Tackling the Rise of Unauthorised Lending in India
Unauthorised lending has emerged as a significant concern in India, affecting consumers, legitimate lenders, and regulatory authorities. As digital lending becomes more prevalent, the risks associated with unauthorised loan apps have escalated. A recent survey by the Fintech Association for Consumer Empowerment (FACE) and Grant Thornton Bharat highlights the urgent need for awareness and regulatory measures to combat this growing issue.
The Threat of Unauthorised Lending
According to the survey, unauthorised lenders are perceived as the most critical threat to consumer trust and industry stability. A staggering 74% of respondents, which included banks, non-bank financial companies, investors, and consumer associations, rated the severity of this issue at 6.1 out of 7. This alarming statistic underscores the widespread concern among industry stakeholders. Only 6% of those surveyed considered the risk of unauthorised lending to be low, indicating a strong call for regulatory intervention.
Despite some progress in addressing the issue, the prevalence of unauthorised lending apps continues to pose significant risks. These apps often operate without proper oversight, leading to a range of problems, including cyber harassment and debt trapping. The consequences can be dire, with some victims facing extreme distress that has even led to suicides. The need for a robust regulatory framework is more pressing than ever to protect consumers and maintain the integrity of the financial system.
Regulatory Measures and Industry Response
In response to the growing threat of unauthorised lending, the Reserve Bank of India (RBI) has proposed creating a public repository of digital lending apps. This initiative aims to help consumers identify legitimate lending platforms and avoid falling prey to fraudulent schemes. Additionally, Google has partnered with FACE to combat predatory digital lending apps on its Play Store. This collaboration aims to enhance market intelligence and facilitate the removal of unauthorised apps.
However, experts caution that controlling app marketplaces alone is not a foolproof solution. Many unauthorised lenders find ways to circumvent these controls by interacting with users through direct messaging or encouraging them to download apps outside official channels. This highlights the need for a multi-faceted approach that includes consumer education, stricter regulations, and ongoing monitoring of the digital lending landscape.
The Role of Consumer Awareness and Digital Literacy
Consumer awareness and digital literacy are crucial in combating unauthorised lending. Many victims of these fraudulent schemes often lack the knowledge to identify legitimate lending platforms. Babu Lal, a software engineer who has become a point of contact for many victims, emphasizes the importance of vigilance. He notes that some unauthorised apps can appear in trending lists within 24 to 48 hours, making it difficult for consumers to discern their legitimacy.
Fintech companies also have a role to play in this battle. Sashank Rishyasringa, co-founder of Axio, stresses that fintechs must recognize the damage caused by unauthorised lending apps. These fraudulent platforms not only harm consumers but also undermine the reputation of legitimate businesses. By pursuing risk-driven lending practices, fintechs can help protect customers and uphold systemic stability.
A Call for Collective Action
The rise of unauthorised lending in India presents a complex challenge that requires collective action from regulators, industry participants, and consumers. While regulatory measures are essential, fostering consumer awareness and digital literacy is equally important. By working together, stakeholders can create a safer digital lending environment that protects consumers and promotes trust in the financial system. The time for action is now, as the consequences of inaction could be dire for many vulnerable individuals.
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