Create a UPI-type platform but for loans, the IT minister challenges the bankers

“Can we create a platform as powerful, as good and as transparent and as digital as the UPI platform to provide very fast and very easy credit to MSMEs, small industries, small entrepreneurs, people really at heart?” bottom of the pyramid? Ashwini Vaishnaw, the Minister of Electronics and Informatics, told bankers at the recent AzadiKaAmritMahotsav event organized by the Ministry of Informatics (MeitY).

The digital ecosystem of such a platform is available, including Aadhaar, UPI and Digilocker, the manager of MeitY mentioned.

During the pandemic, financially troubled Indians relied heavily on quick loan-for-cash apps, turned down by mainstream banks due to cumbersome processes and credit assessments. While it is welcome to fill this gap with regulated entities, banks will need to find a way to avoid the pitfalls of predatory lending applications.

The digital ecosystem you need to create this is now available: Vaishnaw

Speaking at the event, Vaishnaw challenged bankers to leverage India’s digital ecosystem to make lending more accessible to small players:

“In the Modi government, we are a government of the people at the bottom of the pyramid – MSMEs, small businesses, the kind of people who can’t come to you. [bankers]. Can we make a platform as powerful and as good and as transparent and as digital as the UPI platform to provide very fast and very easy credit to MSMEs, small industries, small entrepreneurs, people really at the bottom? of the pyramid? I don’t know what the challenges are. I don’t know how hard or easy it is. But today you have a very good ecosystem of Aadhaar, cell phones, UPI platform, DigiLocker. Virtually everything you need to create this ecosystem is available today. Take up this challenge. The next three months, work on it. To recover. I will be very happy to spend a full day with you to review the concepts you have proposed.
– Ashwini Vaishnaw, Minister of Electronics and Information Technology

The problem of quick loans in India

While Vaishnaw may have asked banks to find a transparent way to help small businesses and ‘people at the bottom of the pyramid’ access credit, this role has recently been taken on by rogue lending apps that harass victims with exorbitant interest rates and threats:

  • 4000 complaints to RBI: From January 2020 to August 31, 2021, the Reserve Bank of India (RBI) received around 4,000 complaints regarding digital loan applications, a response to an RTI filed by MediaNama has revealed.
  • 55,000 calls from victims: SaveThem India, a foundation established in March 2020 to tackle the problem of loan applications in India, has received more than 55,000 calls from victims of harassment from loan applications in its 16 months of existence, a representative from the foundation at MediaNama, The foundation spoke about 30 suicide victims, the representative said.
  • 1,100 loan applications: In a recent report, the RBI said there are 1,100 loan apps in total available in different app stores for Indian Android users, of which 600 are illegal.

How RBI proposed to regulate small lenders

In January of this year, the Reserve Bank of India formed a task force to study all aspects of digital lending so that an appropriate regulatory approach can be put in place. Here are some notable suggestions made in the report:

  • Loan applications should be verified by an independent hub agency: An independent nodal agency called the Digital India Trust Agency (DIGITA) should be set up to ensure that only trusted and trusted DLAs are used by consumers. This agency will be responsible for verifying digital lending and financial technology applications before those applications are released publicly and will maintain a public registry of all verified applications. (Recommendation)
  • The government can implement separate legislation for unregulated entities involved in lending: Similar to the Prohibition of Unregulated Depository Systems Act 2019, the government may consider implementing the Prohibition of Unregulated Lending Act (BULA), which would cover all unregulated and licensed entities. by the RBI to undertake lending activities or by entities not registered under another law to specifically undertake public lending activities. (Recommendation)
  • Separate consumer protection regulations for financial services can be implemented: Although the Consumer Protection Act 2019 covers banking, finance and insurance as services within its scope, the nature of a financial consumer and a consumer of other goods and services differs considerably. To provide adequate recourse to financial consumers, including digital lending, a separate national regulation on the protection of financial consumers under the above law can be drawn up. (Suggestion)
  • Law enforcement agencies must proactively ensure that no unauthorized call centers are operating: Local law enforcement and police services should proactively ensure that unauthorized call centers are not operating from sites under their jurisdiction. The background to this suggestion is that dishonest loan apps often harass victims through frequent phone calls made through call center representatives. (Suggestion)

The full list of recommendations made by the RBI to tackle unauthorized loan applications can be found here.

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