SECP says Google agrees to ban unlicensed microlending apps

ISLAMABAD: In a major development in the country’s digital lending business, Google has agreed with Pakistan to ban all those microlending apps that are operating mostly out of the country and carry no licenses from the Securities and Exchange Commission of Pakistan (SECP).

A number of unlicensed lenders are reportedly operating in the country and advancing microloans without any collaterals. The commission received hundreds of complaints from citizens regarding such lenders’ unethical attitude, accessing their private data and then blackmailing and pressuring them to pay multi-fold high money over the principal loans.

“After negotiations with Google liaison office in Pakistan, 58 unauthorised digital lending apps were removed in January 2023,” SECP executive director Khalida Habib said on Tuesday. She was speaking at a financial reporting workshop on non-banking microfinance (NBMF) sector, in light of new regulatory requirements outlined under Circular 15.

The lenders use different applications on Google, persuading people for getting loans, mostly those poor who are out of the formal banking system. Since the apps are in no one’s control, they exploit the people. In some cases, an applicant applied for a certain amount of loan, but he/she was given much less than required, while interest was applied on the basis of the amount for which the client had applied. Some have been given loans twice and thrice, without the applicant’s consent.

After receiving the complaints, SECP approached Google for banning such apps. Recently, Google accepted the government’s requests and agreed to ban all non-licensed digital lending apps in Pakistan.

The SECP has given a cut-off date of March, 27, 2023 for those lending firms to update their apps, get licenses, and come in the whitelist of the commission. By the end-March, SECP will provide the whitelist of licensed lending firms, while others will be not allowed to operate.

Digital lending is a growing trend in the country that allows obtaining of short loans without any collateral but the sector was heavily dominated by the non-licensed entities.

Khalida Habib highlighted that a circular had been issued by the commission that explained the digital lending standards applicable on non-banking finance companies (NBFCs) undertaking lending activities through digital channels/mobile applications (apps).

She added that the lending standards had been issued by the SECP to tackle concerns involving mis-spelling, breach of data privacy, and coercive recovery practices of licensed digital lending companies.

Habib further stated that the commission had taken up the matter with all relevant regulatory authorities, including the Pakistan Telecommunication Authority, Federal Investigation Agency, National Telecommunication and Information technology Security Board, and State Bank of Pakistan, as well as with Google and Apple for removal of the unauthorised apps.

She said SECP had also held detailed sessions with Easypaisa and Jazzcash (around 83 percent of the branchless banking [BB] industry) for identifying mechanisms currently in place for early detection of misuse of those payment channels and any checks that could be introduced to prevent their misuse by illegal lending apps.

Five out of 10 NBFCs, undertaking digital lending, disbursed Rs37.4 billion to 2.318 million Nano lending business, she added.

She informed that through Circular 15, SECP had stipulated minimum mandatory disclosures for the digital lenders before loan disbursement to the borrower. They include the loan amount approved, annual percentage rates, the tenor of the loan, installments/lumpsum payment amounts with the date(s), and all fees and charges, as well as key fact statement.

To discourage non-licensed digital lenders, the licensed digital lender would be required to disclose its full corporate name and licensing status on its lending platform(s)/app(s), and ensure that any advertisement and publication would be fair and not contain misleading information, the SECP official said.

Habib apprised the session that SECP had also specified a comprehensive grievance redressal mechanism over and above the current NBFC grievance redressal framework. “Circular 15 also mandates that digital lenders will not be allowed to access borrowers’ phone books or contacts lists or photo galleries, even if the borrower has given consent in this regard.”

From January 2022 to November 2022, NBFCs undertaking digital lending disbursed 2,402,301 loans of Rs63.58 billion, to 2.4 million borrowers in 3,738,719 loans, resulting in an average loan size of Rs17,000.

SECP executive director and spokesperson Musarat Jabeen also gave a presentation elaborating on the commission's overall goals and future outlook, with respect to improving financial inclusion, market development, and ease of doing business.