New rules are needed to stop predatory lending

2 min read. Updated: 22 Dec 2020, 08:35 PM ISTLivemint

The recent suicide of a Hyderabad-based techie who was humiliated when a lender went about calling people on his contact list, the consent for which he had given while taking that loan through an app, has brought into sharp focus the risks of instant app-based lending in India. The country has long been starved of credit, and despite efforts to drive up the efficiency levels of banks, our formal lending structure remains too clunky, time-consuming and costly to satisfy the vast demand in evidence for small unsecured instant loans. Online ventures spotted a big opportunity in this space and have gone all out to reach underserved customers. But this growth has been largely haphazard, while Indian regulators and lawmakers have tended to take only knee-jerk notice of creeping market failures that could end up destroying markets, choice and innovation. The unseemly tactics being used by lenders to recover their dues exemplify a failure that can no longer be ignored. We need much sharper regulation of all such practices.

In July 2020, the Reserve Bank of India (RBI) did put out rules designed to curb the opacity and violation of existing lending norms by digital lenders, but these have done little to improve matters on the ground, where lenders often ask for and get the digital records of borrowers that they have no right to. Clearly, RBI’s stated intent of viewing violations “seriously” has not been taken seriously enough by the market. This is not just India’s problem. Other countries are also taking steps to put rules in place for digital lending. In 2017, China’s regulators had to impose restrictions after a scandal arose of personal pictures being used to humiliate borrowers into repaying loans they could not afford to. In Kenya, its central bank has clamped down hard on predatory rates and recovery practices. India is in need of a policy solution that would neither kill this nascent market—which fulfils a very real need for quick and painless loans to tide people over for short periods—nor deaden the buzz of innovation in the country’s fintech sector, but is able to institute personal data and privacy protections that prevent predatory recovery practices.

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Loans (and more) that ride on your digital exhaust

Have you tried firing your koora wali (garbage collector)? Or move to another presswalla (guy who irons clothes in the neighbourhood) in the same locality? Most Indian cities (may not be true of the relatively new gated bubbles of Indian suburbia) have a system where there is an informal ‘right’ of a person or a family to a certain set of houses for some informal services. And usually, it is not so easy to replace them, because they ‘own’ the right to service it. In a way it is their ‘asset’.

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