Indonesian model can help India fight Chinese loan sharks
Today, China is not only encroaching on Indian territory but also integrating deeply into its economy. Indian investors were lured to the Fintech India Expo in 2019 by Chinese software developers. The Indian government is waging a large-scale campaign against apps offering loans at exorbitant rates to vulnerable and tech-illiterate people.
Moreover, these illegal applications involve blackmail and criminal intimidation to recover the loans. In addition, money laundering and tax evasion are possible. RBI and polling agencies have imposed strict restrictions on loan application entities and payment gateways.
Apps that require personal information must be downloaded to work. Aadhaar card, PAN card and live photo upload become mandatory once access to apps is granted. In addition, an hourly 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 these servers.
The illegal call centers of these operators give unauthorized access to this personal data. They threaten their friends, relatives and colleagues by calling victims (or clients) to extort money from them. In addition, they are taught to transform images. These apps access the victim’s bank account using their client’s OTP.
AWS and Ali Baba Servers, two American companies, host these applications, which do not comply with Indian rules. In various police stations across India, criminal cases have been filed under sections 384 (extortion), 420 (cheating), 120B (conspiracy) and 465 (false) of the Indian Penal Code.
Illegal Loans and Defunct NBFCS
The RBI must regulate NBFCs and banks as lending companies. The June 2020 RBI order requires banks and NBFCs with such businesses to publish full details on their websites. Customers must sign a consent letter explaining the amount of 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 bank account of the borrower and that of the lending service provider. However, former NBFCs with meager capital have done business with Chinese entities. A year after registering PC Financial Services (PCFS) as a company, the RBI revoked its certificate of registration.
The MCA searches were followed by various investigations by the Serious Fraud Investigation Bureau (SFIO). A person has been arrested allegedly involved in setting up front companies with Chinese connections and putting fake directors on their boards.
RBI warning and new guidelines
In 2021, an RBI task force identified 600 illegal loan applications. Additionally, Google India claimed in 2022 that it 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 under the August RBI guidelines.
However, customers applying for new loans will be eligible for the reduced interest rate. According to the RBI clarification, this is to allow for a smooth transition by allowing REs time until November 30, 2022.
RBI Deputy Governor says regulatory guidelines directly impact regulated entities and need to ensure that their outsourcing partners, such as lending service facilitators and digital lending apps, can work within the regulatory ecosystem in spirit as well as in letter.
Millions of innocent people will be saved from unregistered, unregulated and illegal loan sharks. International criminals will not be able to access Indian payment systems due to the RBI’s decision, argues the President of the Payments Council of India.
IDE, money laundering, crypto and Chinese connection
According to an RBI task force, the number of instant loans increased 12 times between 2017 and 2020. A notice was issued against the Chinese kingpin after an investigation was carried out by Maharashtra Police Cyber Cell over the course of of the past two years.
More than 3,000 crore of cryptocurrency has been funneled into China through these apps, as discovered by Delhi police during their latest operations. Similarly, the Enforcement Branch found that lending apps were using cryptocurrency exchanges to transfer illicit proceeds.
ED searched Razorpay and Payment for money laundering activities. ED claims the entities falsified Indian passports and appointed dummy Indian administrators to avoid regulation. The extorted money was converted into cryptocurrency, fictitious bank accounts were created and several SIM cards were purchased.
Unions have moved their call centers to Pakistan, Nepal and Bangladesh due to a crackdown by emergency services, income tax and police raids.
How to crack this threat?
A lakh of apps had been downloaded in Odisha alone. The RBI has said China-linked digital lending apps backed by unscrupulous Chinese lending entities are against its rules. Finance Minister Nirmala Sitharaman announced last month that the government would take action against dodgy digital loan apps.
The minister said the majority of dubious apps came from a single country. To ensure that only loan apps on the RBI safelist are available for download, MEITY works with RBI and service providers such as Google Play and Apple App Store.
Various technological advancements, such as AI, blockchain, quantum computing, big data, analytics, and 5G, have brought many economic benefits. However, financial institutions will also face significant challenges in the future.
“There were government-certified apps in countries like Indonesia, so the problem of lending apps could be easily solved, says Google Asia-Pacific Senior Director and Head of Trust and Safety .”
According to Cashless Consumer, only 90 applications from the Google Play Store 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 application phenomenon can be slowed down by using the Indonesian model. Now the government must prepare its implementing agencies for the future.
Edited by Prakriti Arora
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