Aug 9, 2024, New Delhi: The Reserve Bank of India (RBI) plans to create a public repository of digital lending apps deployed by its regulated entities to address the problems arising from unauthorised platforms. The move is part of several measures taken for the orderly development of the digital lending ecosystem in India, RBI Governor Shaktikanta Das stated on August 8, announcing the third bi-monthly monetary policy for the current financial year.

“As a further measure in this direction and to address the problems arising from unauthorised digital lending apps (DLAs), the Reserve Bank proposes to create a public repository of DLAs deployed by its regulated entities. The regulated entities (REs) will report and update information about their DLAs in this repository,” Das stated. This measure will help the consumers to identify the unauthorised lending apps.

As part of the safety measures, the central bank had earlier this year approved over 70 instant loan apps of non-banking finance companies (NBFCs) along with the range of loans they can disburse. The RBI move is in tandem with actions by the Ministry of Electronics and IT (MeitY), which had last year urged the RBI to design more detailed KYC norms to ensure traceability, while warning social media and other platforms to ensure that they don’t host any advertisements of app-based instant loan companies. Those intermediaries/platforms continuing to violate the government orders have been warned they would have to bear the consequences of such action.

LocalCircles had in 2022 shared its survey report with RBI which found that 14% citizens surveyed had someone in family/staff who had taken an instant loan through such apps. It had also found that many individuals and their family members were facing harassment from these apps. Harassment by these instant loan apps included not just threats and abuse but also reaching out to the individual’s contact and in some cases even morphing their images to create obscene videos and circulating them to the individuals’ family. Perpetrated by such harassment, at least 60 suicides/ deaths have been reported, according to BBC.

Post the LocalCircles report and thousands of complaints against app-based loan entities, the RBI and MEITY both took actions and last year over 400 fraudulent instant loan apps were reports from various app stores after probe by government agencies. Google has stated that it has tightened personal loan policy for apps after instances of unethical practices by digital lending apps and delisted scores of dubious apps. It has also assured that it will prohibit personal loan apps from accessing sensitive user data such as photos, videos, contacts, precise location, call logs, etc.

To understand if the harassment by instant loan apps had reduced post RBI and MEITY actions, LocalCircles conducted a fresh survey. The survey received over 47,000 responses from citizens located in 327 districts of India. 69% respondents were men while 31% respondents were women. 41% respondents were from tier 1, 33% from tier 2 and 26% respondents were from tier 3, 4 & rural districts.

Only 9% of the citizens surveyed said they or someone in their family or household staff used an instant loan app in the last 2 years to get a loan

During the pandemic a lot of households got cash strapped for various reasons including medical expenditure. The survey first asked respondents, “In the last 24 months have you or anyone in the family or your household staff used apps that provide instant loans to secure a loan?” An overwhelming majority or 91% out of 11,848 respondents answered “No” and just 9% of those surveyed responded “Yes” that someone in their family or household including the staff have used loan apps in the last two years. In essence, only 9% of the citizens surveyed said they or someone in their family or household staff used an instant loan app in the last 2 years to get a loan.

Citizens having someone in family/household staff using loan apps to avail instant loans has reduced from 14% as found in the 2022 survey to 9% this year

It appears, the government and RBI intervention/ actions against instant loan apps is having an impact as the percentage of citizens using them to get loans has reduced from 14% in the last survey in 2022 to 9% this year.

45% of citizens surveyed said when they or someone in their family or household staff took a loan using instant loan apps in the last 2 years, they were charged annual interest of over 25%

If the fate of borrowers at the hands of traditional money lenders is not frightening enough, what borrowers from digital money lenders or these instant loan apps face needs attention of regulators. The next survey question asked respondents, “In the last 24 months when you or anyone in the family or your household staff used the apps that provide instant loans to secure loans, what was the annual rate of interest” charged? This question received 11,291 responses out of which 45% indicated that the rate of interest charged was over 25% per annum. The data shows that 35% got a loan at an annual interest rate of 10-25%, while 15% took it on an annual interest rate of 25-50%; 10% got it at 50-100% interest rate; and 20% at a higher interest rate of 100-200%. Another 20% of the respondents did not disclose the interest they have to pay for the loan they have taken through instant loan apps in the last 2 years. To sum up, 45% of citizens surveyed said when they or someone in their family or household staff took a loan using instant loan apps in the last 2 years, they were charged annual interest of over 25%.

Percentage of citizens whose family members or staff are having to pay over 25% interest has come down from 58% of respondents to 45% currently

When compared to survey results in 2022, it appears that RBI and government actions against instant loan apps is having some impact as the percentage of citizens whose family members or staff are having to pay over 25% interest has come down from 58% of respondents to 45% currently.

61% of the citizens surveyed said when they or family or household staff took a loan using instant loan apps in the last 2 years, they experienced extortion or data misuse during the collection process

Considering continuing reports of harassment and intimidation by loan recovery agents, the survey next sought to understand that better. It asked respondents, “When your family member or staff took a loan using instant loan apps, did they feel a sense of extortion or data misuse during the collection process”? This question received 11,765 responses out of which 61% indicated that “yes” they did experience a sense of extortion or data misuse during the collection process, while 33% denied such acts and 7% of respondents did not give a clear response. In essence, 61% of citizens surveyed who had a family member or staff taking such a loan indicated that they did experience a sense of extortion or data misuse during the collection process.

Percentage of those who complained of data misuse or extortion has risen from 54% in the 2022 survey to 61% in the new survey

Unlike in the case of interest being charged, the government and the central bank actions appear to have failed to check unethical behavior of instant loan app providers as the percentage of those who complained of data misuse or extortion has risen from 54% in the 2022 survey to 61% in the new survey.

65% of respondents favour RBI setting a cap on the interest rate that can be charged by institutions and platforms on personal loans

Easy access to loans is a major attraction which during a crisis of any kind can sway people into taking loans even at high costs. In the case of app-based loans there is the added disadvantage of not being able to make an informed choice, as many cases reported have revealed. The survey next asked respondents, “Should the RBI cap the interest rate charged on personal loans by institutions and platforms?” This query received 12,319 responses with 65% of respondents indicating that they would like the RBI to set a cap on the interest rate that can be charged by institutions and platforms on personal loans. Of the remaining respondents 30% felt “those giving the loan should have the right to charge whatever interest is appropriate for the risk undertaken and 5% were indecisive on the subject as they opted for “can’t say”. To sum up, 65% of respondents favor RBI setting a cap on the interest rate that can be charged by institutions and platforms on personal loans.

In summary, the survey finds that the efforts of RBI, MEITY and other arms of the Government have had some positive impact in the sense that percentage of citizens using these apps has reduced from 14% to 9% in the last two years. Also, there is a dip in the percentage of those who availed instant loans and were charged interest above 25% from 58% to 45%.

However, there has been an increase in the percentage of citizens from 54% to 61% who have been facing extortion or data misuse in the last two years during the loan recovery process. It is encouraging that the government is taking action against fraudulent instant loan apps and getting app stores to remove them but more needs to be done to ensure no such apps are engaging in extortionist practices and data misuse. In addition, as the survey shows, 65% of respondents would like the RBI to set a cap on the interest rate that can be charged by institutions and platforms on personal loans, be it via instant apps or traditional lending channels.

Survey Demographics

The survey received over 47,000 responses from citizens located in 327 districts of India. 69% respondents were men while 31% respondents were women. 41% respondents were from tier 1, 33% from tier 2 and 26% respondents were from tier 3, 4 & rural districts. The survey was conducted via LocalCircles platform and all participants were validated citizens who had to be registered with LocalCircles to participate in this survey.