As useful and necessary it is to have an increasingly digitised lending environment, lawmakers and regulators must worry about the adverse side-effects. The recent incidents involving unsavoury tactics adopted by some digital lenders, to recover their dues, are unfortunate. Indeed, Reserve Bank of India’s (RBI) warning about the dangers of unauthorised digital lending platforms and mobile apps could not have come a day too soon. RBI has asked the public to be careful about who they are borrowing from cautioning that some lenders are operating beyond the framework of the law and could turn out to be unscrupulous.
Given how simple it is to set up a digital shop, it is not surprising there are so many apps. It is also not surprising that small businessmen and individuals become soft targets because they are simply unable to make the cut for a loan from either a bank or an NBFC. But one can’t really blame the borrowers, who genuinely need the money to either fund their businesses or for a personal emergency, for approaching them. In all these decades, the Indian banking system has not evolved and developed enough to cater to the needs of most borrowers; loan requirements today clearly outstrip the amount of credit being disbursed by a wide margin. That is despite the fact that we have, over the past decade, seen several new banks and NBFCs, as also new forms of intermediaries—MFIs, small finance banks—come up.
To be sure, one cannot expect banks or other lenders to lend without adequate due diligence; after all, they are the custodians of public savings and must assess the risks they are taking. But, it is a fact that we have not been able to develop a credit ecosystem to cater to the needs of most borrowers, especially at a time when crores have been lent to the corporate sector often recklessly and without proper due diligence. In fact, had it not been for the Jan Dhan Yojana, a large share of the population would not have had a savings account. And, had it not been for the efforts of the MFIs, much of the rural population would not have been able to start small enterprises like they have; households in these hamlets would still be at the mercy of moneylenders. In many ways, a few of the digi-lenders are the moneylenders, they are equally usurious, and probably, ruthless. One could argue they are fulfilling a need—as per a contract mutually agreed between two parties—and therefore, more useful than a bank that decides not to take any risks at all but park its deposits with the government. However, they must operate within the ambit of the law, we cannot have illegal entities doing business. Rather than using coercive measures to recover their loans, they need to do a better risk assessment. For their part, as RBI has said, borrowers need to be watchful about taking loans. Digi-lenders might write out a cheque without asking too many questions, but they will go to any lengths to retrieve their outstandings. There is no free lunch.