SECP Advises Google to Ban Unauthorized Digital Lending Apps in Pakistan
The Securities and Exchange Commission of Pakistan (SECP) has advised Google to remove all unauthorized and illegal digital lending apps from its platform, following numerous complaints received by the commission in January 2023. In response, Google has agreed to act on the SECP guidelines and will be banning the identified lending apps soon.
The SECP made the announcement during a workshop on the Non-Banking Financial Companies (NBFC) sector, where new regulatory requirements were discussed under Circular 15. Executive Director SECP Khalida Habib revealed that the commission had consulted with local regulators, including PTA, FIA, NTISB, and SBP, as well as Google and Apple, for the removal of unauthorized apps. In January 2023, 58 unauthorized digital lending apps were reported to Google for removal.
The commission has received hundreds of complaints from citizens regarding unlicensed lenders who operate in the country and advance microloans without any collateral. These lenders often access private data and then blackmail and pressure borrowers to pay back multi-fold amounts over the principal loans.
The fake lenders use various applications on Google, persuading people to get loans, mostly those who are outside the formal banking system. Since the apps are not under anyone's control, they exploit people.
The SECP has also held detailed sessions with Easypaisa and Jazzcash (which account for around 83% of the BB industry) to identify mechanisms currently in place for early detection of misuse of these payment channels and any checks that can be introduced to prevent their misuse by illegal lending apps.
ED SECP Khalida Habib said that the Non-Banking Financial Companies (NBFCs) disbursed Rs 63.589 billion to 2.4 million borrowers in 3.7 million loans, resulting in an average loan size of Rs 17,000. Five out of 10 NBFCs, undertaking digital lending, disbursed Rs 37.4 billion in 2.318 million nano loans.
The SECP has stipulated minimum mandatory disclosures for digital lenders before loan disbursement to the borrower through Circular 15. These include the loan amount approved, annual percentage rates, the tenor of the loan, installments/lump sum payment amounts with the date(s), and all fees and charges, as well as a Key Fact Statement (KFS).
The SECP has also issued lending standards to tackle concerns involving breaches of data privacy and coercive recovery practices of licensed digital lending companies. The licensed digital lender is required to disclose its full corporate name and licensing status on its lending platform(s)/App(s) and ensure that any advertisement and publication is fair and does not contain misleading information. Additionally, the SECP has specified a comprehensive grievance redressal mechanism over and above the current NBFC grievance redressal framework.
The SECP made prior approval mandatory to launch a Digital Lending App after seeking a compliance certificate from PTA's approved Cyber Security Audit Firm (CSAF) under Circular 15 for consumer protection. From January to November 2022, the NBFCs disbursed loans worth Rs63.58 billion, and the authorities expect the number to double in 2023.
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