Raising a tiny amount of loan via a mobile application is nothing short of overly convenient, but is sadly riddled with a set of risks. Early this year, a Reserve Bank of India (RBI) working group discovered that nearly 600 of the 1,100 mobile applications on various stores— Android and Apple — were illegal.
Consequently, Finance Minister Nirmala Sitharman told the banking regulator to prepare a whitelist of all the legal loan applications.
The minister asked the Ministry of Electronics and Information Technology (MeitY) to ensure that only these whitelist apps are available on the app stores — Google Play Store and Apple App Store.
A recently-released statement released by the Finance Ministry stated that the “predatory recovery practices involving blackmailing, criminal intimidation, etc.” by these illegal loan app providers were a concern.
Make note of these points before raising loan via app:
1. Physical address: Consumers must first check whether the loan app is registered with the RBI. They should note that if it doesn't have a secure website or a proper physical address, then it would most likely be a fraudulent app.
2. Few documents: Borrowers should remember that fraudulent apps usually ask for very few documents which make them tempting while applying for a speedy disbursal of loan. So, when an app is asking for a KYC or a government issued ID, it is merely doing what it is supposed to do.
Any legitimate lender would not refrain from checking your credit history and disburse loan only after your profile ticks all boxes.
3. Stay away from instant disbursals: Experts also tell consumers to keep those lending apps at bay that promise "instant" disbursal without even bothering to check your ability to repay.
4. Check the bank’s website: Another way to check the authenticity of an app is to visit the official website of lending bank. Usually, these apps have a tie-up with a regulated entity (a bank or an NBFC). And it is wise to check on the website of the respective banks to check the app's authenticity.
5. Sharing more data than required: It has come to notice that several of these apps get more permission to access personal data such as contact list and gallery in the mobile device. And to put pressure on borrower for repayment, they misuse this information and even indulge in extortion of borrowers.
So, before clicking ‘Yes’ or ‘Allow’, it is imperative to see what permission is the app asking for, and why. In fact, the latest guidelines released by the banking regulator strictly prevent apps from accessing the personal details via mobile phone device. These apps are supposed to adhere to the RBI’s guidelines w.e.f. November 30.
6. Regulated entities: If you are in urgent need of money, always prioritise the regulated entities such as a bank or an NBFC. Even personal loan or gold loan can come handy as they are disbursed quickly, if time is of significance to you.
In order to raise instant money, consumers should avoid falling in the trap of these apps with sinister goals.
And regardless of what the sceptics say, industry leaders take comfort in RBI's recently released guidelines for digital lending, and also the upcoming whitelist on lending apps.
The tougher the regulations, they say, the higher will be the trust for these apps among borrowers.
“Regulations will build customer trust in digital lending and expand the market further to new products and market segments and geographies. Regulation couldn’t have come at a better time when we are seeing growth and scale momentum building in and a clear regulatory framework is a bedrock to scale on a sustainable basis,” said Sugandh Saxena, CEO of FACE (Financial Association for Consumer Empowerment).