Sidhi, Madhya Pradesh: Sarvesh Patel, 29, an aspirant for competitive government exams, thought he was lucky in April 2020 when he was approved for a loan of Rs 500 from a mobile application that offers instant loans. The first Covid-19 lockdown had just begun and he needed cash urgently. “Rs 150 rupees was deducted as a processing charge and I only received Rs 350,” Patel told Article 14.
The app asked him for a PAN card, Aadhar card and his bank details. “Within two minutes they verified and approved my loan.” The repayment was due within 15 days, Rs 650 in total. It was an interest rate of 60% per month.
Patel paid it on time, but when the Sidhi resident took another loan from another app in May 2020, this time Rs 5,000, the high interest rates hit home. Once again, the loan was to be repaid in 15 days, and the total due this time was 6,500. “Being a jobless person, it was impossible to return (the money),” he said.
The Reserve Bank of India (RBI) has said that most loan apps operating in India are not registered entities. RBI Governor Shaktikanta Das said at a post-policy press meet in June: “Law enforcement agencies need to take stringent action against the people running these apps.”
Despite the RBI’s attempt to crack down on digital apps offering instant loans, they have continued to proliferate. Official data suggested that nearly 1,100 Indian digital lending apps were operational between 1 January 2021 and 28 February 2021, of which about 600 were illegal.
A report by a social media platform Local Circles based on a survey of over 27,500 people found that 54% of survey respondents had experienced “extortion or data misuse” during the collection process, and some apps were found to charge as much as 500% interest annually.
Instances of customers dying by suicide after being subjected to these tactics have begun to emerge — in Telangana’s Karimnagar, in Andhra Pradesh’s Guntur, in Mumbai, for example. Many customers reported being stuck in a debt trap as they rolled over borrowings from one app to another.
In Patel’s case, a loan recovery agent started calling him, and turned abusive quickly. Patel was asked to pay Rs 8,000, which he couldn't afford. “The next day, they made a WhatsApp group of contacts they accessed from my phone, and started sending threat messages.”
Once granted access, third party apps can see and access information on a phone, including its contact list.
Patel said the agents began to call several people from his contact list, telling them that he had used their names or documents to avail a loan. “Such activities created a lot of havoc and affected my reputation in society.”
The calls seemed to stop, before resuming in March 2022, this time asking him to pay Rs 11,000. One of the men calling him had a state police logo as his display image on WhatsApp, Patel said. “He sent me a screenshot of the list of my contact numbers.”
Apps Access And Use Sensitive Information From Phones
Illegal loan apps are digital lenders that borrowers find through search engines or on social media sites. Most have names indicating the availability of instant or quick cash, and offer instant loans, personal loans, ‘Aadhaar loans’ (indicating that no other documentation will be required), cash loans, and ‘mobile loans’ or loans to purchase devices.
The user downloads the app and registers for the service by giving the app basic information including their phone number and email address.
These apps, however, may access data and other apps on users' phones depending on permissions they request. Most of these apps request permissions that are associated with high levels of risk and collect sensitive information including contact information, financial records, photos and videos, etc.
In September 2021 Vishal Diwan, an information technology professional from Gurugram, decided to take a loan from an app named Loanqube. “I applied for a loan of Rs 4,800. There was no confirmation, so I filled in the information five times, by mistake,” he said. An hour later, he saw that he had been allotted five times the sum he had planned to borrow, or Rs 24,000.
He said, “I was shocked when I saw the notification to return Rs 40,000 within a week,” he said. He had to take a loan from another app to pay his Loanqube dues.
In October 2021, Diwan paid nearly Rs 4 lakh to different loan apps and uninstalled all of them.
From December 2021, he began to receive calls and threat messages again. He explained to the recovery agent that he had cleared the pending dues, but the calls continued. “For the last six months, I have been getting 20 to 30 calls every day.”
Diwan said several of his office colleagues received WhatsApp messages about him taking the loan. Some of his colleagues received calls and messages claiming he had taken a loan on the basis of fake documents, naming them as guarantors. Some others received pornographic images from the recovery agents. Eventually, Diwan lost his job.
Unemployment, Salary Cuts: The Lure Of Loan Apps
“Loan apps mostly target young unemployed people through online gaming apps and short video apps that are popular among young people,” said Nikkhhil Jethwa, activist and founder of Loan Consumers Association (LCA), a pan-India association of advocates and social workers working against unethical recovery practices by banks and digital loan apps.
He said most users seek very small loans, ranging from Rs 500 to Rs 2,000.
Diwan said that he had been handed a salary cut as his company was facing a financial crisis. “My CIBIL score had gone down and no bank was ready to give me a loan,” he said.
The CIBIL score, ranging from 300 to 900, is an assessment of credit history, offering lending institutions an assessment of a prospective loanee’s repayment habits. The apps offer quick loans to customers without checking CIBIL scores.
According to a 2018 report by TransUnion CIBIL, India’s leading credit information company that provides credit history scores, only 33% of Indians are between the ages of 20 and 69, also earn at least Rs 250,000 a year, and additionally have an active bank account, making them eligible to qualify for a loan from a bank or lending institution.
Hundreds of people in rural India who are ineligible to take loans from formal lenders depend on private moneylenders. A 2016 Mint and Indian Human Development Survey (IHDS) analysis found that nearly 20% of people in rural India borrow from moneylenders, most of them unlicenced. In February, Article 14 reported that despite laws against it, harassment of borrowers by moneylenders continues.
As per a World Bank 2018 report on financial inclusion, nearly 190 million adults in India do not have a bank account. The report further said that half of the total bank accounts in India were inactive.
Hridesh Patel, 30, an information technology professional from Sidhi district, was terminated from his job during the first Covid-19 lockdown in 2020. “I was in dire need of money. One of my friends told me about the loan apps and I applied for a loan of Rs 2,000,” he said. “My loan was sanctioned immediately.”
Jethwa of the consumer association said loan application numbers spiked in India March 2020, during the first wave of Covid-19. “Many people lost their jobs as a result of the lockdown. Hundreds of industries were permanently closed,” he told Article 14. “A large number of people turned to loan apps to get easy money.”
According to government data, nearly 2.3 million people lost their jobs during the first wave of Covid-19. The assessment by Centre for Monitoring Indian Economy (CMIE), an independent think tank that produces economic data and business databases, was considerably higher—it said 121 million Indians lost jobs during the April 2020 lockdown.
Hridesh Patel said that when he was asked to pay Rs 4,000 two months after taking the loan, he was jobless and had no money.
He said that for two years subsequently, he didn’t receive any message. “However, in February, some of my relatives got a WhatsApp message that I took a loan and failed to repay.”
He said, “Roj phone kar kar ke, gaali galoch karke, mujhe maansik roop se pratadit kar diya, isliye maine Rs 2,000 ka Rs 8,0000 de diya. (They mentally harassed me by calling and abusing me everyday. So I paid up Rs 8,000 for a loan of Rs 2000.)”
Morphed Photos, Blackmail From Collection Agents
Through April and May, Patel, the Sidhi resident who had not repaid his second loan from a loan app, a sum of Rs 5,000 granted to him in 2020, received phone calls almost everyday from three to four different numbers, as well as WhatsApp messages. “Last month, they told me that if I didn't give them more money, they would upload my mother's phone number on a porn site,” he said.
He said the app had accessed his phone’s photo gallery. “They even sent me a picture of mine with objectionable words printed on it about my mother,” he said. “It was traumatising."
Diwan had a similar experience. He said that in June, morphed pornographic images of him were sent to family members and friends.
The Sector 9A police station in Gurugram registered a case in May on Diwan's complaint under sections 66 (computer-related offences), 66B (dishonestly receiving computer resource), 67 (transmitting or publishing obscene material in electronic form) and 67A (transmitting or publishing material containing sexually explicit act, in electronic form) of the Information Technology (IT) Act, 2000 along with sections 465 (forgery), 384 (extortion), and 420 (cheating) of the Indian Penal Code (IPC), 1860.
The perpetrators are still to be identified.
Why do laws fail to prevent harassment?
“In the era of digital India, there is a need for specific laws to prevent internet-related crimes,” said Deepak More, an advocate who practises in the Bombay high court. “There are no specific laws in India to curb frauds by illegal loan apps.” When victims file complaints, cases are filed under provisions of the IPC, he said.
Tracking the perpetrator may be difficult. Often, lenders and borrowers are in different states or even countries.
He said the police department in many states is also not trained to deal with such crimes. The government should establish a department to deal specifically with such crimes, he said.
"Many times when complaints go to the local police or another enforcement agency, they do not understand the depth of the issue,” said Pravin Kalaiselvan, chairman and founder of SaveThem India Foundation, a non-governmental organisation that coordinates with enforcement agencies in the investigation of online frauds. “Often, the police do not register a case.”
Kalaiselvan said strict action needs to be taken against all non-banking financial companies (NBFCs) involved in illegal lending practices. An NBFC is a company registered under the Companies Act, 1956, engaged in loans and advances, acquisition of stock, and other financial activities.
As per the Sachet portal, 2,562 complaints were received against digital lending apps from January 2020 to March 2021. The RBI launched Sachet in 2016 to curb illegal money collection.
An initiative of the state-level coordination committee of public banks, a joint forum to facilitate information sharing among various regulatory bodies and various enforcement agencies, Sachet found that the majority of complaints pertained to lending apps promoted by entities not regulated by the RBI.
RBI governor Shaktikanta Das said at a banking and financial services event in June, “I request all the people who use digital lending apps to verify whether lending apps are RBI-registered or not. If any rule is broken by RBI-registered lending (apps), we will take strict actions.”
A November 2021 report of RBI’s working group on digital lending found that the overall volume of disbursement through digital mode for the sampled entities exhibited a growth of more than twelvefold between 2017 and 2020 (from Rs 11,671 crore to Rs 1,41,821 crore). In 2017 only 6.3% of total digital loans were through NBFCs, which increased to 30% in 2020.
(Anil Kumar Tiwari is an independent journalist based in Madhya Pradesh.)