What is the Chinese Instant Loan Apps Scam?

On November 27, Abhishek Makwana, writer of the popular sitcom Taarak Mehta Ka Ooltah Chashma, took his own life. Before he took that step, he left behind a note saying he faced financial trouble. His brother, Jenis Makwana said that according to the email records of Abhishek, he had first taken a small loan from one of the ‘easy loan’ apps and when he scrutinized the transactions, he noticed that the loan apps kept sending small amounts, despite his brother not applying for the loans. Their interest rates were as high as 30%.

The loan recovery agents continuously threatened him to pay up and shamed him by contacting his family, friends and relatives. This forced Abhishek to take his own life. Abhisek wasn’t alone. In the news, several such incidents have been reported. A key reason behind them? Instant Loan Apps, many of which are backed by Chinese businessmen. According to a police report, China-based entities have partnered with small-time non-bank lenders in India, and have facilitated transactions worth close to Rs 21,000 crore through 30 illegal loan apps. Now, you might have no idea at all about instant loan apps.

So, this article is essential for you to know why these loan apps have become popular in our country and what impact are they having upon our society and our people. Before the COVID19 pandemic, India’s micro-finance industry was booming. Microfinance is basically a means to provide loans to people who neither have enough money nor can avail loans from the traditional banking systems. This microfinance model has helped lift millions from poverty in India Muhammed Yunus, associated with the Grameen Bank, from Bangladesh, even won a Nobel Prize for this But the pandemic caused this microfinance model to crumble and shatter.

For example, Shompa Karmakar learned about microfinance from a neighbour a decade ago. She, along with a group of local women, secured small loans from microfinance companies and set up a small fast-food restaurant. But her restaurant closed when the country entered a national lockdown and all the resultant stress caused her 40-year-old husband to suffer a heart attack The second wave of Covid 19 made matters worse. Her shop is shut down and she was unable to repay her loans.

Infact, many people like Shompa were unable to replay their loans. Bandhan Bank, the premiere micro lender in India, has experienced a surge in its bad loans- that is, loans that are most likely to not be repaid. From less than 2% before the first wave, the bad loans rose to as high as 8% during the second wave. Since the volume of unpaid loans, aka bad loans had expanded, Microfinance lenders like Bandhan bank were deliberating whether they should give out more loans or not during the pandemic.

Now, that people could not approach the microfinance institutions for loans, they had to turn to other sources. And so, a lot of people began using the instant loan apps. According to one estimate, over 200 new instant loan apps appeared on Google play store during 2020. The creators of these apps are a testimony to how people can exploit economic situations and different trends to mint money. The creators of these apps were making use of the “digital finance” trend. Since they were in possession of smartphones and were making use of digital finance services like, UPI the creators of these apps wanted to make use of these trends to make money But unfortunately, their motives were absolutely unethical- They wanted to fool others and mint money.

Unfortunately, finding these loan apps is extremely simple. Srikanth Lakshmanan, an expert on digital payments in India, has found more than 750 instant loan apps on the Google Play Store. Upon downloading, these apps ask permission for unnecessary things like access to contacts, calendar, photos, messages, location and even battery percentage They use this data to later harass the user during debt collection For example, 28-year-old Sunil, who lived near Hyderabad made use of these instant loan apps and took a loan of a few thousand of rupees. He downloaded these apps on his phone as well as his wife’s phone.

But unfortunately, he was unable to pay back the loan. What did these apps do then? Debt collectors from one of the apps installed on his wife’s phone accessed her contacts list, created a WhatsApp group, added her family members to it and started shaming her. They posted the photo of Sunil’s wife in the group chat along with voice notes in the local language, Telugu, calling her a “fraud” Sunil believed that he was the reason his wife was undergoing all of this And this is why he took his own life. Such can be the results of using these kinds of apps. And it is extremely used to use such apps. A user can make a profile in a few clicks and a selfie. These apps do not require any kind of in person bank visits All you need are only basic documents like aadhaar card, PAN and a bank statement. These apps mostly disperse really short loans, sometimes lasting only 7-14 days. The loan amount differs according to the apps. Some of these apps offer loans between Rs 500 to Rs 50,000, others offer loans at a range of Rs 10,000 to Rs 20 lakh There’s no common interest rate between the apps. For example, there can be annualized interest rates like 10% to 40% These apps could even charge upwards of 200% interest rates. But the issue just isn’t the insane interest rate, it is also the way they pressurize the borrower into paying.

For instance, The Morning Context interviewed a borrower during the course of its investigation. He had taken a small loan of Rs 3,500 for 30 days in December 2020 He had a hard time paying it back within the said period and ultimately had to pay 13,500 INR He said that the apps began morphing his face onto porn photos and even when these apps have been taken off on Google Playstore, they still had his number and continued harassing him. Apart from this, the fees of these apps are also exorbitantly high. These loan apps are so vicious that at times they don’t even wait until the due date to pester borrowers.

For example, a borrower said that he was paying all of the dues on time. But he took a Rs 3,000 loan from the Lend Mall app for seven days, but they began threatening him to pay even before the due date When he said he could not pay immediately, they began to send messages to his close contacts and even threatened to block his PAN card and Aadhaar card. You might already know that these apps do not and cannot block anyone’s PAN or Aadhar card. They threaten people to pressurize them. Some apps go to the extent of hiring goons. For example, Sunanda Nandi, a teacher at a local private school, who lives near Kolkata, had loaned close to Rs 60,000 from Fortune. She revealed in an interview that she was threatened and abused on the phone by phone apps because she had missed two payment dates And eventually, a bouncer visited her home. Her 75-year-old mother-in-law was alone at that time. The man threatened her to pay up immediately.

He only left after the mother-in-law handed over Rs 5,000 to him in cash and some jewellery. What I found to be the most interesting about these apps was their structure and their Chinese involvement. How do these businessmen operate? What is the structure of these apps in India? And where did they get the goons from? According to a banking industry expert, the core problem of this issue starts with small financial organizations in India that want to grow rapidly These small financial organizations are technically called NBFCs (Non banking financial corporations) These small financial institutions do not have a full banking license. They carry out limited functions in financial operations like small loans and investments. etc. Several Chinese businessmen have run such apps in China and Africa and made money off them.

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And they target Indian NBFCs to now run such apps in India. These Chinese businesses already possess the technology and money for running these apps They are on a lookout for a partner And NBFCs are the perfect partners for them because they are inexperienced and are trying to make quick profits. So, they have this hunger to mint money Suman Kar, CEO of a cybersecurity firm, says that such NBFCs are contacted by Chinese agents based in India, The Chinese agent along with an Indian partner would employ several others and pressurize them to sanction and recover as many of these loans as possible. The Chinese involvement became clear when the police cracked down on loan apps in many Indian cities.

Bengaluru police raided 4 companies that were operating such loan apps The investigating officer in Bengaluru said that they also found a connection between these apps and rummy game websites. He said that the Chinese investors were looking to make quick money outside of their country, so they started instant loan apps, gambling apps and dating apps. We have made a full video on these dating apps If you have not watched it, do watch it. The link is in the description below. Now, you may wonder why can’t Google do something about this. Considering Google is a mammoth company and these apps are found on its Playstore. But unfortunately, this issue is not that simple to solve. Even if Google does remove these apps from the Playstore, several of these apps just rebrand themselves and re-upload itself as a new app Reserve Bank of India issued guidelines on loan apps, mandating every lending platform should disclose their bank and NBFC partners to the customers But Morning Context’s investigation found that Out of the 200 analyzed, only 50 apps had adequate information on the Play Store On the other hand, 120 apps of the 200 had no legal disclosures, nor a website, and only had an email address as part of the app store description RBI had also said that the loans should have a minimum tenure of 90 to 120 days.

These apps do claim to give out 90 day loans but they call customers offline and ask them to repay the loans earlier. States like Kerala have mulled legislation to ban such apps Because unfortunately, banning these apps will not be the solution. Personal loans (upto Rs 50,000) have a high growth trend in India These apps are popular because there is demand for short-term loans. Anuj Kacker, co-founder of a Fintech startup in Bengaluru says that Even if these apps were banned, people will just go to other places for short term loans. A lot of lending still takes place through unofficial sources And informal credit is essential for some people like cart vendors. So, you can ban the loan apps but cannot ban the informal lending.

The solution of this problem is not banning informal credit Instead, we need to ban sources that are creating so much pressure upon the borrowers. First of all, Google will have to take the stern step of banning such apps. Because a lot of us trust Google and we presume that if an app exists on the Google playstore, then it must be legitimate. But unfortunately, that is not so. So, Google should scrutinize these apps and conduct thorough background checks and then decide whether to ban them or not. These are the short term solutions. The long term solution of this problem is increasing the financial literacy in India. where the consumers are told to carefully assess these apps before availing such loans RBI has come up with some great policies in this regard For instance, RBI asks consumers to report any app that seems suspicious on their Sachet portal. Apart from lack of financial literacy, there is another reason for the growth of these apps. That is the worsening of the economic situations of many people after COVID19 This is why they are availing loans from such dangerous platforms. One solution to this could be that the government should lend more social support especially to people that are the most vulnerable.

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