Govt mulls banning around 300 predatory money lending apps, most of which are based in China

New Delhi: Imagine you are in desperate need of urgent money but lack the guarantees and time for paperwork routinely required for bank loans. You see a pop-up on your smartphone offering instant, no-questions-asked loans. You download the app, sign up and as you do with other apps, consent to the necessary data access permissions.

You receive the loan amount in your account. A week goes by and you start getting messages for repayment from the app. The repayment amount demanded is around or more than double your initial loan. The frequency of the messages increases and the tone gets increasingly disturbing. The repayment demand soon turns into blackmail, threatening to reveal your dire financial situation to your relatives, friends and colleagues. The predatory lenders carry out their threats and abuse the access they gained to your contact list and photos, sending disgustingly explicit messages to your social circle that disparage the honour of the women in your family.

For many families across several states, this nightmare is not hypothetical. In several tragic cases, it has ended in fatalities, leading to the intervention of governments and a slew of investigation agencies.

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The predatory behaviour of loan lending apps that lure financially desperate individuals to borrow money and then blackmail them with the threat of social stigma has now come under the scanner of the Union Home Ministry. Sources told News18 that around 300 such instant loan apps could face severe action, including a complete ban.

Traced to China and suspected to be one of the biggest money laundering scams, the apps are also being watched closely by the Enforcement Directorate, Serious Fraud Investigation Office, Intelligence Bureau, R&AW and the Reserve Bank of India. The RBI has previously too raised an alarm over such apps and sources say the Home Ministry has sought inputs from the agencies before initiation action.

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The Home Ministry’s move comes after reports were shared by governments in Telangana, Uttar Pradesh, Gujarat, Delhi, Punjab, Odisha and others seeking the intervention of the Centre and central agencies against the “harmful financial products”. Of these states, Telangana has been a happy hunting ground for the players behind these apps.

According to a rough estimate given by the state police forces to the central government, close to 1,000 such loan lending apps exist in the market, with more being launched at frequent intervals. An estimate of the total money in circulation courtesy of such apps is unavailable due to the pan-India nature of the operation, but a report by the detective department of Hyderabad Police said a Chinese national running four shell corporations had carried out 1.4 crore transactions worth around Rs 21,000 crore.

The download count of such apps ranges from 50,000 to 10 lakh, with ratings hovering between 3.5 and 4.8 on Google Play Store. Investigations by the state police forces showed that call centres associated with such apps have an average staff strength of 300-350 people. The Telangana police investigation led to a few exporters dealing with China, which investigators suspect to be the route of money laundering.

To better understand the modus operandi followed by these app operators, News18 spoke to officials in investigation and intelligence agencies as well as cyber and economic offences wing investigators working on these cases. Officials said the apps are backed by registered fintech companies that are in turn backed by shell companies, numbering 100 in some instances. In several of these cases, hundreds of companies were found operating from a single address in Delhi-NCR and residential areas of Bengaluru.

At the top of the pyramid are Chinese nationals who design and launch the apps. Chartered accountants help set up and register shell companies and Indian accomplices are hired to pose as directors of these companies. Managers and staff are hired to run the call centres.

The apps make first contact with a potential victim through pop-up ads and offer loans worth a few thousand rupees to mainly target lower-income groups. Once a person downloads the app, it asks for the user’s permission to access contacts and photo galleries on their smartphones before extending the loan. Once the loan amount is transferred to the user’s account, barely a week passes by before they start getting calls for repayment. The catch is that the repayment amount demanded is 70-80 per cent higher than the principle amount borrowed.

The players behind the apps are well aware that a person in need of a few thousand rupees would not be in a position to return almost double the amount within such a short span. Once the debtor expresses their inability to pay back on the creditor’s terms, the latter starts harassing them. It begins with threats to ‘expose’ the borrower in their social and professional circles. Eventually, the gang sends defamatory messages to all the contacts on the borrower’s phone. In some cases, the apps have been found to abuse their access to the photo gallery of the borrower to upload their pictures on various sites to humiliate them.

The harassed borrower is left flailing in the debt trap, sometimes digging further in with heavier loans from other sources to pay back almost 500-1000 per cent of the original amount borrowed. News18 also came across a case in which the app had levied Rs 7,260 as a processing fee for a loan of Rs 9,000. In another instance, lewd messages mentioning the victim’s mother, wife, sister and daughter were sent to him with the threat of forwarding the same to his contacts. The harassment and abuses have led to around 20 suicides in different states and UTs.

Many of these players, including a few Chinese nationals, have been arrested by state police forces in the last two years but shady loan apps continue to flood the market. Of late, their MO has morphed with the shell companies being used to route the money extorted from desperate debtors to China and Hong Kong via cryptocurrency.

The Enforcement Directorate had recently frozen Rs 64.67 crore worth of bank deposits of one of India’s prominent cryptocurrency exchanges, WazirX, as part of its money laundering probe against fraudulent loan lending apps funded using Chinese money.

The federal agency had conducted raids against Sameer Mhatre, a director of Zanmai Lab Pvt Ltd which owns WazirX, on 3 August as he was not forthcoming with information being sought from him and was “non-cooperative".

The agency said it found that a number of fintech companies were involved in “predatory lending" and “diverted maximum amounts of funds to WazirX exchange and the crypto-assets so purchased have been diverted to unknown foreign wallets".

The ED probe follows an investigation into such apps by Odisha’s Economic Offences Wing (EOW). A report by Odisha EOW had labelled these apps as “harmful financial products that harass, blackmail and threaten people to an extent that they commit suicide”. Similarly, the ED has also termed the practices adopted by these companies as “predatory lending”.

Not just in India, the predatory lenders are also suspected to be operating in other developing economies, exploiting the limitations of investigation agencies to launder money to China and Hong Kong via cryptocurrencies.

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