ISLAMABAD: As nano-loan fintech gains popularity among the country’s unbanked population, several unlicensed companies have entered the fray and authorities are unable to stop them.
Out of the eight Non-Banking Financial Companies (NBFCs) in the country, only two are active in the instant digital lending business, offering up to Rs 25,000 in loans within half an hour to customers.
SeedCred (Barwaqt) and Sarmaya Microfinance (EasyLoan) are the only two approved entities to offer nanoloans.
Nano-credit refers to small loans as low as Rs. 50 that the poorest of the poor can obtain for days or weeks through their phones. Artificial intelligence determines their creditworthiness and the loan provider disburses the sanctioned amount to the borrower’s account within minutes without any human intervention.
Less than a year after introduction, the business volumes of these digital lending platforms surpassed Rs 10 billion in the fiscal year 2021-22.
SECP calls meeting with nano lenders on Tuesday amid barrage of criticism
At the same time, many unlicensed and illegal nano-lenders have been popping up on social media without any approval from the Securities and Commission of Pakistan (SECP).
Some popular names on social media include AiCash, OliveCash, FlexiMoney, etc.
A senior SECP official said that several complaints had been received against many such fintech companies, but since these platforms were not registered, the matter had to be taken to the Federal Investigation Agency ( FIA) because it was illegal to conduct financial activities without registration.
Further, the Pakistan Telecommunications Authority (PTA) should also take action against such instant digital lending platforms promoting their services through social media, the official said.
Responding to a question, the SECP spokesperson said that the regulator “has regularly issued the message that engaging with such illegal platforms is very risky and may result in financial loss for borrowers instead of improving access to finance”.
SECP, meeting point for nano-lenders
In addition to these unregistered companies, there are also concerns among the general public and financial analysts on social media that fintech nano-loan firms are charging exorbitant interest rates and have even blamed the regulator for not keeping markup rates at a reasonable level.
Based on these criticisms, the SECP called a meeting with these nano-lenders on Tuesday, and it is expected that after reviewing the number and nature of the complaints, the regulator will issue guidelines for an improved complaints mechanism. .
Sources within the SECP said fintech firms would likely be asked to submit periodic reports related to complaints and their resolution on a regular basis.
Stage of evolution
On the other hand, CEO of Sarmaya Microfinance, Habibur Rahman said that digital lending is a new concept in Pakistan and has many similarities with the growth of the credit card industry around two decades ago.
“There was a time in the early 2000s when many people would throw away their credit card after using it,” Mr Habib said. “Similarly, many people assume they can escape the system after taking out digital loans – but this has not been possible as all customer details are available at the credit bureau.”
He said that technically, the cost of funding digital platforms would always be higher than conventional lending platforms due to the higher risk and instant, unsecured nature of the personal loans offered.
“But only those without access to the banking system who are forced to take loans from traditional lenders opt for digital loans when they need money in an emergency,” he said. added.
However, there was currently no legal requirement in the system to impose a cap or limit on loan pricing, mark-up or interest rates, and these are determined by market forces and bilateral agreements between lenders and borrowers.
Nano lenders claim that the average fintech markup rate is between 25-28% which is similar to microfinance rates and these digital lending platforms do not charge any service fees if the loan is repaid within the seven days.
The first digital lending platform in Pakistan was SeedCred, which was launched in June last year. In less than a year, it has served eight million customers paying over Rs 4 billion, and the company now plans to double that figure in the new financial year.
SeedCred CEO Abrar Saeed said digital nano-loans were at the stage of evolution in Pakistan, but these lenders would eventually evolve into digital banks, disbursing large loans.
However, there are currently only two companies in the instant digital loan business in a country where more than 100 million people do not have a bank account.
With the expected growth in the nanoloan industry, complaints of default by customers and exploitation by lenders will also increase.
Posted in Dawn, July 3, 2022