Nano loan app ban spree must not undermine micro-lending system: experts

ISLAMABAD: Experts have stressed that the illegal nano loan app ban spree must not undermine the importance of productive micro-lending in the country.

Around 120 illegal loan apps were removed from Google’s and Apple’s app stores through a collaborative effort by SECP and PTA. SECP also initiated comprehensive inspections of licensed NBFCs that provide app-based lending services, aiming to guarantee transparency and prevent these lenders from participating in deceptive sales techniques, breaching data norms, or using forceful collection tactics.

The move followed a suicide incident involving an unemployed man threatened by some of these loan apps. While the sad tale of how such apps exploit users’ needs no retelling here, the action to curb them is appreciated, they added.

In addition to a wide range of services – including savings, money transfers, bill payments, and insurance – a key product mobile money players offer is instant nano loans. Strong governance around such loans, however, remains crucial. Key examples that can be cited here include the State Bank-regulated loan products ReadyCash and EasyCash from fintech players JazzCash and Easypaisa respectively.

ReadyCash offers a swift loan of up to Rs10,000 via JazzCash app and USSD for a duration of four weeks with a flat five per cent weekly fee.

In the case of partial payments, the weekly fee is only applicable only to the outstanding amount.

Early payback is possible at any time during the loan tenure. What is important, however, is that this interest rate stops after a period of eight weeks, after which no charges are added.

Similar governance rules Easypaisa’s EasyCash Loan product, which allows users to borrow up to Rs15,000 via app of USSD, with a loan tenure of 60 and 30 days respectively. The maximum fee charged is five per cent per week with no charges applied after 60 days. Early payments are possible here too and in case of partial payments, the fee is charged only on the outstanding principal amount.

Key barriers to Pakistanis’ financial inclusion include excessive paperwork and distance to brick-and-mortar conventional bank branches. Regulated fintech players, with their nano lending products, give people the convenience and confidence they need to open a digital account and avail instant short-term loans, besides enjoying a host of other financial services.

Explaining eligibility criteria and user privacy, Aamir Aftab, chief product officer at JazzCash, said, “The ReadyCash product uses sophisticated algorithms to give credit scores to wallet customers. These scores are determined by looking at their wallet activity, like financial transactions and their anonymous digital profile, which is created using various data points.”

“All of this helps us accurately evaluate the customer’s creditworthiness and purchasing power before disbursing the loan. At JazzCash, we pride ourselves in upholding an ethical approach to lending, prioritizing responsible loan recovery that respects and supports our clients’ financial well-being and right to privacy,” he added.

Farhan Hassan, Head of Easypaisa Wallet Business, shared his thoughts, “We proudly provide nano loans that empower individuals with their short-term personal household or micro business needs.

Our loan product stands as a reliable and secure choice, clearly differentiating itself from the concerns associated with illegal lending apps. At easypaisa, our unwavering commitment to transparency, customer protection, and privacy remains not just a priority but the very foundation upon which we build our services.”

As bans on illegal loan apps continue, Pakistanis need small-scale lending alternatives that are convenient but strongly regulated and governed. Nano loans offer solutions to real customer needs, those who have been left unaddressed by the big banks and exploited by the informal loan sharks. Some fintech players are doing well in this regard offering legal, customer-friendly loan products.

User discretion and caution, however, remain crucial in using any instant loan product to stay safe amid a sea of loan sharks waiting to prey on vulnerable borrowers.

Despite some progress in the past years, 70 per cent of Pakistanis still remain excluded from the formal financial system. Besides countless other disadvantages, being financially excluded also deprives these people of loans, which can be critical to their well-being and survival in these trying economic times. However, with over 80 per cent of Pakistanis using a mobile phone, mobile banking offers to close this gap with a 19 per cent (and growing) share of mobile wallet adoption.

Copyright Business Recorder, 2023