Fraudulent loan apps proliferate in India. But how big of a problem are they?

The Centre is cracking down on fraudulent loan apps. The government on Wednesday ordered social media platforms and other websites not to host advertisements for any such apps. Union minister Rajeev Chandrasekhar said, “One of the areas we are now cracking down on is advertising of fraudulent loan apps that many platforms are carrying and we have, through yesterday’s advisory, made it clear that no intermediary can carry advertisements of fraudulent loan apps because it will be misleading and exploits people who are using the internet.” But how big of a problem are these apps in India? Let’s take a closer look: As per Indian Express, the digital lending market has made huge strides in India over the past decade. The newspaper quoted credit information firm Experian as saying the industry has touched $350 billion in 2023 and has grown at a rate of around 40 per cent. While a major chunk of the industry is driven by genuine players, many illegal lenders have emerged.

Experts put their chunk of the industry at between $700 and 800 million.

Most of these apps are on the most popular social media platforms – Meta, Google, Apple app store and WhatsApp. Not only are they using these platforms to advertise and distribute these apps, they also use them to pester users for repayment. This can often have real-life consequences. Bharat Singh, from Uttar Pradesh, borrowed Rs 15,000 from UnicashX – a loan app he saw on Instagram Singh needed money to pay for his sister’s wedding. The app claimed it had the support of a non-banking financial company (NBFC). However, Singh got a rude shock. UnicashX in return demanded he pay back Rs 50,000. And when he did not pay more than the Rs 15,000 he borrowed, he began receiving threatening messages. “I will hurl such abuses at you that you will consume poison,” read one such message. Singh is far from alone in being harassed. [caption id=“attachment_13553892” align=“alignnone” width=“640”] Experts say there are hundreds of such apps in India – most of them Chinese-owned – that can cause dire consequences for those who use them. News18[/caption] The newspaper has, since 2020, counted around a dozen cases in which people caught in the vicious cycle of these apps have died allegedly by suicide. Akshay Bajpai, an independent cybersecurity expert in Bhopal, told Al Jazeera over 700 such apps are available in India.

While some of them are Indian, most are owned by the Chinese who then hire Indians.

The outlet quoted cybersecurity firm CloudSek as saying that their experts found 55 fake loan apps that target people between July and September 2023. They also found over 15 obscure payment gateways run by persons of Chinese origin who undertook those steps to evade detection. As per Al Jazeera, Bhupendra Vishwakarma, a father of two in Bhopal, was harassed incessantly by recovery agents for months. “Tell him to repay the loan; otherwise, today I will strip him naked and upload it on social media,” was one of the messages the insurance agent received. The 35-year-old then gave his two minor sons a poisoned drink.

Vishwakarma and his wife then hanged themselves.

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Vishwakarma wrote in his suicide note, “Today, the situation has reached the point of losing my job as well. I can’t see a future for myself and my family. I am no longer worthy of showing my face to anyone. How will I face my family?” Then there’s the case of Shivani Rawat in Delhi. In June, the 23-year-old college receptionist applied for a loan of Rs 4,000 on an app called “Kreditbe”. Even though the approval for her loan remained pending, she soon began receiving calls demanding that she pay double the back. When she told the agents she didn’t get the money, they began abusing her. Rawat then stopped answering calls – after which she began receiving abusive messages. It didn’t end there. Rawat’s colleagues were then sent fake explicit photos of her and her family. Her manager then asked her to quit as her coworkers were feeling uncomfortable. “After losing my job, I became so depressed that I even had thoughts of ending my life,” Rawat said. ‘Take additional measures’ In the advisory issued on Tuesday, the IT Ministry directed that “intermediaries and platforms should take additional measures to not permit any advertisements of illegal loan and betting apps having the potential to scam and mislead the users, the consequences of which will be the sole responsibility of the intermediaries and platforms”. The advisory also stressed the importance of robust grievance redressal mechanisms employed by intermediaries. In a meeting convened in October 2023, the IT Ministry and the Reserve Bank of India (RBI) discussed the necessary actions against illegal betting apps. During this meeting, the ministry urged the RBI to devise a more comprehensive Know Your Customer (KYC) process for banks. This proposed KYC process, termed ‘Know Your Digital Finance App’ (KYDFA), is envisioned to enhance the ability to trace and address rogue loan apps effectively. This recommendation was officially communicated to the Department of Financial Services (DFS) and RBI on 13 October, 2023. [caption id=“attachment_13472082” align=“alignnone” width=“640”] Minister of State for Electronics and IT Rajeev Chandrasekhar at a Global Technology Summit on Wednesday. X[/caption] At the time Chandrasekhar had said: “We have recommended the RBI, within their regulatory framework, to design a detailed KYC for companies, which we refer to as Know Your Digital Finance App (KYDFA), in the same manner that customers have to undergo detailed KYC for opening a bank account.” This, he had said, will “ensure that only legitimate and scrutinised financial apps can access and use the Indian banking system and further, if there is any violation of law, the KYDFA process will help in establishing traceability and origin of the app for action under the law.” Earlier this month, the government informed Parliament that Google has suspended or removed over 2,500 fraudulent loan apps from its Play Store between April 2021 and July 2022. The government is constantly engaged with the RBI and other regulators and stakeholders concerned to control fraudulent loan apps, finance minister Nirmala Sitharaman had said in a written reply to the Lok Sabha this month. As part of steps taken to control fraudulent loan apps, she said, the RBI has shared a ‘whitelist’ of legal apps with the Government of India, and this list was shared by the Ministry of Electronics and Information Technology (Meity) with Google, whose app store is the primary source of distribution of digital lending apps. Google has updated its policy regarding enforcement of loan lending apps on the Play Store and has also deployed additional policy requirements with strict enforcement actions for lending apps in India, she added. As per their revised policy, only those apps are allowed on the Play Store which are published by Regulated Entities (REs) or those working in partnership with REs. The matter is also regularly discussed and monitored in the meetings of the Financial Stability and Development Council (FSDC), an inter-regulatory forum under the chairpersonship of the Finance Minister. The objective is to remain proactive, maintain cyber security preparedness with constant vigilance, and take appropriate and timely action to mitigate any such vulnerabilities in the Indian financial system, she said. With inputs from agencies