App Ban: Indian Lendingtech The Collateral Damage Or Is There More To It?

It was business as usual for digital lending apps and consumers alike on Monday (February 6) and, then, suddenly, murmurs emerged on Twitter of users being unable to access certain digital loan apps. At first, many were caught unawares as they rubbished it off as a hoax. 

In the next couple of hours, user complaints began to flood online while news reports trickled in about a plausible ban on Indian digital lending apps such as Prosus-backed LazyPay and Kissht. Meanwhile, confusion continued over whether there was an actual ban on these apps or was it just a block imposed by Internet Service Providers (ISPs) on their respective websites.

By the end of the day, it came to the fore that the so-called ‘bans’ were part of a sweeping government crackdown on 232 Chinese-linked apps, including 138 betting apps and 94 digital lending apps. 

The matter imploded onto national headlines on February 7 after more information emerged on the matter. Earlier today, reports emerged that several Indian lending apps, including big names such as Ola’s Avail Finance, BuddyLoan, PayMe, TrueBalance and fintech player KreditBee’s clone were on the list of apps banned by the Ministry of Electronics and Information Technology (MeitY). 

Besides, other apps such as CashTM, Indiabulls Home Loans, Faircent and RupeerRedee are on the list. The reportage triggered a flurry of responses from digital lending apps, claiming that they were not featured in the list or had their clone versions banned by the ministry. 

A majority of these Indian lending apps that featured in the list have outrightly denied the claims of a ban on their app and have purportedly not received any communication from authorities.

As the drama unfolded, sources told Inc42 that the bans were not just limited to Chinese-linked apps. The ban has also been slapped on the digital lending platforms that have a large number of complaints against them for harassing borrowers during debt collection. 

Multiple platforms have pointed out that the banned apps are largely proxy apps listed on a  third-party app store, Aptoide. 

Speaking with Inc42, industry sources said that the violation of know-your-customer (KYC) norms by these players and concerns around money laundering by many of these apps could have attracted the ban. Another reason that the sources flagged is that most of the apps banned were APK applications and could have been used to send user data across the border, raising concerns of data privacy and data safety.

As the crisis unravelled, the Finance Ministry on Tuesday (February 7) informed the Parliament that the government has sent out a whitelist of digital lending apps to app marketplaces such as Google Play Store and Apple App Store. The list will include only those digital lending apps, which have the mandate from the Reserve Bank of India to list on app marketplaces. 

The RBI has furnished the list of these regulated entities to the Ministry of Electronics and Information Technology (MeitY), which subsequently forwarded it to the big tech players. 

Minister of State (MoS) for Finance Bhagwat Karad said that the RBI has also issued digital lending guidelines and other safeguards to ensure complete surveillance over such online lending apps. 

He added that the Enforcement Directorate has also initiated multiple probes into cases involving digital lending apps and has so far seized INR 2,116 Cr under money laundering norms. 

Of these, INR 859.15 Cr has been frozen under provisions of the Prevention of Money Laundering Act, 2002, while assets worth INR 289.28 Cr have been attached under the Foreign Exchange Management Act, 1999.

Meanwhile, the 90-member industry body Digital Lenders Association of India (DLAI) also put up a united front saying that it has so far not received any formal communication from MeitY on banning any digital lending app. The association said that it plans to approach the ministry and other relevant authorities to delve deeper into the matter and address shortcomings within the industry. 

Deciphering The Crackdown

The exercise follows the yearly trend of the Centre’s stern stance on apps with links to China. While previous iterations have seen authorities ban popular apps such as TikTok, UC Browser, the current move has much at its very core.

The past few years have seen a big uptick in suicides triggered by the loan apps ecosystem. Every month, reports continue to pour in from different parts of the country where these digital loan sharks allegedly harass and intimidate borrowers during debt collection. 

In many instances, users were blackmailed by digital loan operators with morphed pictures. In such cases, downloading these lending apps gave operators access to pictures and videos of these smartphone users and formed the base for harassing borrowers. 

These apps have also been known to charge exorbitant interest rates of up to 3000%. Besides, the involvement of Chinese entities and nationals has also posed data privacy issues for Indian citizens. Not just this, these foreign citizens also operate illegal lending apps and shell companies to launder money out of India. 

After much delay, the RBI was forced to intervene. In the past year, the central bank has issued a waft of norms and guidelines for the regulated entities in the space. The government has also imposed certain obligations on these lending players and has even warned them against employing predatory practices for debt collection. 

The government has also been working with Google, Apple and other stakeholders to ensure that only certain whitelisted digital lending apps are allowed to list on their app marketplaces. The RBI has also acted on complaints from users. Recently, the central bank fined fintech startup KrazyBee around INR 42 Lakh for harassing borrowers and flouting norms.