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The Instant Loan App Scam: The Game of Shame and Suicides

Instant loans without any official documents might sound appealing to a mass; But what to do when the lender turns out to be a deceit? In the past months, a number of such incidents were reported in India. Suicides by the borrowers under the immense pressure and mental torture of the loan-app lenders are now unveiling the instant loan-app scam.

The Skyrocketing Popularity of Instant-Loan Apps

Before the Covid-19 Pandemic, the microfinance industry was on a boom in most of the Indian subcontinent. These micro-lending bodies were a ray of hope for borrowers who neither had enough money nor can avail of loans from the traditional banking system.

Muhammed Yunus, a social entrepreneur associated with the Grameen Bank in Bangladesh was honored with the Nobel Prize for escalating the micro-financing bodies in the country. But, the national lockdown to contain the spread of the coronavirus caused these informal financing models to crumble and shatter.

Moreover, the spike in unpaid loans left major microfinancing bodies and banks deliberating whether they should give out more loans or not during the pandemic. This scarcity of money lenders in the market gave a boom to instant-loan applications.

An estimate suggests that in 2020, over 200 new instant-loan applications were launched on the Google Play store. Finding these apps isn’t hard, just a simple Google search, pulls up hundreds of options from CashNow to RapidRupee. According to a collective that focuses on digital payment in India by researcher Srikanth Lakshmanan, there are more than 750 instant loan apps on Play Store.

How Does the Instant-Loan Applications Work?

People using instant loan applications are first lured into downloading an aggregator application by online and offline advertisements. Upon downloading, these apps ask permission for unnecessary things like contacts, photos, messages, calendars, and even battery percentages.

This app then directs the borrower to another application which collects the PAN and Aadhar card detail along with a selfie of the applicant before processing the loan.

However, though the loans are sanctioned instantaneously as promised, borrowers are given just seven to fourteen days for repayment. These applications also levy huge interest and processing charges on their borrowers.

The Debt Trap

Collection agents start sending reminders as the repayment date inches closer. Shikha Goel, the additional commissioner of Hyderabad Police involved in investigations into loan app-related suicides, says that when loans aren’t repaid, the companies typically follow a three-stage system.

People are grouped into three categories depending on how long they delay repayment. One day late repayment will result in the person being called and asked to repay the loan. If the delay is longer, the harassment becomes more severe. The family and friends of the debtor might receive a phone call or be added to a WhatsApp group criticizing them. Extortion and threats have also been reported in extreme cases.

Loan companies pull people further into debt once they’re stuck in a spiral of debt. People unable to pay the loans were often asked to download another loaning application to pay off a debt, spiraling them deeper into the debt.

The Instant-Loan App Scam: Not a New Issue

India is not the only country with predatory lending apps. Africa, notably Kenya and Nigeria, has also been targeted. In China, instant loan apps were also very popular in 2016. Following this, students turned to predatory loan apps, and many of them took their own lives after being publicly shamed. Women in Chinese cases were sometimes asked to provide nude photos as collateral.

The government took action in 2017 by prohibiting companies from offering loans at interest rates higher than 36 percent. Since there was no money to be made on these loans, many of the apps moved overseas. In 2019, Indonesia shut down more than 800 such debt-trap companies. But the loan companies simply moved on to another country, this time to India.

Batteling the Scam

Regulators in India are now taking notice of the issue, more than two years after it first emerged. On November 10, 2020, Google took down a few of these apps. The Reserve Bank of India, the country’s central bank, issued a warning a month later. A committee was formed by the Indian central bank in January to examine the regulation of this specific sector.

For predatory loan applications to be properly clamped down, experts advise that banks, technology companies, and law enforcement will have to work together.

It’s not just the number of apps that are causing problems, but also their ability to adapt quickly. A new version of an app can be quickly uploaded to Google Play Store with a new name and new logo after an app is taken down. As long as proper action isn’t taken, more people may keep getting entrenched in the filthy debt traps of these applications.