14% Indians surveyed have used instant loan apps in last 2 years; most faced very high interest charges, extortion and data misuse

July 5, 2022, New Delhi: The Governor of Reserve Bank of India (RBI), Shaktikanta Das, 2 weeks ago cautioned people about unregistered digital loan lending apps, and therefore if people have complaints related to such entities, then they should lodge police complaints. However, if RBI receives complaints against lending platforms, which are registered with it, then the central bank will take action, the Governor had said. Further, the Governor said that the apex bank is likely to soon put out guidelines to regulate digital lending.

There are reports rife with cases of loan frauds by many mobile applications that provide instant loans. The Maharashta police cyber crime team has written to Google Play Store asking to remove 69 loan apps after receiving hundreds of complaints of harassment and threats made by fraudulent loan recovery agents to customers. Per reports, these apps offer easy and quick loans, trap people with high processing fees, irrelevant taxes, and exorbitant interest rates.

India has witnessed an emergence of instant loan providers through smartphone-enabled fintech lending companies to help people meet shortages of funds. Individuals (salaried or non-salaried) opt for such short-term loans because of speed as the application gets processed within the same day or a few days. Documents sought generally include identification such as Aadhaar card or Pan card or Voters’ ID, bank statement, and access to social media accounts, contacts, gallery etc—which has to be submitted on their mobile application. For those that are salaried, they seek last 3 months payroll details, joining letter, employee id, etc. The instant loan comes with a sanctioned credit limit where the applicant can withdraw money as and when required and the interest has to be paid only on the amount borrowed and only for the time it was borrowed.

Most of these apps were mainly built during the peak of the pandemic, offering loans to people who had lost jobs, among others. Some instant loan apps, according to consumers, charge as much as a 500% interest rate and use extortion methods to collect money from borrowers or loan defaulters. Some consumers claimed to be getting phone calls for repayment of loans taken over a year ago, even though they have paid the amount taken or more. In order to protect citizens’ data, the RBI portal ‘Cyber Dost’ has information, which can help citizens verify lending companies. The RBI Governor has assured that the law enforcement agencies are taking action, and urged citizens to register a complaint about these unregistered apps with the police, and advised that an individual should ensure the digital lending app they are using is registered with the RBI.

Given all the complaints received over the last 12 months, LocalCircles decided to conduct a survey to gather pulse of citizens who either themselves, their family members or household staff may have taken instant loans via such instant loan apps. It also sought to understand the annual rate of interest they paid against the principal loan amount. The survey also attempted to understand if extortion and data breaches were something many were experiencing. The survey received over 27,500 responses from citizens residing in 409 districts of India. 68% respondents were men while 32% were women. 47% respondents were from tier 1, 35% from tier 2 and 18% respondents were from tier 3, 4 and rural districts.

14% of citizens surveyed said they or someone in their family/household staff used an instant loan app in the last 2 years to get a loan

The first question in the survey asked citizens “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?” In response, 14% of citizens surveyed say “Yes” they or someone in their family/households staff used an instant app in the last 2 years to get a loan. The majority of 79% citizens said “No”, and another 7% of citizens couldn’t say. This question in the survey received 8,555 responses.

Given that these apps are fairly new and most of them popped up during 2020 , 14% respondents confirming that they, their family members or their household staff have used these apps in the last 2 years is a sizeable number.

58% of citizens surveyed said when they or someone in their family/household staff took a loan using instant loan apps in the last 2 years, they were charged annual interest of over 25%

Per inputs from consumers, instant loan apps generally charge 30-60% interest rate against the loan of INR 3,000-5,000, and accordingly interest rates vary as per the loan amount and duration to pay back the loan. During the peak of the pandemic, some platforms reportedly charged as much as 500% interest rate. The following question sought to understand the minimum annual rate of interest citizens were charged by loan apps. The question asked citizens, “In the last 24 months, when you or someone in the family/household staff used apps that provide instant loans to secure a loan, what was the annual rate of interest?” In response, 26% said they were charged “10-25%” as an annual rate of interest. 16% said “25-50%”, 26% said “50-100%”, and 16% said “Over 200% while another 16% couldn’t say. On an aggregate basis, 58% of citizens surveyed said when they or someone in their family/household staff took a loan using instant loan apps in the last 2 years, they were charged an annual interest of over 25%. This question received 9,672 responses.

54% of citizens surveyed said when they or family/household staff took a loan using instant loan apps in the last 2 years, they experienced extortion or data misuse during the collection process

There are many reports rife with how loan apps have used extortion methods to get back money from borrowers or loan defaulters. Some citizens also claim to be getting phone calls for repayment of loans taken over a year ago, even though they have paid the amount taken or more. On the other hand, there are many reports of borrowers’ personal information, including Aadhaar card, Pan card, etc. being shared with 3rd party platforms. People have also reported in a few cases, how their parents in a different location received messages about the loan payment which they had already made some time back.

The final question asked citizens, “In the last 24 months when you or someone in the family/household staff used apps that provide instant loans to secure a loan, did you feel a sense of extortion or data misuse during the collection process?” In response, the majority of 54% of citizens surveyed said “Yes”, and 33% said “No” while 13% couldn’t say. This question received 9,388 responses.

In summary, 14% of citizens surveyed said they or someone in their family/household staff used an instant loan app in the last 2 years to get a loan. The survey further indicates that instant loan apps are charging a hefty interest rate against the principal loan amount. This is evident with 58% of citizens surveyed say they were charged annual interest of over 25% by loan apps in the last 2 years. Moreover, with 54% of citizens surveyed saying they or family/household staff experienced extortion or data misuse during the collection process suggests that there is an urgent need for the Government of India and the Reserve Bank of India to come up with regulatory options that could ban coercive recovery procedures, cap the rate of interest and require mandatory registrations of any such apps functioning in India.

LocalCircles has escalated the findings of the survey with the Reserve Bank of India and is hopeful that the public feedback would be kept in mind in the framing of the guidelines for instant loan or digital lending apps.

Survey Demographics

The survey received over 27,500 responses from citizens residing in 409 districts of India. 68% respondents were men while 32% were women. 47% respondents were from tier 1, 35% from tier 2 and 18% respondents were from tier 3, 4 and 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.