How App-Based Lenders Are Harassing, Sucking Borrowers Dry
Sunil Kumar, a migrant worker from Uttar Pradesh’s Aligarh, works as a painter in New Delhi and earns around ₹400 a day. But that is only on days when he gets work.
 
About nine months ago, Kumar fell short of ₹2,000 required for his brother’s treatment. Banks wouldn’t lend to him since he didn’t have a regular job. So he took a loan from WifiCash, an app-based platform run by Delhi-based non-banking financial company (NBFC) Chadha Finance Ltd.
 
All he had to do was submit a photo ID, his Aadhaar number and take a selfie to authenticate it’s him who’s seeking the loan from his registered mobile ID. WifiCash gave him a loan within two hours of filling an application.
 
There was a catch, however. For a loan of ₹1,500, Kumar had to pay ₹2,152 in just one week. The additional ₹652 — or a staggering 43% of the principal — included interest, processing fee and GST at 18% on that fee.
 
But then desperate times call for desperate measures. The quick disbursal of loan increased Kumar’s dependency on the platform. After nine months, Wificash increased his borrowing limit to ₹10,500. In February, Kumar took a loan of ₹10,500 for a month, an amount equal to his average monthly earnings. The company deducted the processing fee and interest in advance and disbursed ₹8,022 to his account.
 
Kumar’s struggles started from here.
 
With no source of income in the wake of the coronavirus pandemic and the ensuing lockdown, Kumar was unable to pay the amount. The lending company charged him 1% every day as penalty. His overdue charges during the lockdown period shot up to ₹9,792. This despite the government announcing a moratorium. Only after repeated complaints, the lending company waived the overdue charges.
 
But between March and May, Kumar alleges that Wificash accessed phone contacts (the permission to which he gave while downloading the app on his android phone), and even called up his immediate relatives.
 
“The recovery agent verbally abused and harassed me over the phone and posted fake FIR copies and legal notices on WhatsApp chat,” Kumar says.
 
New-gen loan sharks
 
Like Kumar, there are thousands of customers who’ve fallen prey to such lending platforms which are misusing data, overcharging customers and taking advantage of the digital illiteracy.
 
Daily wagers, students, small and micro business owners — borrowers mostly in the age group of 21-40 — told this reporter and sent proof of verbal abuses and high service charges and penalties levied on them. Several customers downloaded 4-5 such apps and borrowed loans from all at the same time.
 
Barring a few, most such lending companies charge a high interest and processing fee on short-term loans (seven days to one month).
 
Their interest rates vary from 25-40% while the processing fee ranges from 15% to 20%. In addition, GST at the rate of 18% is levied on the processing fee.
 
For perspective, banks typically charge a processing fee of 1-3%. The interest rate on personal loans hovers between 12% and 20% while credit card debt costs around 30-36% annually.
 
Partha Sarathi Das, a 33-year-old BSc graduate, is another harried borrower. Das took loans from five different app-based lending platforms — CashBean, CashBus, Kreditbee, Rupeeplus and Robocash.
 
A document accessed by The Federal shows Robocash, a Philippines-based digital lending platform operated by JGR Fincorp Ltd, charged 1% interest on the loan amount every day as penalty for delay in repayment, including the moratorium period.
 
The Securities and Exchange Commission in the Philippines (SEC) last year barred Robocash from operating as they were doing so without a licence.
 
Das, who took a loan of ₹4,000 from Robocash on January 4, will now have to repay ₹9,050 after the moratorium period ends on July 2. Like Kumar, he too was subjected to harassment from the lending company’s recovery agents.
 
In response to The Federal’s queries, Robocash denied any wrongdoing. “We do not collect any personal information like customers’ personal contacts, SMS’s, etc. In fact, we have offered an amnesty scheme to our customers and are waiving the entire overdue interest,” it said.
 
Dragon in the backyard
 
The Federal has learnt that many of these companies are backed by Chinese investors who partner with India’s licensed NBFCs. On Google PlayStore, loans apps like CashBus, CashBean, InstaMoney, Moneed, Robocash, Cashmama, WifiCash, Moneed, Kissht, Loanflix among others are accessible at the click of a button.
 
Some of the customers have been granted loans not on the basis of the financial credit worthiness, but merely based on the PAN Card, Aadhaar card and how well they are connected on social platforms.
 
Some customers claim even CashBean, one of the largest players in the market, resorted to similar practices.
 
However, responding to The Federal’s questions, PC Financial, the entity through which CashBean offers loans, denied the charges of customer harassment and higher interests.
 
“The Company’s interest rate policy has been adopted by its board of directors, within the ambit of Indian laws and regulations, after taking into account all necessary considerations associated with the business of the company, including cost of funds, borrowing cost, risk associated, opex cost, etc,” it said in a statement.
 
“We only contact our customers on their personal number and in case the same is not reachable, on the emergency contact numbers provided by the customers as part of the loan application,” the company added.
 
Emails sent to other companies mentioned in this story did not elicit any repose.
 
The modus operandi
 
Many of these platforms advertise on social media sites and apps like TikTok, SHAREit, DailyHunt, Facebook and Google where people from tier-2 cities and beyond spend more time consuming video content.
 
Their target audience remains Android phone users between 21 and 40 years of age. They tend to avoid iPhone customers because of the security aspects such as restrictions on accessing certain features on the phone.
 
Jack Zeng (English name), a senior executive at a Chinese lending Company in India, explains how some of these companies function.
 
While different companies use different risk management systems, most companies rely on credit scores from CIBIL, a credit information company. But since they restrict access to only licensed NBFC players, many of the Chinese companies he claims get data from players like Experian, CRIF Highmark and Equifax among others.
 
He also claims early entrants in the market build a database of their own over a period of time and sell that data to other companies. They prepare a list of high credit risk customers and the ones with good credit scores and share among fellow Chinese players in the market.
 
Zeng says many of these app-based platforms also access SMSes (not personal but commercial) of customers to assess if the person has taken any loan from other lenders.
 
“Some check how many lending apps one has downloaded and mark the borrower in the red category if he/she has more than nine lending apps,” he says.  Besides, he also says the number of contacts in the customer’s phone does matter to them as they assess the credit risk based on it.
 
In case of first-time customers, the lenders don’t mind taking risk because of the high interest that is involved, which he says works to their advantage. “If the risk taken pays off, the company gets a customer who it can build on for the future,” he adds.
 
Zeng believes the default rate would be anywhere between 5% and 7% for such app-based platforms. And the payment delay rate would be about 10%.
 
Why India is a lucrative market 
 
Data Analytics firm Tracxn in a report shared with The Federal noted that 434 app-based lending platforms came up since 2015.
 
However, there was not data available on the precise number of total lenders who depended on such platforms.
 
The Federal trawled through the Registrar of Companies (RoC) database to check filings by 10 such lending companies and found that eight of them had Chinese connections.
 
In the recent past, there has been a rise in Chinese investment into India. With lack of strict regulatory controls, many entrepreneurs and investors have been eyeing India to make quick money.
 
Even though the Indian banking system is well-regulated, some tried to find loopholes in the system to exploit the market. A few of these firms entered Southeast Asian countries first before shifting their focus to India. They did so after Southeast Asian countries tightened the noose over the lending businesses. Malaysia, Singapore, Indonesia and the Philippines have all brought in regulations to govern digital lending.
 
In 2017, India received the largest share of Asia’s alternative lending deals at 41%. China was second at 32%, and Southeast Asia followed with 17% of total deals, according to a report by CBInsights, a data analytics firm that tracks startup investment across the globe.
 
Upon questioning as to how some of these Chinese companies gain access to verify based on Aadhaar and PAN cards, an industry source says, companies like Veri4digial and Digio do third-party verification by means of KYC for such platforms.
 
An industry insider who doesn’t want to be named says the RBI is taking note of all the alleged wrongdoing by such firms and will soon come out with a clear policy to regulate such firms.
“The regulators are taking note and they will soon tighten the noose. Post COVID-19, a few companies will die a natural death as they may struggle to survive with moratorium and capital risk with job losses all around,” he adds.
 
Meanwhile, the Digital Lenders’ Association of India (DLAI), an independent body with 81 lending companies as its members, has issued a fresh code of conduct for all its members with a need to propagate responsible lending practices.
 
Early entrants and the ambit of law
 
Vivek Veda, founder-director at KrazyBee, begs to differ with other players in the market. He claims not all players are bad and that some, including his firm, are functioning well within the ambit of the law and RBI regulations.
 
Krazybee has its own NBFC licence and it also partners with other firms for different services. They cater to students and working professionals in the age group of 21-40 mainly.
 
Veda says unlike other firms they do not depend on contact lists or phone features. He says they clearly go by the credit score and one’s repayment history in case of a repeat customer.
 
“For a company like us, with ICICI Bank as an equity investor, Xiaomi and Shunwei Capital as strategic investors, we cannot afford to do wrong.”
 
Veda claims his company sees default differently. “We educate customers rather than putting them at risk. We have, in fact, upgraded one million people’s credit worthiness who are now eligible for loans from mainstream banks.”
 
According to him, one cannot blame the players in the market alone as borrowers agree to the terms and conditions while taking loans. “They start complaining only when they are not able to repay or land in a debt circle.”
 
He, however, agrees that a few firms are exploiting the market to make quick money, which he believes will have a negative impact on the entire industry.
 
But for people like Das or Kumar, the lending companies’ terms and conditions in the app, most of which are in English, mean nothing. And not all apps are transparent in their interest and penalty charges.
 
“For us, it’s like giving permission to any other app. We barely spend time or understand the terms. Now, we realise the mistake and want the government to rescue us,” Das says.
 
This story was first published on The Federal news website on 11 June 2020
 
 
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Aar Aar

    2 months ago

    Guess only the deaf can take the risk to get these loans.

    mywopy

    2 months ago

    The recent app based loan NBFC's in India are similar to the high-street payday loan companies that was once popular in the western countries. Such companies have come under strict scrutiny by the regulators there.

    Their business plan is, lend loans to the under educated working class, day-wagers and suck then dry with their illegal lending rates and other service charges.

    The funding for majority of these new app based loan lending startups in India comes from abroad. Don't be surprised if you find the investors are the same people who own these notorious payday loan companies in the west.

    The working class victims of such scams will not raise a voice, since they are not aware of their own rights or the monetary regulations in this country being broken by these app based lenders.

    Moreover, these victims of these app based lending scams prefer to stay quiet and pay up the illegal interest rates and charges, hoping that their loyalty to these app lenders will help them take bigger loans in the future.

    Hope this article by Money Life will bring some attention into this new scam, which the regulating authorities are not aware of much, since they do not have first hand experience using such services.

    In-home consumption surges as people binge on biscuits, salty snacks
    Food categories like biscuits, salty snacks, instant noodles, beverages, edible oils are seeing an increase in demand as in home consumption increases while out of home consumption of FMCG products is expected to take a back seat as the lockdown keeps more people at home.
     
    According to a research by UK broking house, Investec Securities, in the near term, out of home consumption is expected to take a back seat as the lockdown keeps more people at home.
     
    Nestle's Professional division, which posted double digit growth in 2019 is expected to witness some level of slowdown as offices, hotels, restaurants, airlines, educational institutions remain close/ operate at sub-par levels.
     
    HUL's ice-cream business will be impacted. Management in Q4 FY20 results stated, "There was near cessation of sales in some of our out-of-home businesses and ice creams business, right from mid-month, and these contributed to the revenue drop. Our ice cream business started to really see a sharp decline right from mid-month."
     
    Meanwhile, in home consumption has surged. Food categories such as biscuits, salty snacks, instant noodles, beverages, refined edible oils have witnessed a jump in demand.
     
    Britannia has witnessed strong demand of biscuits. April and May has seen strong revenue growth of 20 per cent and 28 per cent respectively.
     
    In the FMCG space, companies are looking to substitute traditional wholesale by increasing stockist count, driving growth through organised wholesale cash and carry and increasing growth through e-commerce.
     
    "In retail, companies like ABFRL, Indian Terrain and Page Industries are likely to re-think their small MBO (multi-brand outlets) strategy and compensate the impact through larger retailers and e-commerce," the research said.
     
    Hand wash, Sanitizers, floor & toilet cleaners, antiseptic liquids have seen a sharp jump in sales in India. Immunity products such as chyawanprash, honey and turmeric have also seen a sharp rise in sales since lockdown started in March.
     
    Most companies believe that the trend will continue and hence, in a scenario where manufacturing capacity is constrained, companies are focussing on these higher demand products.
     
    While many companies have entered the Sanitizer space, fewer entrants are seen in handwash category as its manufacturing process is difficult. "It remains to be seen the longer term sustainability of this category; we believe larger brands will be eventual winners here as fly by night operators exit the market once demand normalizes," the research said.
     
    Colgate has launched the Palmolive hand sanitiser, Emami has launched Boroplus hand sanitiser, Jyothy Labs has launched the Margo hand sanitiser, Marico has launched Mediker hand sanitiser and Veggie Clean, in the fruits and vegetables wash segment.
     
    In jts management commentary on health and hygiene demand, HUL said sanitizer production has been ramped up by a factor of 60 times from the pre-covid levels. We are seeing heightened consumer focus on health, hygiene, and nutritional needs.
     
    In the lockdown period, companies have seen the contribution e-commerce sales increasing. FMCG companies have partnered with various last mile delivery apps such as Swiggy, Zomato, Dunzo, Grofers, Bigbasket, etc. to improve availability of their products. Companies expect the current crisis to lead to an uptick in ecommerce sales as people become averse to stepping out.
     
    Most FMCG companies had made changes in their product offerings on e-commerce platforms to address distributors' complaints of e-commerce sales impacting their sales. FMCG companies now use e-commerce to drive more premium packs, to serve niche demand spaces such as face sheet masks, beard grooming products, hand cream, foot cream and as a platform to test the success of new launches.
     
    According to the report, even though personal care category has witnessed a decline in lockdown, we believe this category will be a major beneficiary of higher e-commerce adoption in Urban areas as its contribution to e-commerce sales in FMCG is highest at 42 per cent. In e-commerce, personal care had started to gradually pick up in Lockdown 3.0.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User 

    Maharashtra men's salons, beauty parlours may double rates post-lockdown
    Post-lockdown, crores of people all over Maharashtra will brace for an ugly cut of another kind - a staggering proposal for doubling of rates at all barber shops and beauty parlours.
     
    The Maharashtra Nabhik Mahamandal (MNM) the umbrella organization for around 15 lakh barber shops and beauty parlors, including major chains, have decided to double rates for all services.
     
    Of these, Mumbai alone has a little over 2 lakh hair cutting salons and beauty parlours, employing an average of 4-8 workers, men and women.
     
    "We have proposed doubling of charges for all services like simple hair-cuts, shave for men, facials or waxing for women and all other services offered," said MNM President Dattareya Anarase.
     
    "This is because in the past three months, our business, which employs over 60 lakh people directly and another 40 lakh indirectly, has been totally shut down in the state. We hoped the Maharashtra government would permit reopening of our businesses, but there is no clarity yet from the authorities," Anarase told IANS.
     
    Accordingly to tentative rate plans, a normal shave costing around Rs 40-50, will now cost Rs 100, while a regular hair-cut which cost around Rs 80-Rs 100, will be charged at Rs 200, he said.
     
    Ditto will be the situation for services in beauty parlours with facials which cost around Rs 1,200 set to nearly double to Rs 2,000, cleanup at Rs 600 to be around Rs 1,250, bleaching from existing Rs 300 set to go up to Rs 750 and waxing will double from existing Rs 500 to over Rs 1,000.
     
    Additionally, certain services like head or body massage for men and threading eyebrows or facials or face-packs for women are likely to be suspended for the present since it would entail difficulties in maintaining physical distancing.
     
    "We have already suffered a lot in the past 10 weeks of lockdown. The post-coronavirus costs will increase in a big way. We have written to Prime Minister Narendra Modi and Chief Minister Uddhav Thackeray seeking a minimum compensation package of Rs 10,000 per employee for three months that we have lost our revenues, besides other establishment costs for the owners," Anarase said.
     
    Owner of Haircraft Ladies Beauty Parlour in Kandivali Prabha P. Nair said that henceforth, all beauty parlours will need to compulsorily provide sanitisers, masks, gloves, full personal protective equipment kits for all staffers, regularly sanitise inside and outside the parlour premises, plus all equipments ranging from combs and scissors to chairs or washing areas.
     
    "All this will add to the operational costs in a big way, because we have to ensure that the customer is safe, the staff is fully protected and we can still be in business," Nair told IANS.
     
    S.R. Tiwari, proprietor of Saket Hair Arts in the same suburb said the bigger problem is of manpower as most barbers and hairstylists or beauticians have fled to their home states like Uttar Pradesh, Madhya Pradesh, Bihar, Jharkhand, Odisha, etc.
     
    "Besides the government's Covid-19 precautions and regulations, we will have to pay double to get barbers or hairstylists. There can be no compromise on safety as even schoolboys or schoolgirls have to get a regular haircut," Tiwari pointed out to IANS.
     
    Anarase said roughly the single-use full PPE kit would cost between Rs 400-600 per staffer, plus daily around 1 litre of sanitisers worth Rs 500, antiseptics and other precautions to be taken inside-outside the barber shops, sanitizing all the chairs, equipments and installations.
     
    "Since there is nothing forthcoming from either the Centre or the state we are left with no options but to pass on the burden to the customers," Anarase lamented at the huge survival crisis confronting the entire beauty and grooming industry.
     
    Salons and parlours have been advised to implement full precautions like checking customer temperatures with a temperature gun or a similar no-contact thermometer with a register record, sanitizing, discouraging customers from bringing their own towels, napkins or overalls as they could pose a risk, etc, he added.
     
    Anarase, Tiwari and Nair are hopeful that with these protocols, the salons and parlours can ensure safety of the staffers, customers and the premises in the ongoing war against the virus.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Meenal Mamdani

    2 months ago

    Most of these rules are unnecessary. Indian officials go into overdrive when they are asked to create rules for any thing. The more rules, the more power for itty-bitty officials and the more chance for extracting bribes.

    I live in the US. The hair salons were allowed to open in my state last week and they were asked to observe normal precautions. If the salon is just an average sized room, they were requested to have one person at a time on the premises by adjusting the time of appointments. If it is a larger salon, they were REQUESTED to maintain social distancing. Worker and client were recommended to use masks. Nothing more than that. Not all this Personal Protective gear, like gowns, gloves, etc.

    Every tinpot person, even housing society chairpersons, are announcing totally stupid rules. Please, don't let India slide back into Permit/Pass/License Raj.

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone