Yet another young life has fallen prey to the harassment of unverified loan apps proliferating in India. Narendra, a 25-year-old fisherman from Visakhapatnam, died by suicide at his residence on December 7. He was driven to it allegedly by the intimidation tactics of an instant loan app company.
Narendra had got married just two months back, on October 20. According to reports, he had taken a loan of Rs 2,000 through a quick loan app. When agents associated with the app company started tormenting him to repay the debt, he paid off a part of the amount. However, the agents continued to harass him and ultimately went on to circulate morphed pictures of Narendra's wife to his contacts. Dejected, Narendra decided to end his life.
A horde of micro-loan apps have come up in India in recent years, many of which have been functioning illegally. Often, they resort to intimidation and harassment to recoup money from defaulters. The extensive spread of such apps, which exploit the rising demand for credit, particularly among the younger population, has raised concerns.
How Do They Operate?
Loan apps are used heavily in rural and semi-rural areas, where formal banking systems are scarce. They mostly target poor and disadvantaged sections of society, that is, people with meagre incomes who are otherwise ineligible to obtain credit from established platforms. However, they are infamous for their high interest rates, short repayment periods, and cruel recovery tactics.
The use of loan apps witnessed a sharp increase during the Covid-19 pandemic. Thousands of businesses faced difficulties and were forced to shut down, leaving a large section of people unemployed and in need of money.
For many borrowers, the lure of instant loans with minimal documentation is such that they end up throwing all caution to the wind when engaging with such apps, unaware of their unregulated nature. These apps misappropriate borrowers' personal data, including contacts, location information, photos, and videos, which their agents later use for blackmail. Such practices violate the Reserve Bank of India's (RBI) Fair Practices Code.
A common tactic employed by apps is to choose names similar to those of trusted loan brand institutions, creating a false sense of authenticity. Once a customer downloads the app and uploads the required documents, the loan amount is credited to their bank account. However, the app company shares the customer's phone number and the numbers of their family members with others.
The average loan borrowed through these apps ranges between Rs 10,000 and Rs 25,000, with monthly interest rates of 20% to 30% and a processing fee as high as 15%. Loan app agents often begin their recovery procedures within 15 days of loan approval. However, in many instances, they have started harassing people just four to six days after disbursing the loan, or in some cases, even before disbursement.
“The catch is, when you install the app, you have to give it full access to your phone, including contacts and picture gallery. In many cases, they morph the images of the victim's sister, mother, or wife and share them with contacts from the phonebook to extort more money,” says Mukesh Choudhary, a cybersecurity and investigation expert. “In many instances, victims haven't even taken the loan but still had to pay to protect their reputation,” he adds.
Digital Literacy Is Crucial
Such unregulated loan apps have come up even on secure platforms like Google Play and the App Store, according to them false credibility. Reports indicate that over 5,600 fraudulent apps have been identified and removed from these platforms in India alone. The government has repeatedly issued cautionary messages about the risks associated with unverified loan apps, including those operated by Chinese entities, highlighting their threat to both the individuals involved and national security.
The RBI has also issued strict guidelines in the past. Authorised lending platforms are required to disclose their partner banks or NBFCs.
One key issue here is digital literacy. According to data from the Ministry of Labour & Employment, only 38% of households in India are digitally literate. Digital literacy is relatively higher in urban areas (61%), compared to just 25% in rural areas. While the government promotes Digital India, there is a lack of infrastructure and cyber-literacy programmes for the general public. Easy access to technology, social media platforms, and peer pressure have fuelled aspirations. It is this psychological vulnerability that is exploited by unscrupulous loan apps.
“People must understand that unknown apps can misuse the permissions they are granted. Therefore, loans should only be taken from recognised fintech companies or banks when applying online,” advises Choudhary. However, the problem remains that formal banking, NBFCs, and government-approved agencies follow procedures that are often beyond the reach of many unsuspecting loan applicants. In a large, developing country like ours, the vacuum created by the inefficient delivery of services by the state often ends up being exploited by unscrupulous private players.
The government needs to implement stringent laws to combat modern-day cybercrime. Prosecution and punishment must be quick and severe to act as a deterrent. Furthermore, ground-level awareness campaigns through government-community partnerships are crucial in tackling this menace.
(The author is Contributing Editor, NDTV)
Disclaimer: These are the personal opinions of the author