Of the many industry breakthroughs we’ve achieved through the pandemic in 2020, one of the most prolific growths has been in the shady instant loan business. It’s easy to understand why.
To understand why the demand for quick and easy instant loans has peaked, we need to understand the term Liquidity.
Containment and lack of liquidity
Liquidity is the ease with which an asset, or security, can be converted into available cash without affecting its market price. In simpler terms, it describes the extent to which an asset can be bought or sold in the market at a price that reflects its intrinsic value.
Cash is therefore considered the most liquid asset as it can be easily converted into other assets. And the money was not plentiful as people lost their jobs, businesses large and small lost their customers and economic production almost came to a standstill.
The case of Pravin Kalaiselvan & Cashbeans
Pravin Kalaiselvan, as reported by ET, is the owner of a travel agency who borrowed ₹15,000 from one such loan app, namely Cashbean, to pay for his mother’s sudden illness. Pravin however made the fatal mistake of forgetting to pay on time, the company’s recovery team wasted no time in harvesting the contacts from the phone and began harassing them.
How Rupee Bazaar Killed Young Aravind
Now, Pravin is not an isolated incident and certainly not the most impactful either. In a rather tragic turn of events, Sai Aravind, 23, an IT professional from Chennai who had taken out a loan from money lending app Rupee Bazaar was unable to repay the amount in time. allotted, was subjected to a planned and large-scale campaign of cyberbullying. through the Rupee Bazaar money lending app to which Aravind gave access to phone contacts as part of the registration process.
However, in these difficult times, Aravind was unable to return the money and the company’s debt collectors began to use more nefarious means such as calling random numbers from his contact list, harassing them, creating several WhatsApp groups entitled “Aravind is a fraud” going so far as to also put his photos there.
Unfortunately, Aravind was discovered hanged in his bedroom shortly afterwards by his father.
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Vicious circles don’t end
People have lost their lives, jobs, sometimes even their savings for a loan amount as paltry as ₹5,000, as a 26-year-old private employee found out when he took out an instant loan of the aforementioned amount, and subjected to the same targeted harassment with harvested phone contacts resorted to a loan of ₹10,000 from another such app. Caught in this loop, he accumulated a debt of ₹2.5 Lakh. However, when the harassment campaign reached the manager of his company, he also lost his job.
Let’s question their legality-
So, we’ve seen three examples of how these digital lending platforms behave less like civilized corporations and more like barbaric mafia lending operations. The reason is that they actually are. These lending platforms mostly operate outside the jurisdiction of regulators.
The legality of these institutions is disputed as an organization cannot claim to be a legal money lending platform unless it falls under the jurisdiction of a bank or NBFC which of course are held to a much higher standard of accountability.
The RBI Code of Fair Practices and Position
RBI has indeed taken some steps to pacify the situation, having introduced the RBI Code of Fair Practices on which banks and NBFCs have the scope and freedom to grow as long as it does not destroy the spirit of the directive. The document contains two very important considerations in the document, which reads-
1- Lenders must refrain from any interference in the affairs of borrowers, except as provided in the terms and conditions of the loan sanction documents.
2- In loan recovery, lenders should not resort to undue harassment viz. persistent inconvenience of borrowers at odd hours, use of muscular force to collect loans, etc.
Theoretically, these provisions should help the situation. However, like a lot of legislation that looks great on paper but difficult to enforce, this too falls on deaf ears. RBI has not taken a strong stance to eradicate the harmful business practices of these organizations. Instead, they relied on outreach programs that recently issued this press release
“Members of the public are hereby warned not to fall prey to such unscrupulous activities and to check the background of the company offering loans online or through mobile apps. Additionally, consumers should never share copies of KYC documents with unidentified, unverified/unauthorized apps and should report such apps/bank account information associated with apps to relevant law enforcement agencies.”
Good, Evil and Ignorance
RBI must however understand that such campaigns will not be heeded by people in dire need of money and amid the massive SEO efforts undertaken by these digital lending platforms, RBI’s opinion will be lost in a cacophony advertising campaigns.
The government and its law enforcement agencies have a responsibility to crack down on these unlicensed extortionist digital lending platforms. The first steps are already underway as the regulator announced the establishment of a digital lending task force to introduce specific regulatory measures in the area of digital instant lending.
Stay smart, stay safe
You, our esteemed reader, should remember the long-term impact of any decision you make today. I have over and over again been cautious in pointing out that financial stress is one of the most deeply worrisome. So, don’t fall for the traps of these shoddy instant loan applications. It’s not worth it and will definitely end up doing you more harm than good.