Loan Sharks Looting People of Pakistan

The online loan scam was going on since sometime but it was ignored by Pakistani authorities as is their wont. This hideous activity came to public knowledge when a man reportedly took his life in Rawalpindi after being hounded by loan sharks hired by these loan apps.

As reported, the victim had taken Rs.13,000 loan through a digital app to help pay the rent and his children’s school fees as he was unemployed for several months. However, due to extortionate interest rates, the dues rapidly increased and after borrowing more money from another app, the victim’s liabilities had ballooned into Rs.800,000 that were simply out of reach of the deceased.

Threats and blackmail by the loan sharks ultimately led the desperate victim to take his own life. Consequently the FIA raided the offices of loan sharks and started investigating the matter.

The inflationary pressures in the country have compelled people to opting to borrow money from digital loan apps but reportedly plenty of such outfits seem to operate outside of any regulatory control and criminally exploit borrowers. Let alone saving people from the killing grip of loan sharking, the official authorities have not even bothered to advise caution to the people asking them to refrain from falling in the trap of such lenders.

This carelessness has been observed despite the Securities and Exchange Commission of Pakistan (SECP) stating that digital lenders had been forbidden from taking coercive action while recovering the loaned money. Moreover, the Competition Commission of Pakistan (CCP) had urged people to exercise caution before approaching online lenders. In wake of the current situation it is quite apparent that the regulatory mechanism put in place for this activity has simply failed.

It was earlier reported that scores of apps are currently out there luring average folk with instant credit, with misleading terms. It was mentioned that 27 of the apps featuring Google Play Pakistan’s top 100 finance apps were instant credit apps and out of them, 19 were offering loans in the local rupee and the top eight alone had estimated downloads of 15.4 million since their launch. There is only one more licenced player operating in this space: Sarmaya Microfinance. Many are not registered entities though the modus operandi of both kinds is similar. Promising low interest rates they lure users to borrow often even disbursing the amounts without their confirmation. However, a sizable chunk of the amount is actually deducted at source, between 21 per cent and 38 per cent depending on the app, in the name of service and/or processing charges, which is often for 30-90 day periods, sometimes even less. Yet the annual percentage rates; total cost of borrowing in annual terms, are reported to be in the range of 11-39 per cent.

It was reported that the agents employed by loan sharking outfits were given targets to make 100 to 150 calls a day to citizens, their friends and families on a daily basis. It was added that departments were called D-0, D-1, D-2, DS-1, DS-2, and DS-3 and the agents would collect personal information of citizens through the loan apps. It is pointed out that loan sharking issue is systemic in nature requiring proper legislation and strict enforcement. It was reported that a few foreign nationals were also found to be involved and their data and devices were being forensically audited. It was mentioned that in the offices of loan sharks a separate department was run to through which they harassed people. It was reported that an audio of the phone call of an employee of Bharosa App has also come to the fore in which the accused can be heard threatening nephew of the deceased man of leaking personal data from the cell phone in case of the non-payment of the loan.

In this context it is pointed out that in order to tackle the issue implies addressing issues related to loans, financial distress and blackmail required a comprehensive approach involving various government agencies and stakeholders. In this respect it is required to work for educating people and increasing their financial knowledge and awareness. It is required to initiate and implement consumer protection laws for the people availing of such loans. What is needed is to strengthen law enforcement in collaboration with financial institutions. It is also important to take into consideration the mental health issues of the loan-getters. Clearly, the regulatory framework has failed to monitor these dubious operators, as the death of the Rawalpindi man shows.

App stores, SECP and FIA all have a role in ensuring that digital lenders are registered, comply with national laws, and display terms in clear language the common man can understand. People also need to steer clear of questionable enterprises that offer instant cash, and should opt for established microfinance institutions, while the state should also support financing options that can help people tide over difficult times.

Interestingly, Google has restricted personal loan apps from accessing contacts or photos of their users in Pakistan. In its April 2023 policy update, the platform mandated the apps in Pakistan to submit country-specific licensing documents to prove their ability to provide personal loans. Google said it was updating the Personal Loans Policy to stop the apps from accessing users’ contacts or photos adding that they are introducing additional requirements for personal loan apps targeting users in Pakistan. Pakistan is the sixth country after India, Indonesia, the Philippines, Nigeria and Kenya, for which Google has introduced additional requirements for digital lending apps. Pakistan has been included in the policy update by Google after a series of meetings with the SECP — the regulator of the corporate sector.

The SECP has received several complaints against registered as well as non-registered lending apps, indulging in exploitative and coercive practices, including blackmailing their customers. The SECP has also taken steps against non-banking finance companies (NBFCs) that have launched their digital apps, restricting each NBFC to publish only one lending app. Responding to the query over the steps taken by the SECP against illegal and unregistered lending apps, a senior commission official said three lenders have already furnished their Cyber Security Audit Reports, along with certificates issued by PTA-approved audit firms, signifying their commitment to safeguarding customer’s data.

The official added that apart from the policy framework, consultations have been held with Google, Apple, mobile wallet and telecom service providers to take down apps operating from outside Pakistan. Digital lending platforms have witnessed a spurt of growth in recent years. Currently, there are around 10 licensed NBFCs and only three digital lending apps, while around 30-40 unlicensed apps are operating from outside Pakistan.

As happens often in Pakistan such schemes are allowed to function without carrying out due diligence and verifying the antecedents of such outfits. Cyber activity is deceptively simple allowing a majority of people to jump on the bandwagon without any notions of propriety or even business sense. They go in to make a quick buck and are more than willing to resort to high-handed tactics as the violent streak in the country allows them to freely operate their tortuous practices. Pakistan is widely known to be criminal’s haven where unscrupulous groups can go to any length to defraud people.