Indonesian Model Can Help India Fight Chinese Loan Sharks
Today, China is not just encroaching on India’s territory but also profoundly integrating into its economy. Indian investors were lured to the Fintech India Expo in 2019 by Chinese software developers. The Indian government is waging a full-scale campaign against apps offering loans out at exorbitant rates to vulnerable and tech-illiterate individuals.
Also, these illegal apps involve blackmail and criminal intimidation to recoup loans. Further, money laundering and tax evasion are possible. RBI and probe agencies have imposed strict restrictions on loan app entities and payment gateways.
Apps that require personal information must be downloaded to function. Aadhaar Card, PAN Card, and live photograph uploading become mandatory once access to the apps is granted. In addition, a Time Password (OTP) is generated for customers. After uploading the information to servers in China and other parts of the world, the data is stored on those servers.
These operators’ illegal call centres give unauthorized access to such personal data. They threaten their friends, relatives, and colleagues by calling victims (or customers) to extort money. Moreover, they are taught how to morph images. These apps access the victim’s bank account using their customer’s OTP.
AWS and Ali Baba Servers, both American companies, are hosting these apps, which aren’t compliant with Indian rules. In various police stations across India, criminal cases have been filed under Sections 384 (extortion), 420 (cheating), 120B (conspiracy), and 465 (forgery) of the Indian Penal Code.
Unlawful Lending And Defunct NBFCS
The RBI must regulate NBFCs and banks as lending companies. The RBI’s June 2020 order requires banks and NBFCs with such businesses to publish complete details on their websites. The customers must sign a consent letter explaining how much interest they will pay.
A set of new guidelines was issued by the RBI on August 10, 2022, on how loans should be disbursed and repaid only between the borrower’s bank account and the lending service provider’s. However, defunct NBFCs with meagre capital have been doing business with Chinese entities. A year after registering PC Financial Services (PCFS) as a business, the RBI revoked its Certificate of Registration.
MCA searches were followed by various investigations by the Serious Frauds Investigation Office (SFIO). One person was arrested, allegedly involved in setting up shell companies with Chinese connections and putting fake directors on their boards.
RBI Warning And New Guidelines
In 2021, an RBI working group identified 600 illegal lending apps. Additionally, Google India claimed in 2022 that it had removed over 2,000 personal loan apps from its Play Store. A third party cannot be involved in the transaction between a borrower and RE as per the RBI’s August guidelines.
However, customers who apply for new loans will be eligible for the reduced interest rate. According to the RBI clarification, it shall enable a smooth transition by providing REs with time until November 30, 2022.
Deputy Governor of RBI states that regulatory guidelines have a direct bearing on regulated entities and that they must ensure that their outsourcing partners, such as loan service facilitators and digital lending apps, can work within the regulatory ecosystem in a spirit as well as a letter.
Millions of innocent people will be saved from unregistered, unregulated, and illegal loan sharks. International criminals will not be given access to Indian payment systems due to the RBI decision, argues the chairman of the Payments Council of India.
FDI, Money Laundering, Crypto, And Chinese Connection
According to a working group of RBI, the number of instant loans increased by 12 times between 2017 and 2020. A notice was issued against the Chinese kingpin after an investigation was conducted by the Maharashtra Police Cyber Cell in the past two years.
Over 3,000 crore worth of cryptocurrency has been routed to China through these apps, as discovered by the Delhi Police in its latest operations. Similarly, the Enforcement Directorate found that loan apps used cryptocurrency exchanges to transfer illicit proceeds.
The ED searched Razorpay and Paytm for money laundering activities. ED claims that the entities forged Indian passports and made Indians dummy directors to avoid regulation. Extorted money has been converted into cryptocurrency, fictitious bank accounts have been set up, and multiple SIM cards have been purchased.
Unions have shifted their call centres to Pakistan, Nepal, and Bangladesh due to the ED crackdown, Income Tax, and police raids.
How To Crack This Menace?
One lakh apps had been downloaded in Odisha alone. The RBI has stated that digital loan apps linked to China and backed by Chinese entities lending unscrupulous loans are against its rules. Finance Minister Nirmala Sitharaman announced last month that the government would take action against dubious digital loan apps.
The minister said that the majority of dubious apps originated from one country. To ensure that only loan apps on the RBI safelist are available for download, MEITY is working with the RBI and service providers like Google Play and Apple App Store.
Various technological advances, such as AI, blockchain, quantum computing, big data, analytics, and 5G, have brought numerous economic benefits. Financial institutions, however, must also deal with significant challenges in the future.
‘There were government-certified apps in countries like Indonesia, so the loan apps issue could be easily fixed, according to Google Asia-Pacific’s Senior Director and head of Trust & Safety.’
According to Cashless Consumer, only 90 apps in the Google Play Store have revealed their addresses out of 1,050 available. Out of 750 apps, only 300 provided links to websites, but the connections were fake. This loan app phenomenon can be slowed down using the Indonesian model. Now, the government must prepare its enforcement agencies for the future.
Edited by Prakriti Arora