And for a Friday, as RBI steps in to curb malpractices in the debt markets and rein in Fintech companies, some thoughts….. some musings…..
In Bharat, money lenders, pawn brokers and loan sharks have always thrived across the country for centuries. In rural India, particularly in the drought affected single crop rain fed areas, farmer suicides due to inability to pay back loans are a sad but common occurrence. Ofcourse, the easiest and most popular avenue is raising quick gold loans from organised and unorganised pawn brokers. In most mandis and hamlets, small time vendors, fisherfolk, hawkers and others in this category, take day loans from “Money-Sharks”. You take 90 or 900 rupees in the morning and by night you have to return 100 / 1000. That’s a staggering 10% interest for a day. Invariably the poor are into the debt trap forever.
In Digital India, as different from Bharat, a silent but huge loan and financing revolution has taken place. There are more than 2000 Fintech companies offering very quick digitalised loans based on Aadhar and KYC data to meet working capital, business loans, project loans, home modernisation, white goods, cars etc. etc. As per RBI, overall volume of digital lending has increased from 11,671 crores in 2017 to 1,41,821 crores in 2020. Some of these unscrupulous Fintech companies charge exorbitant interest rates using third parties, mis-selling, breach of data privacy, unfair business conduct and unethical recovery practices. Thankfully RBI has stepped in and on Wednesday unveiled a regulatory framework to make digital lending safe for the public. They have set up a lending ecosystem comprising of RBI Regulated Entities (REs) and Lending Service Providers ( LSPs), introduction of key fact statements, a mandated annual percentage rates (APRs), prohibition of automatic enhancement of credit limits and giving opportunities to exit digital loans etc. etc. It’s a huge relief and will help stabilise and accelerate the orderly growth of good Fintech companies and stop exploitation of the helpless borrowers.
Only in diverse Incredible India can you find the traditional loan shark and the modern Fintech coexisting peacefully. But let’s all be vigilant, the tech-savvy way, the ethical way, the SEEGOS way.