the process.
A government official said social media companies were not serious about monitoring advertisements of fake loan apps. “This is problematic; there is huge money to be made out of such advertisements. It is nothing else but corporate greed that they are not doing a better job at filtering out such ads,” said the official, requesting anonymity since the government is in continuous dialogue with Big Tech companies.
A few rotten apples?
A senior social media executive, however, said when the government cracks down on such activities, at times some legitimate apps, too, get affected. In February this year, when the Centre banned over 90 apps it believed to be fake, legitimate lending companies like KreditBee, LazyPay and Kissht, among others, faced the brunt.
While the ban was revoked after the government went through their documentation, an executive whose app was banned at the time said such regulatory uncertainty will make it difficult for them to build credibility with customers.
Bharat Singh, who continues to receive calls and harassment messages, said the loan app had taken him to UnicashX’s website. Here the app claimed it was backed by an NBFC called Kemex Engineering Ltd and also had a picture of its certificate from the RBI. “I believed the app and took out a loan for Rs 15,000. It was the biggest mistake of my life,” he said. Kemex is a RBI-registered NBFC.
When The Indian Express contacted Vinay Shankar, the director of Kemex, he said: “We are not advancing any kind of loan via any digital lending applications.” He claimed to have no knowledge of UnicashX.
Of course, legitimate NBFCs, too, are worried since it takes just a few rotten apples to spoil the basket. “Some of the RBI-registered and highly rated NBFCs have been misrepresented by illegal lending apps and there is real concern that the issue could snowball into a much bigger one for NBFCs, so there is a need to nip it in the bud,” said Raman Aggarwal, director of the NBFC industry body Finance Industry Development Council.
Led by banks, NBFCs and fintech companies such as Paytm, Cred, Indifi and KreditBee, the total digital lending in 2023 is expected to be $80 billion, according to Experian. Ten years ago, this was $5 billion. Most digital lending apps are either owned by banks or NBFCs, or have a partnership with NBFCs. For instance, Paytm has partnered with NBFCs including Aditya Birla Capital, Hero Fincorp, Piramal Finance, Clix Capital and others. Cred has an in-house NBFC.