Authorities struggle to put curb on illegal micro-lending apps
Amid growing number of cases involving (fake) micro-lending apps, Google has recently made its policy for listing such apps on Play Store more stringent. It recently introduced additional requirements for developers offering personal loans in India as facilitators, requiring them to disclose the names of all partnered NBFCs and banks in the app’s description. The action by Google, which owns app platform Play Store available on Android-based phones, came when law enforcement agencies and public at large detected/reported several ill-practices by these loan apps.
The Enforcement Directorate (ED), which investigates money laundering cases, had in April summoned officials from Google and sought a list of micro-lending apps on Play Store. Several micro-lending apps have been charged with money laundering, illegal lending and use of extortionist means to recover exorbitant rates of interest from their customers.
A Google spokesperson told TNIE the company will continue to assist the law enforcement agencies in their investigation of this issue. “We welcome feedback directly; any person can use a link given in Play Store to report any non-compliance of a developer program policy by an app for Google to take appropriate actions,” says the spokesperson. Last year, Google had revised its developer program policy for financial services apps that required all bank and NBFC-based apps to submit a copy of the RBI licence for review.
Deep rooted problem
Despite crackdown on micro-lending apps, and efforts by app stores to put in place stringent filters, industry experts and analysts say this is an issue with deeper roots, and can’t be resolved easily. As per an RBI estimate, there were over 1,100 such apps available for Indian Android users across 80 application stores (till last year). According to RBI, out of these as many as 600 were illegal apps. ED is believed to be investigating over 300 of them.
A cyber security expert told TNIE most of the illegal practices carried out by these apps are off-the-store – which are beyond the scope of their control. He says if a recovery agent from a lending app is harassing a borrower, they can’t do anything about it. “All we can do is ensure maximum disclosures by the app and transparency for borrowers,” he says. Sugandh Saxena, CEO, Fintech Association for Consumer Empowerment (FACE), says despite Google’s new requirements to disclose the names of NBFCs they are associated with, some apps can easily escape the scrutiny by naming fake NFBCs or NBFCs whose licenses have been revoked.
A cyber security expert told TNIE: “We are not an investigative agency, as a platform we can verify (information provided by the apps) to the best of our ability.” In some cases, genuine NBFCs are found to be involved in illegal practices with the help of micro-lending apps. The ED even made a statement earlier this year that NBFCs in India are facilitating unscrupulous loan apps to use their license and do full-scale lending in clear violation of Reserve Bank of India (RBI) norms.
NBFCs would tie up with multiple fintech apps and allow them to operate lending activities after accepting ‘security deposits’ from them. In one particular case, the ED found the NFBC didn’t have the required funds of Rs 10 crore, and yet lent (through its mobile app partners) in excess of Rs 2,200 crore in a short span of time. Officials from app stores say not all apps are downloaded from app stores, there are instances of side loading where the link of the app can be sent via messaging apps and they don’t have to be listed on play store.
Need concerted effort
It needs the collaborative efforts of the industry, app stores, as well as the enforcement agencies, to curb the menace of illegal lending apps. Sugandh Saxena of FACE, an association of 17 fintech firms, says they are trying to address the issue via a multi-pronged approach including identifying/monitoring apps for suspicious credentials and activities, reporting them to relevant agencies for action, and creating awareness among customers for safe lending practices.
“Using market intelligence, we also identify patterns of such dubious apps and share them with agencies such as Google play store to examine further,” she says. Spokesperson from Google says it has reviewed hundreds of personal loan apps in India for compliance with the relevant policy, based on flags submitted by users and government agencies.