Digital lenders disbursed Rs33bn loans during last fiscal, says analyst

ISLAMABAD: The new digital lending fintechs (non-banking finance companies) have disbursed cumulative loans worth over Rs33 billion to more than 2.5 million borrowers through the digital lending platforms in the last fiscal year (2021-22).

The CEO of Sarmaya Microfinance, Habibur Rehman, briefed media here on Wednesday that over 1,000 per cent growth in nano loans is an indication that the digital lending platforms are integrated well into the social fabric of Pakistan.

He explained that the Securities and Exchange Commission of Pakistan (SECP) has issued licences to eight tech-enable digital lenders with varied business models, i.e., instant nano lending, Buy-Now-Pay-Later (BNPL) and PayDay loans to the salaried class.

Using financial technology and artificial intelligence, these microfinance companies offer enhanced customer experience and customised products, leading to the financial inclusion of the unbanked population.

Habibur Rehman stated that the global financial landscape has recently undergone a significant transformation. He appreciated the SECP for being conscious and developing necessary regulatory frameworks for the modern digital ecosystem. As a result of this intervention many young fintech startups today are focusing on identifying and fostering the digitisation of financial services in Pakistan.

He stressed that the customers of digital lending in Pakistan must differentiate between registered digital lenders and illegal companies operating from Bangladesh, India, and China to avoid serious consequences of dealing with fraudulent companies.

Habibur Rehman said that the complaint and documented digital lenders are facing biggest challenge of competition with the illegal companies operating in Pakistan. These companies are neither registered with the SECP nor they have any proper offices in Pakistan but they are offering digital lending services through illegal means. Few companies have established their temporary offices in residential areas to carry out their fraudulent activities in Pakistan. On the other hand, the registered digital lender companies are strictly complying with the SECP rules and regulations and documentation.

There is a need to differentiate between registered and unregistered companies to avoid illegal transactions being conducted by companies operating from India, China, and Bangladesh.

Mostly people are unable to differentiate between registered digital lenders and those illegally operating in the country. Resultantly, they face issues such as higher interest rates, harassment, and forced recovery in case of default. Even, people cannot register complaints of their issues with these illegal companies. It is time to start awareness among the general public about the advantages of operating with only digital lenders registered with the SECP.

He stated that Sarmaya Microfinance, a leading nano-lending fintech licensed by SECP is also in the race to cater with its App Easy Loan and PK Loans which aims to expand the hassle-free and paperless digital nano-lending facility across the country.

As a result of the increasing competition in the fintech industry, we have been working hard to create an instant and secure execution of the lending process for our customers, he said.

He said that there are 68,000 active customers of this company and loan disbursement more than Rs1.5 billion till June 30, 2022.

Describing their product, Habib said that Sarmaya Microfinance is currently operating two digital lending Apps namely, Easy Loan and PK Loan, and micro loans ranging from Rs3,000-30,000 are provided to customers for a short tenor ranging from 7-90 days. The customer can only proceed towards disbursement of a loan once they have agreed to the described policies of the Company displayed on the Apps. Moreover, the loan amount along with the repayment amount and repayment date is clearly disclosed to the customers before the loan disbursement. Customers always have the option to cancel the loan in case they do not agree to any of the terms and conditions set forth by the lending company.

Habib was of the view that since the rise of digital lending in Pakistan is a recent phenomenon, the initial concerns about digital lenders were partly due to a lack of familiarity and awareness among the general public about loan pricing, and understanding of its terms, and conditions. However, he agreed that some of the concerns were genuine and have been addressed by the industry and the SECP through regulatory changes, awareness campaigns, stakeholders’ engagements, and promoting competition.

Habib stated that in the interest of transparency, all the terms and conditions of the loans are very clearly informed to the borrowers prior to entering into the loan agreement. Besides, he said, digital lending is a globally tested and currently practiced model. Seamless consumer lending has greatly transformed the consumer experience in the developed world, where similar challenges had been faced in the beginning. Since the sector is relatively new in Pakistan, it might take some time to formulate the required framework and legislation.

Copyright Business Recorder, 2022