Digital lending is skating on thin ice; it is time to be fair

Note to readers: Hello world is a program developers run to check if a newly installed programming language is working alright. Startups and tech companies are continuously launching new software to run the real world. This column will attempt to be the "Hello World" for the real world.

It is 8.15 pm. My 3-year-old son is calling for attention. The phone rings. It is a number from Chandigarh. I pick up. And in a split second, I regret taking the call. It is a robocall. The recording on the other end tells me that I’m eligible for an instant loan. All I need to do is click on the link in the text message that was going to follow. I block the number promptly.

The same thing happened a day ago. This time it is from a similar number. And it happened a few days ago as well. For the past few days, I’ve been getting these calls. I’m sure you are too. The text message that follows says that I can get a Rs 50,000 loan in 5 minutes with no paperwork.

Curious.

I click on the link in the text message. It takes me to the Google Play Store and tells me to install an app. The app has 3.8* ratings. And 10+ million downloads. Its description says “fastest instant loan app. Recharges & payments. Earn from home.” Earn from home?

Suspicious.

I read the reviews. I read all the one-star reviews: the complaints range from poor customer service, delay in disbursing the loan, high processing fee, high interest rates, and so on. The answers are mostly generic. The company refers complainants to write to their customer care email. Going by the reviews, the response is tardy. I try to scroll to the end to see how many 1* reviews the app has. It is almost an endless scroll. Just can’t get to the bottom of it.

Now I’ve been around the internet, money lenders, and credit card peddlers long enough to know — no matter how badly I need money, and how easy it is to get — if I take that loan, it will be the beginning of a downward spiral. The economy is bad. And we’ve got urgent needs. But if we fall for it, we’d probably end up in a debt trap. High interest rates that come with unsecured loans and pressure tactics by collection agents would probably make life miserable.

Malicious.

India’s central bank has already taken notice of this. In June, the Reserve Bank of India asked lending companies to stick to the ‘Fair Practices Code’ in letter and spirit. The directive said: ‘Of late, there are several complaints against the lending platforms which primarily relate to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behaviour.’

The fair practices code that came into effect in 2015, asks lenders to follow several measures to be transparent with the borrower. It also puts in checks and balances to prevent excessive interest rates and disallows coercive practices to recover loans. If they are to avoid the fate of microfinance companies in 2010, it is not enough that digital lenders are merely compliant on paper. They need to follow fair practices in spirit.

There are dozens of such companies online dishing out instant loans like it is idli - sambhar. It is hard to see these companies as anything but predatory. Coupled with the general lack of financial literacy, these are the kind of loans that can potentially push the average Indian youth to the brink. Take the case of the 28-year old man in Hyderabad who reportedly died by suicide earlier this month because he was in a debt trap and online lenders threatened to defame him.

A similar case of a 25-year-old woman who died by suicide was reported a few days ago in Hyderabad. According to reports, the app-based lender whom she’d taken a loan from, had sent messages to contacts on her phone. Notice their age.

Furious.