Nano loan apps: borrowers can now take maximum Rs75,000 from different digital lenders

Nano loan borrowers will now be able to avail a maximum of Rs25,000 per app and a maximum total of Rs75,000 from multiple apps as the Securities Exchange Commission of Pakistan (SECP) gears up to curb predatory practices and ensure financial sustainability of the borrowers in the digital nano lending sector.

On Monday, the securities’ regulator imposed exposure limits on digital lenders and borrowers through its Circular 10 of 2023.

A maximum limit of Rs25000/- has been imposed for individual borrowers from a single loan app, and the aggregate amount of loans from multiple apps has been restricted to not exceed Rs75,000/-

Further, the loan period/tenor for a nano loan through personal loan apps has been restricted to not more than 90 days.

“The exposure limits on borrowers shall promote responsible lending behaviours and prevent borrowers from being trapped in debt cycles due to multiple loans,” SECP said in its statement.

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Commenting on the SECP decision, Chairman Pakistan Fintech Network Nadeem Hussain said a cap of Rs75,000 was still high and could lead to a debt trap.

“Although I am not an advocate of extensive regulations, in this case I think the SECP has been too generous with the Rs75,000 cumulative limit,” he said while speaking to Business Recorder. “Nano loans are not productive loans. They are consumption loans. We should not encourage Rs75,000 of consumption loans at the bottom of the pyramid. The average microfinance loan is Rs45,000.”

Hussain, who is a pioneer in Pakistan’s digital micropayment space, stated that even Rs75,000 could lead to a debt trap with extensive interest rates and lack of knowledge in the unbanked market.

“In the backdrop of low financial inclusion and complicated income assessment and paperwork requirements of the banking sector, nano loans are genuine in Pakistan,” he explained.

Hussain was of the view that the regulator should ensure that borrowers are not being exploited, but at the same time it should allow the market to set interest rates, he added.

“Meanwhile, unlicensed nano loan operations should be made a criminal offence and such apps should be taken down,” he urged.

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In a bid to ensure cyber security and protect sensitive data of borrowers, SECP has also imposed a condition whereby personal loan apps must obtain a certificate from a PTA-approved Category I Cyber Security Audit Firm (CSAF).

Moreover, prior to the sign-up process, apps will be obligated to display a pop-up alert in accordance with directives from SECP to inform app users about the terms, conditions, and potential ramifications of borrowing.

The regulator has mandated an in-app calculator for accurate loan repayment computations and associated charges.

SECP issues ‘Whitelist’ of Digital Lending Applications on its website

Several NBFCs licensed by SECP have entered personal loans through digital applications, with a list available on the SECP website.

In December 2022, SECP introduced a mandatory requirement for digital lending NBFCs to protect borrower interests by requiring transparent disclosure of fees, loan duration, installments, and charges.

Companies were prohibited from accessing consumer data and required to adhere to ethical and legal standards, including respectful debt collection practices.

Google agrees to ban non-licensed digital lending apps

The SECP has also restricted unauthorised and illicit apps, collaborating with Google to introduce Pakistan’s Personal Loan App Policy on May 31, 2023. As a result, Google removed 84 illegal lending apps from its Play Store following SECP’s reports.

Going forward, as per SECP statement, the regulator is considering imposing pricing caps on APRs (annual percentage rates) as well, as a total cost cap on digital nano loans after extensive, all-inclusive consultation and coordination with stakeholders, including industry participants.