News Analysis: No check on rogue loan apps preying on the poor

Over the last twelve to eighteen months, there has been a surge in digital loan sharks in Pakistan that use technology to increase their outreach and destroy lives and families in the process. Loan sharks have existed for thousands of years, but only recently have they leveraged technology to wreak havoc.

Digital loan sharks advertise heavily on social media and other platforms on the internet, targeting the most vulnerable segments of society. Through misrepresentation, they are able to charge markup rates that run. into thousands of percent The banking and securities regulators -- SBP and SECP -- have largely failed to control the menace. Even though the SECP has still tried to regulate things, the SBP has finally washed hands off any responsibility, and one cannot find any serious effort that may have been put into action to address this grave issue.The recent suicide in Rawalpindi by a man who couldn’t pay off the loan he took from an online loan app is one of thousands of stories where common people have been fleeced by these digital loan sharks. They promise to provide loans instantaneously while misrepresenting the mark-up that will be charged.

In a few days, the amount of loan taken is increased multifold, and the borrower is pressurized into settling the same. These loan sharks harass and intimidate common people into settling loans that were misrepresented in the first place. Some loan sharks also start contacting different people in the contact list of borrowers, threatening and intimidating them as well -- thus perpetuating a cycle of intimidation.

As most of this activity happens in an unregulated environment, the SBP and SECP can’t do much other than issue circulars or regulations with no teeth or material impact. At this point, when harassment and intimidation become a norm, this becomes a criminal issue, and there is where the cyber crime unit of the FIA, or other law-enforcement agencies need to take stern action.All transactions are conducted by the digital loan sharks through banking channels, while they aadvertise on the internet. It is fairly straightforward to identify and shut down such ventures through a mix of enforceability via banking accounts, and by the way of banning certain digital loan applications through the Pakistan Telecommunication Authority, or even through various app stores.

The inability of relevant agencies and regulators to take action against these outfits speaks volumes regarding the lack of will to serve and protect this country’s people. A deteriorating economic environment that has reduced real incomes and squeezed budgets is pushing people towards such loan sharks. These entities harass and intimidate without any fear of consequence, compounding financial and emotional trauma in the process. An inability to address this issue can lead to more unfortunate events that may lead to more suicides, just because relevant regulators and agencies failed to do their job. The state needs to step up and eradicate this menace. And it cannot do this by just through passing regulations, and issuing circulars that cannot be enforced. Digital loan sharks are increasing in number and are often run by the same outfits with different brands and messaging. Crackdowns against such entities have also happened in Kenya, Nigeria, and India , among other emerging markets. Any further delays may just end up costing more precious lives.