uhammad Masood, a 42-year-old father of two from Rawalpindi, tragically ended his life allegedly due to the relentless harassment and threats by digital lending apps. After he lost his employment, Masood turned to ‘easy loan’ and borrowed Rs 13,000 to cover essential expenses. However, due to the exploitative interest rates, the loan swiftly grew to a staggering Rs 700,000. Already burdened by debt, Masood was coerced into taking another loan from the Bharosa application, which worsened his financial distress. The apps persistently increased the interest rates, putting immense pressure on Masood and his family. Daily calls from application officials threatening legal action only added to their anguish. Finally, Masood’s despair reached a tipping point, leading him to end his life.

Following the tragic suicide, a wave of outrage has swept across Pakistan, initiating significant changes in the country’s financial landscape. Calls for an immediate ban on all online loan apps emerged, citing their exploitative practices and lack of regulatory oversight. Responding to this outcry, the Securities and Exchange Commission of Pakistan has started amending the rules for online loan apps to protect borrowers. These amendments include prohibiting the deduction of processing fee from loan installments, banning the creation of multiple apps by digital companies; and requiring IT security audits.

The federal government has also initiated a crackdown on illegal loan providers, which has resulted in 43 loan apps being blocked. The IT and telecommunication minister highlighted the severity of the issue, pointing to the involvement of ‘mafias’ operating through social media platforms. In addition, a comprehensive public awareness campaign has been launched to educate the public about the risks associated with these loan apps and to encourage the reporting of suspicious activities.

The convenience of instant cash and easy access to loans has led to the rise of online lending platforms, often known as loan sharking apps. However, these platforms are fraught with exploitative repayment terms and data privacy risks. They enforce strict repayment schedules, often within 7-30 days, and charge exorbitant late fee, trapping vulnerable borrowers in a cycle of debt. The borrowers are encouraged to take new loans immediately after repaying their previous ones.

These apps also pose significant data privacy and security risks. They require extensive personal information, including ID card details; phone contacts; and access to users’ social media profiles. While they claim to use this information to assess credit worthiness, some of them also use it for harassing and blackmailing users by threatening to expose their debts to their contacts.

Despite the well-known issues with loan sharking apps, they remain some of the most downloaded apps in Pakistan. The appeal of these apps penetrates the core of Pakistan, a nation marked by years of incompetence and instability. The recent political turbulence has further eroded the already fragile foundation, leading to a sharp increase in poverty, unemployment, hyperinflation and a steep rise in the cost of basic necessities.

Extract: The public needs to be informed about the exploitative interest rates, hidden fees and data privacy risks associated with these apps. Regulators need to enforce licensing requirements and implement stricter oversight of lending practices.

The devastation of rural poverty has intensified urbanisation, breaking down family bonds. This leaves individuals isolated in urban underbellies, captive to a crumbling economy. These people, now alienated and considered “unbankable”, have no access to the sanctuary of conventional banking credit. The appeal of loan sharking apps to such individuals is almost irresistible. It offers the false promise of an escape from one’s financial woes.

Imagine a young man barely out of his teens: his life a blank canvas, lacking formal education and skills. He is unemployed, bearing the brunt of ridicule from his own family on a daily basis. He is urged by an equally ill-informed friend, that instant cash – a few thousand rupees – is the route to prosperity. Loan sharks present a beacon of false hope to him. The mirage of quick funds to kick-start a business holds the promise of elusive prosperity.

There is also significant social pressure, particularly when it comes to ceremonial obligations. The societal need to spend conspicuously at a family member’s wedding is a burden that economic caution cannot outweigh. It is a struggle between personal pride and survival, where often the former wins, deepening the descent into the clutches of loan sharks.

There is a pressing need for increased consumer awareness and stricter regulatory oversight. The public needs to be informed about the exploitative interest rates, hidden fee and potential data privacy risks associated with these loan apps. Regulators need to enforce licensing requirements, implement stricter oversight of lending practices and take action against platforms that violate consumer protection and data privacy laws. The exploitative practices of these platforms, including high interest rates, aggressive loan recovery tactics, lack of transparency, and predatory lending practices, underscore the need for stronger regulation and oversight in this industry.

While increased consumer awareness and stricter regulatory oversight are necessary steps in addressing the predatory practices of loan sharking apps, these are only temporary solutions to a deeper issue. The appeal of these apps is a symptom of a larger disease that has always plagued Pakistan – a debilitating institutional structure; a state of perpetual conflict; and a political elite that lacks vision and a moral compass. The country’s continuous state of war, both with its neighbours and within, is fuelled by borrowed money, reflecting the desperate cycle of debt faced by its citizens. The solution must go beyond simply regulating exploitative apps. It requires a fundamental shift in national priorities – from jettisoning a security state mindset to investing in human capital; from perpetuating inequality to ensuring equity and equality. This demands strengthening family ties at that local level, and a complete renunciation of anachronistic national priorities. Only then can the cycle of desperation and debt be broken.

The writer is an associate professor in the Department of Economics at COMSATS University Islamabad, Lahore Campus