Chinese digital loan apps were utilising the loophole in the regulatory guidelines to dupe Indian clients. As fintech companies were unlikely to get fresh non-banking financial companies (NBFC) license from RBI to offer loans, they devised the Memorandum of Understanding (MoU) route with the already defunct Indian NBFCs to indulge in large-scale lending activities.
Investigating agencies found that various fintech companies in collusion with NBFC had thus indulged in predatory lending, by-passing the regulatory system. These fintech companies had been providing instant personal loans for terms ranging from seven to 30 days.
Digital lending platforms, mainly Chinese apps mushroomed during the Covid-19 pandemic, offering quick loans targeting rural population and unemployed youths, who suffered most. They were accused of charging usurious interest rates, employing high-handed collection strategies and even operating illegally. Decisions on fixing interest rates and platform fees, etc. were taken by the fintech companies under the instructions from their handlers in China and Hong Kong who profited and amassed large amount of funds.
Scores of Chinese-owned micro-lending apps started operating in India under very shady terms. They are attracting customers mostly who are under duress. The modus operandi started with the simple advertisement for downloading online loan app in social media targeting customers who wished to avail 'hassle-free loans in minutes'.
Once the app was downloaded, it would seek permissions to access the victims' contacts which were later utilised to all sorts of blackmail by the company. The borrowers were charged exorbitant processing fees and interest rates, pushing many lower-middle-class people into the debt trap and forcing them to even commit suicide. The Chinese racket threatened the victims, abused and even blackmailed to recover their loans.
"Through these apps, fraudsters target the low income groups or the not-so savvy financial people, wherein smaller amount of money is lent. The modus operandi usually involves deduction of processing fees from the loan, combined with penalties, and at significantly higher rates of interest in cases of delay in payments," says KV Karthik, Deloitte India, a consulting firm. Chinese apps make use of grey areas of legislation.
There were many Chinese digital instant-loan apps like Timely Cash, Y Cash, Momo, CashBus, Fast Rupee, Robo Cash, Cash Mama, Kissht, and Loan Time, etc. offering easy loans to Indians. They were successful in reaching more than a million borrowers.
To protect customer's interests further, the RBI guidelines stated that all fees and charges payable to the loan service provider must be paid by the lender and not by the borrower. Banks and non-banks will also be responsible for the privacy and security of customer data, virtually plugging the loophole in the regulatory guidelines.
It also stipulated that there should be no allowance for increasing credit limits automatically. The RBI said cost of digital loans must be disclosed upfront to the borrower. The Central Bank also submitted a list of recommendations to the government, including enacting a law to ban unregulated lending activities, among others.
Earlier, the Enforcement Directorate (ED), the Indian enforcement agency, had written to the RBI seeking cancellation of licenses of NBFCs linked to Chinese loan apps in digital lending. It had taken up multiple FIRs registered in India and booked cases againstmore than 400 mobile apps and 50 NBFCs under Prevention of Money Laundering Act (PMLA).
It is mandatory to store all data with regard to fintech companies in India. However, TV Mohandas Pai, Chairman, Aarin Capital Partners earlier pointed out that, "in major Chinese companies, the Communist Party has taken position and moved out the founders". He further stated that, "There is a total government control and takeover and that means the way the data resides, what they do, how they do, is a part of espionage, is it part of something that we will never know".
In April, the RBI's working group found 600 illegal lending apps. Observers pointed out that the undetected cases could be even more which mushroomed during the pandemic crisis period. There are evidences that these are regionally well-coordinated, and linked to other nodes of illicit Chinese activities. With rising instances of digital fraud, the central bank is now taking a relook at the �know your customer' (KYC) norms to identify inadequacies and fill the gaps.
Chinese scammers often known for hooking the unemployed youth and financially stressed lower strata of the society, who become easy prey for criminal syndicates and gangs. They are running scam operations illegally in many countries. Several such cases have been detected and such illegal activities have increased over a period of time across all of China's neighbouring countries like Cambodia, Vietnam, etc.
In a recent crackdown, triggered by a series of mid-day reports, the Nepal police in Kathmandu hadraided illegal call-centres and arrested 190 people, including five Chinese nationals and two Indians for extracting money from Indian borrowers throughinstant loan apps.
Nepal intelligence agencies have raised serious concerns over the use of Nepalese by Chinese nationals to execute cybercrimes targeting Indians. Illegal call centres were set up in Kathmandu and other areas by Chinese people, luring locals with handsome pay and commissions, to do the dirty job of extorting money from Indians through abusive calls and obscene photos.
In fact, alarm bells are raised in Nepal over the growing presence of Chinese nationals and their role in illegal activities targeting India. In the past seven years, Nepal has deported over 1,500 Chinese nationals to their home country over their alleged involvement in unlawful activities. In December 2019, Nepal authorities exposed an illegal call centre linked to mobile loan applications and arrested 120 Chinese nationals.