He used the app to borrow Rs 9,800 at 300% interest. Now that

India is one of the fastest growing fintech markets in the world.

New Delhi: When V. Rajapandian was fired from a job at a heat treatment plant in India, the reason had nothing to do with performance or falling revenue. Instead, his boss offered a strange explanation: After Rajpandian defaulted on a loan from a mobile app, recovery agents demanded payment for the plant on his behalf.

“I lost my job because of them,” Rajpandian said of Cashe, the app he used to secure a $132 loan. “I live with a constant fear that they will track me down and harass me.”

As digital credit proliferates in India and other developing economies, Rajpandian’s test is becoming more common. During the pandemic, apps promising quick cash have sprung up. Many take advantage of borrowers’ lack of financial literacy, charge interest rates of up to 500% a year, and in some cases employ heavy-handed collection tactics, which have been linked to a string of suicides by Indian activists.

A growing crowd of technology companies and regulators have broken out. Globally, Google has blocked hundreds of apps from its Android store to protect borrowers from “misleading and exploitative terms”. Authorities in China, Indonesia and Kenya followed suit, shutting down several startups promising easy cash to unbanked people.

India, which has the largest number of such apps in the world, has also taken action. In November, the Reserve Bank of India raised the possibility of new rules for digital lenders. A panel set up by the bank found that more than half of the nearly 1,100 digital loan providers were operating illegally.


But it is particularly difficult to protect borrowers in India, given the country’s dated personal bankruptcy laws and the sheer size – more than a billion people do not have access to formal credit. And while complaints of harassment by digital lenders extend far beyond its borders, India’s ambition to become a haven for technological innovation coupled with Byzantine bureaucracy makes widespread regulatory intervention difficult.

Millions of Indians rely on apps, and often borrowers have no clear way of legally understanding from substandard ones.

“These platforms are clearly meeting an unmet need,” said Ishwar Prasad, a professor at Cornell University’s Dyson School of Applied Economics and Management. “The persistence of digital lenders charging exorbitant interest rates indicates latent demand for credit and other products that are not being adequately satisfied by the traditional financial system.”

The gaps in the banking system are becoming increasingly difficult to ignore. India is one of the fastest growing fintech markets in the world, with digital lending projected to reach $350 billion by 2023. The majority of this growth will come from short-term, unsecured loans rather than collateralized loans, according to Yashraj Erande, a managing director and partner at Boston Consulting Group in Mumbai.

Efforts to rule out illegal apps have yielded mixed results.

According to a company spokesperson, after Indian authorities raised the flag, Google reviewed hundreds of apps on the Play Store. Platforms will now have to prove that they have appropriate lending licenses and cannot require full repayment in less than 60 days. (Android is the smartphone of choice for most Indians, although some apps are available for iOS as well.)

But enforcing strict rules has become a peculiar game. Rahul Sasi, who runs cyber security firm CloudSEK and was one of the experts to make recommendations to the Reserve Bank of India, said digital lending is a huge, difficult market.

That said, restricted apps only run on third-party platforms such as Aptoide, or advertise through text messages. Consumers sometimes take out loans with no intention of paying them back. The apps, in turn, use a mafia-like collection strategy.

“Crime will happen in some form or the other,” said Sasi.

Aptoide CEO Paulo Trajantos wrote in an email that his company does not host the apps until they are also available on Google Play. He added that lenders associated with “illegal activities in any form” are immediately weeded out.

Analysts say the platforms are often owned by offshore entities, making it difficult for India to take legal action. According to Shrikant L, founder of Cashless Consumer, a collective that studies the fintech industry, some apps use tech infrastructure built by Chinese firms that use cloud services from Alibaba Group Holding Ltd and Baidu Inc.

In an email, a spokesperson for Baidu said the fintech is now controlled by a separate company, Du Xiaomen Financial, and declined to comment further. A spokesperson for Do Xiaomen Financial said the company does not do any business in India. Alibaba did not return a request for comment.

The Reserve Bank of India is likely to tighten digital lending rules earlier this year. The guidelines in question include severe penalties on non-compliant apps, with a specific focus on weeding out unregulated loan providers. Large digital payments companies like Paytm have not been accused of similar predatory behavior.

The risk is that unscrupulous firms may increase manipulative practices as a strain in personal lending. Delinquency levels for consumer credit rose in September from a year ago, RBI data showed last week.

“The recommendations are certainly a step towards curbing illegal lending,” said Vivek Belagavi, Fintech and Alliance Leader, PricewaterhouseCoopers LLP in India.

Activists say even stricter regulatory action could help save lives. In the past year, Savethem India Foundation, a non-profit organization that assists victims of cyber crimes, has linked 17 suicides to a rigorous recovery strategy.

Praveen Kalaiselavan, the organization’s director, said his employees made more than 64,000 calls from Indians complaining of harassment in 2021. This figure was up 31% from 2020. Hundreds of police complaints have been filed against debt collectors, although a local court recently ruled that their methods could not be construed as abetment to suicide.

“If they had acted a year ago,” Kaliselvan said of regulators, “we would not have seen so many people taking their own lives.”

The Reserve Bank of India did not respond to requests for comment.

For first-time borrowers like Rajapandian, who worked as a manager at a heat plant in Chennai, their only option was to approach a digital lender in 2020 in exchange for credit for a traditional loan.

As the coronavirus spread across India, shutting down factories and displacing lakhs of workers, Rajpandian tried to prepare for the worst. The cache, which he downloaded to his Android phone, quickly offered money to supplement his $200-a-month salary and help care for his wife and 4-year-old son.

But Rajpandian struggled to make payments on the loan, which had a 300% interest charge. That’s when the threats started, he said.

For months, he said, cash agents called him several times a week, “abused my parents and wife,” and approached the heat plant. When his boss became more irritated, he threatened with dismissal, Rajapandian quits his job. Last month he lodged a complaint with the police.

“I thought about suicide,” he said.

A local police station in Chennai confirmed receipt of Rajapandian’s complaint against the app, which was filed on December 17. CAshe, a Mumbai-based company established in 2016, did not respond to an exhaustive list of questions. The company, which claims to have a customer base of over 3 million, has not been charged with a crime.

Rajapandian said that the calls have not stopped. He said he has become so abusive that he tries to keep his new job a secret so that collectors don’t jeopardize that job either.

“It’s not about the money anymore,” he said.


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