India launches probe against dubious China-backed fintech lending apps

fintech lending apps India
Lending apps image by Unitone Vector |

India has ordered authorities to investigate over two dozen China-backed fintech lending apps and has asked cost gateways like Razorpay and Paytm to stop their dealings with these app-based companies.

According to a report by the Economic Times, India’s Enforcement Directorate (ED) and Criminal Investigation Departments (CID) of various state police departments have launched probes against these Chinese fintech lenders.

There is also an ongoing investigation by India’s ED to probe money laundering charges against Chinese fintech apps.

The authorities are now questioning both Razorpay and Paytm about their decision to allow “dubious firms” to open their accounts in the country. They are currently investigating if these gateways did their due diligence before onboarding the lending apps.

“ED and several state CIDs have issued notices to payment gateways to cancel the accounts of several Chinese-backed fintech entities. There is a big flaw here. In a hurry to generate more cash flows, payment gateways went and opened accounts for these Chinese entities. They have to do the know-your-customer (KYC) checks to figure out the money trail,” an official was quoted as saying by the publication.

The official added that authorities like ED received a list of Chinese applications based on complaints received by state police departments across the country. “The prevailing India-China sentiment is also playing a part as most of these apps are owned by Chinese individuals and entities,” he added.

As per the guidelines, a company that lends money to the public must seek approval from the  Reserve Bank of India (RBI). However, several lenders in India are operating unlicensed through apps that can be easily downloaded. Reports suggest that many of them have partnered with Indian bands and non-banking financial companies (NBFC) and act as their outsourcing partners for marketing and onboarding customers.

The development follows internet major Google’s decision to pull down several instant loan apps from Play Store on Thursday for breaching its user safety policies. Some of these app-based lenders reportedly resorted to harassment and public humiliation to recover dues from customers. Some of the victims committed suicide due to the harassment.

Various reports indicate that these lenders capture data from borrower’s phones when the app is downloaded. In case of defaults or delayed payment, these app-based lenders send text messages and make calls to every number in the borrower’s phone book to publicly shame and abuse them.

Google is now only allowing applications that demand customers to repay loans after 60 days or more.

Bengaluru-based Razorpay, used by about 95% of lending apps as the gateway, said that it banned 300-400 suspicious app-based lenders in the previous few months.

The company, backed by Tiger Global, has one of the most complete cost and tech stacks, allowing end-to-end digital onboarding of small retailers. Lending-based transactions on Razorpay’s platform increased 65% in 2020.

“As a financial services business, we proactively block and report any suspicious merchants to the law authorities and help them with KYC and other details to assist law enforcement,” Razorpay spokesperson told Indian media.

“The problem comes when the apps are not transparent and do not disclose the full information to customers. The customers should be well informed that it is not the app which is lending but the bank or an NBFC. Any follow-up action that is assisted by those who run the app for the bank or NBFC will also have to be within the banking norms,” R Gandhi, former Deputy Governor, RBI recently told India’s Business Line newspaper. “There will have to be regulations when they impinge on customer protection and privacy.”

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