When V Rajapandian was pushed out of his job at a heat treatment plant in India, the reason had nothing to do with performance or falling revenue. Instead, his boss offered a peculiar explanation: after Mr Rajapandian defaulted on a loan from a mobile app, recovery agents demanded the plant pay on his behalf.
“I lost my job because of them,” Mr Rajapandian says of CASHe, the app he used to secure a $132 (Dh484) loan. “I constantly live with the fear that they will track me down and harass me.”
As digital lending explodes across India and other developing economies, Mr Rajapandian’s ordeal has become increasingly common. During the Covid-19 pandemic, apps promising quick cash have mushroomed.
Many capitalise on borrowers’ lack of financial literacy, charging interest rates as high as 500 per cent annualised and in some cases employing heavy-handed collection tactics that Indian activists have linked to a string of suicides.
A growing chorus of technology companies and regulators have cracked down. Globally, Google blocked hundreds of apps from its Android store to protect borrowers from “deceptive and exploitative terms”. Officials in China, Indonesia and Kenya followed suit, shutting down scores of start-ups promising easy cash to the unbanked.
India, which has among the highest number of such apps in the world, has also taken action. The Reserve Bank of India raised the prospect in November of new rules for digital lenders. A panel set up by the bank found that more than half of about 1,100 digital loan providers were operating illegally.
But protecting borrowers in India is especially tricky, given the country’s dated personal bankruptcy laws and sheer size – more than 1 billion people do not have access to formal credit.
While complaints about harassment by digital lenders extend far beyond its borders, India’s ambition to become a haven for tech innovation combined with a byzantine bureaucracy make sweeping regulatory intervention difficult.
Millions of Indians rely on the apps and there is often no clear-cut way for borrowers to discern the legal from the shoddy.
“These platforms are clearly serving an unmet need,” says Eswar Prasad, a professor at Cornell University’s Dyson School of Applied Economics and Management
“The persistence of digital lenders who charge exorbitant interest rates points to the latent demand for credit and other products that are not being adequately satisfied by the traditional financial system.”
Gaps in the banking system are becoming harder to ignore. India is one of the fastest-growing FinTech markets in the world, with digital lending projected to reach $350 billion by 2023. Much of this growth will come from short-term, unsecured loans rather than collateralised credit, according to Yashraj Erande, a managing director and partner of the Boston Consulting Group in Mumbai.
Efforts to rein in illegal apps have met mixed results.
After Indian officials raised flags, Google reviewed hundreds of apps on the Play Store, according to a company spokesperson. Platforms must now prove that they have the appropriate lending licences and they cannot require full repayment in less than 60 days. (Android is the smartphone of choice for most Indians, though some of the apps are also available for iOS.)
But enforcing stricter rules has become a game of whack-a-mole. Digital lending is a sprawling, hard-to-tame market, says Rahul Sasi, who runs cyber security company CloudSEK and was one of the experts who made recommendations to the Reserve Bank of India.
Banned apps simply move to third-party platforms such as Aptoide, he says, or advertise through text messages. Consumers sometimes take out loans with no intention of paying them back. The apps, in turn, use mafia-like collection tactics.
“Crime will be there in one form or another,” Mr Sasi adds.
Paulo Trezentos, the chief executive of Aptoide, wrote in an e-mail that his company does not host apps unless they are also available on Google Play. Lenders connected with “illegal activities in any form” are immediately removed, he says.
Platforms are often owned by offshore entities, making it difficult for India to take legal action, analysts say. Some apps use tech infrastructure built by Chinese companies that harness cloud services from Alibaba Group Holding and Baidu, according to Srikanth L, the founder of Cashless Consumer, a collective that studies the FinTech industry.
In an e-mail, Baidu says FinTech is now handled by Du Xiaoman Financial, a separate company. A spokesperson for Du Xiaoman Financial says the company does not operate any business in India. Alibaba did not return requests for comment.
The Reserve Bank of India could tighten digital lending rules as early as this year. Guidelines under consideration include severe penalties on non-compliant apps, with a particular focus on weeding out unregulated loan providers.
Bigger digital payments companies such as Paytm have not been accused of similar predatory behaviour.
The risk is that unscrupulous companies may step up manipulative practices as stress builds in personal lending. Delinquency levels for consumer credit rose in September from a year earlier, Reserve Bank of India data showed.
“The recommendations are definitely a step in the direction of curbing illegal lending,” says Vivek Belgavi, the FinTech and alliances leader at PricewaterhouseCoopers in India.
Tougher regulatory action could also help save lives, activists say. Over the past year, SaveThem India Foundation, a non-profit organisation that assists victims of cyber crimes, connected 17 suicides to harsh recovery tactics.
Pravin Kalaiselvan, the organisation’s director, says his staff fielded more than 64,000 calls in 2021 from Indians complaining of harassment. That figure was up 31 per cent from 2020.
Hundreds of police complaints have been filed against debt collectors, though one local court recently ruled that their methods could not be construed as abetting suicide.
“Had they taken action a year ago,” Mr Kalaiselvan says of regulators, “we wouldn’t have seen so many take their lives”.
The Reserve Bank of India did not respond to requests for comment.
For first-time borrower Mr Rajapandian, who worked as a manager at a heat plant in Chennai, approaching a digital lender in 2020 was his only option in lieu of credit for a traditional loan.
As the coronavirus surged across India, shutting factories and displacing millions of workers, Mr Rajapandian tried to prepare for the worst. CASHe, which he downloaded on his Android phone, offered a quick infusion of money to supplement his $200-a-month salary and help him care for his wife and four-year-old son.
But Mr Rajapandian struggled to make payments on the loan, which had a 300 per cent interest charge. That’s when the threats started, he says.
For months, he says, CASHe agents called him several times a week, “abused my parents and wife” and contacted the heat plant. When his boss became increasingly irate, threatening dismissal, Mr Rajapandian left his job. Last month, he filed a police complaint.
“I contemplated suicide,” he adds.
A local police station in Chennai confirmed receipt of Mr Rajapandian’s complaint against the app, which was filed on December 17.
CASHe, a Mumbai company founded in 2016, did not respond to a detailed list of questions. The company, which claims a customer base of more than 3 million, has not been charged with a crime.
The calls have not stopped, Mr Rajapandian says. They’ve gotten so abusive, he says, that he tries to keep his new employment under wraps so collectors don’t jeopardise that job, too.
“It’s not about the money any more,” he adds.