Of the many industry breakthroughs we made during the pandemic in 2020, one of the most prolific growths has been in the shady instant lending industry. It’s easy to see why.
To understand why the demand for quick and easy instant loans has peaked, we need to understand the term Liquidity.
Lockdown and lack of liquidity
Liquidity is the ease with which an asset, or security, can be converted into cash without affecting its market price. In simpler terms, it describes the degree to which an asset can be bought or sold in the market at a price that reflects its intrinsic value.
Cash is therefore considered to be the most liquid asset because it can be easily converted into other assets. And money was not in abundance as people lost their jobs, businesses large and small lost their customers and economic production almost came to a halt.
The case of Pravin Kalaiselvan & Cashbeans
Pravin Kalaiselvan as HEY reports, is the owner of a travel agency who borrowed $ 15,000 from one of these loan applications, namely Cashbean, to pay for his mother’s sudden illness. Pravin made the fatal mistake of forgetting to pay on time, however, and the company’s recovery team was quick to harvest the phone contacts and start harassing them.
How Rupee Bazaar killed young Aravind
Now, Pravin is not an isolated incident and certainly not the most impactful either. In a rather tragic turn of events, Sai Aravind, 23, an IT professional from Chennai who took out a loan from money lending app Rupee Bazaar was unable to repay the amount in time. outsourced, was subjected to a planned and large-scale cyberbullying campaign. through the Rupee Bazaar money lending application to which Aravind has provided access to telephone contacts as part of the registration process.
However, in these difficult times, Aravind was unable to refund the money and the company’s recovery agents began to use more nefarious means such as calling random numbers from their contact list, harassing them, creating several WhatsApp groups entitled “Aravind is a fraud” going so far as to put his photos there as well.
Sadly, Aravind was discovered hanged in his bedroom soon after by his father.
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Vicious circles don’t stop
People have lost their lives, their jobs, sometimes even their savings on a loan amount as small as 5,000, as a 26-year-old private employee discovered when he took out an instant loan in the aforementioned amount. suffered the same targeted harassment with the telephone contacts harvested resorted to a loan of 10,000 from another application of this type. Caught in this loop, he accumulated a debt of ₹ 2.5 Lakh. However, when the harassment campaign reached the director of his company, he also lost his job.
Let’s question their legality-
So, we’ve seen three examples of how these digital lending platforms behave less like civilized societies and more like barbaric mafia loan sharking operations. The reason is that they are indeed. These lending platforms mainly operate outside the jurisdiction of regulators.
The legality of these institutions is contested because an organization cannot claim to be a legal money lending platform unless it falls under the jurisdiction of a bank or an NBFC which are of course bound to a much higher level of responsibility.
The Code of Fair Practices and the RBI Booth
The RBI has indeed taken steps to ease the situation, having introduced the RBI Fair Code of Practice on which banks and NBFCs have the latitude and freedom to grow as long as it does not destroy the spirit of the directive. The document contains two very important considerations in the document, which reads-
1- Lenders must refrain from interfering in the affairs of borrowers, except as provided in the terms and conditions of the loan sanction documents.
2- In matters of loan recovery, lenders should not resort to undue harassment, viz. persistent inconvenience of borrowers at irregular hours, use of muscle strength for loan collection, etc.
In theory, these provisions should improve the situation. However, like many laws that look perfect on paper but are difficult to enforce, this also falls on deaf ears. RBI has not taken a tough stance on eradicating the harmful business practices of these organizations. Instead, they relied on awareness programs that recently published this press release
“Members of the public are hereby cautioned not to fall prey to such unscrupulous activity and to check the background of the company offering loans online or through mobile apps. Additionally, consumers should never share copies of KYC documents with unidentified persons, unverified / unauthorized apps and should report such apps / bank account information associated with the apps to relevant law enforcement agencies.
Good, evil and ignorance
RBI must understand, however, that such campaigns will be ignored by those in urgent need of cash and amid the massive SEO efforts undertaken by these digital lending platforms, RBI’s advice will be lost in a cacophony. advertising campaigns.
The government and its enforcement agencies have a responsibility to crack down on these extortionist unlicensed digital lending platforms. The first steps have already been taken since the regulator has announced the establishment of a working group on digital credit to introduce specific regulatory measures in the field of digital instant credit.
Stay smart, stay safe
You, our esteemed reader, must remember the long-term impact of any decision you make today. I have time and time again been cautious in saying that financial stress is one of the most disturbing. So, don’t fall into the traps of these shoddy instant loan applications. It’s not worth it and will definitely end up doing you more harm than good.