At the time of looking for a loan, while the cash need may be immediate & urgent, borrowers should spend a few minutes trying to figure out if the app that promises immediate cash is a registered lender or if they are unauthorized company doing illegal business. The RBI has cautioned borrowers against taking loans from unauthorized digital lending apps as it exposes the borrowers to illegal collection mechanisms.
It is important that the borrowers exercise vigilance and caution before opting to borrow money from questionable sources.
What does this mean for a borrower?
Before Downloading the App – Know Your Lender
Lenders perform a KYC – Know Your Customer – on every application they receive. It is imperative that borrowers Know their Lender before applying for a loan. A quick search on google play store reveals tens of apps that promise funds the same day, within 5 minutes, or even, instantly. While innovation in lending practices has enabled that to a certain extent, it is prudent to understand if the app/service is from a legitimate company.
Things to Do as soon as you are on the Playstore page of any app
# When in the page of the app in the Playstore or Appstore, review the Developer Section of the App’s Playstore Page. Most of the illegal Chinese lending apps don’t even list their website. This is a big red flag. If a company doesn’t have a website, do not download the app.
# If the Website is listed, visit the website and make sure the Company that owns the app is a legitimate lender registered with the RBI or works with a bank or NBFC registered with RBI. All legal lending companies are required to clearly show the same along with their Company Identification Number (CIN) and details of the Certificate of Registration (CoR) with RBI.
# If the app company is not an NBFC or bank itself but working with an RBI registered NBFC, it is important go to the NBFC’s website to make sure the app is an authorized partner of the NBFC before downloading the app.
# The legal lending apps from the RBI-registered NBFCs also list a Grievance Redressal Mechanism and are required to adhere to various regulatory guidelines on KYC and Collection Practices which are designed to protect the Customers.
# Read the reviews on the playstore or app store app page to understand the cause of worries of some of the existing borrowers.
# Never download the app from the lenders’ website and only download from the app store.
Companies that are registered with the RBI are required to follow regulatory guidelines not just to abide by the rules but also because it is the best way to run the business. These lenders usually follow a strict set of guidelines, a code of conduct, in working with borrowers and ensuring the best possible experience for everyone.
While installing the app
One important detail that needs to be taken note of, is the data being requested from you while installing the app. Many of the digital lenders, app-based or online, depend on alternate sources of data to determine the creditworthiness of a borrower. This might help in better understanding of the borrowers’ needs and cater to those needs in a more customized manner. This could be in the form of preferential pay dates, higher credit limits, or even flexible interest rates.
However, such usage of data opens the doors for bad actors to misuse the data as well. Case in point – Contact Data collected on mobile apps. While in a hurry to get cash instantly, borrowers might end up providing access to sensitive data letting fraudulent lenders collect contact information of your family members, friends, or colleagues. In the unfortunate and mostly unintended event of missing a payment, a fraudulent lender might start harassing not just the borrower but also the borrowers’ family, friends, and other contacts whose information is now available to misuse.
Do not provide access to any data you might feel is unnecessary and out of bounds. The app listing pages show which data points are being requested by the app so you can avoid downloading or installing apps that might be asking for a suspicious amount of data without a declared purpose.
A best practice will be to read the Privacy Policy as every app is required to publish one on their Google Play Store as well as one on their website.
Once approved for a loan
Applying for a loan is a straightforward process. In most cases, the application process is streamlined to provide an approval or a decline as soon as possible.
Once you receive an approval on your loan application, be sure to read the terms and conditions of your loan. While lenders might follow up once in a while to request you to borrow money on the approved loan offer, the decision to accept or reject the loan offer still lies with you. Read the Most Important Terms and Conditions (MITC), understand the repayment terms, and the cost of accessing this loan.
At any point, if there is a discomfort in the process which might seem to pose a challenge to you, do not feel any obligation to continue in the process. It is always better to drop off and choose a different lender.
Once a loan is availed it is the borrowers’ responsibility to make timely payments and if one is ever unable to meet their repayment obligations, it would be best to proactively reach out to the lender and explain the difficulties.
There are lots of quality lenders who are registered with the RBI in improving access to credit to the new digital India. However, the presence of illegal lending apps, especially ones that might be linked to China, threaten the digital revolution in lending. So both the lenders and borrowers have a responsibility to stay vigilant and follow the best practices in lending and borrowing.
(By Anil Pinapala, Founder & CEO, Vivifi India)
