Recently, India’s digital lending platform has conducted a rigorous review of its methods, including the collection and accusation of misuse of borrower data, highlighting the risks of using newer technologies to promote financial inclusion.
In recent years, with the surge in the use of smartphones, mobile lending applications in India and other regions have sprung up, and financial technology companies (fintech) have rushed to fill the gap in banking service access.
Unsecured loan applications can provide fast loans even to people without credit history or collateral, and have been criticized for their high interest rates, short repayment cycles, aggressive recovery methods, and abuse of borrower data.
Tarunima Prabhakar, a researcher at the Center for Long-Term Cybersecurity at the University of California, Berkeley, said, however, they have become mainstream, especially during the coronavirus pandemic that has increased due to job losses.
She said: “The goals of achieving financial inclusion quickly, protecting consumers and data security often conflict.” Especially the concerns about unlicensed companies and the meaningful consent of users on the digital loan platform.
“Lending applications have the potential to generate consumer benefits, but they require strong institutional and financial knowledge. It is difficult for individuals to fully understand the consequences of sharing personal data.”
Globally, about 1.7 billion people do not have bank accounts, which makes them vulnerable to the threat of loan sharks and may be excluded from the increasingly digital important government and welfare.
When Bhumana Prasad lost his housekeeping job during the coronavirus lockdown in India and couldn’t keep up with the rent, he borrowed an Rs loan. 3,000 after receiving instant loan quotes for mobile phones.
Within a few weeks, he found himself stuck in a debt cycle, pawned his family’s jewellery, and borrowed money from friends to repay increasing costs—a total of Rs. Since he received his first loan in November, there have been 4 million.
Prasad, 27, said in a telephone interview at his home in Telangana State: “I am called a thief. At least I receive calls from agents every day. They will continue to abuse me.” “I plan to commit suicide because the harassment is not over.”
Personal loan applications-in India are mainly intermediaries that connect borrowers and lending institutions-because the central bank does not supervise intermediaries and does not stipulate terms, it is a gray regulatory area.
However, after reporting several suicides related to loan provider harassment, the Reserve Bank of India (RBI) warned against using unauthorized digital lending platforms and established a working group to develop “appropriate regulatory methods” .
The Reserve Bank of India said in a statement this month: “Digital loans have the potential to make access to financial products and services fairer, more efficient and inclusive.”
However, lending applications have raised “certain serious concerns”, adding that the working group will identify risks and propose measures to strengthen consumer protection and “robust” data governance, data privacy and data security standards.
According to data from the World Bank, India has about 190 million unbanked adults and is the most populous country outside the formal financial sector, second only to China.
The government of Prime Minister Narendra Modi has made financial inclusion a priority as part of its “digital India” mission.
In India, mobile loan applications that provide small loans for short-term loans are quickly accepted by newly-paid college students, informal workers, and other people whose income is slightly lower than the income that banks provide for them.
S Harinath, investigator of the Telangana police cybercrime department, said thousands of Indians have used unregulated apps to make up for lost income, and many of them lost their jobs during the pandemic.
He said: “In some cases, one person uses up to 25 (loan) applications.”
Although unsecured loans account for only a small part of the total loan amount, according to the German company Statista, the value of these loans is about 75 billion U.S. dollars, but there are dozens of loan apps in the Google Play store-dominating the Indian app market with a number of installations million.
Akshay Mehrotra, co-founder and CEO of digital lender EarlySalary, said: “Today, more than one-third of fintech borrowers have never borrowed from a bank.”
He said: “Fintech’s advantage is speed… Therefore, a digital lender can approve and issue a loan of Rs 25,000 to a 24-year-old in a few minutes, for the first time in his life.”
These applications can usually access the borrower’s phone location data, contacts, applications and text messages for credit risk assessment, which is clear to the borrower.
Prabhakar said, however, that only privately “cannot be considered as meaningful or informed consent.” His analysis of about 12 loan apps in India revealed that most apps read the user’s phone contacts, and more than Half of the users read the text messages.
She added that the use of English also hinders the concept of informed consent, which believes that users can accurately assess the potential benefits and costs of data collection.
She said: “The main concern is whether individuals understand how to use their data,” she added, adding that women and LGBT+ groups have a greater risk of personal data leakage (such as location history) than men.
She told the Thomson Reuters Foundation: “If a person does not repay the loan, their data can be sold-so even if the intention to collect the data is clearly stated, the substantial significance of exchanging the data for a loan is even more obvious.”
Call your parents
Statista predicts that by the end of 2021, about one-third of India’s population will have smartphones.
In the absence of a credit scoring system that promotes financial inclusion, the authorities have supported the use of artificial intelligence (including data from social media and web browser history) to create unbanked scores.
A recent Reuters survey of 50 popular loan apps in India found that almost all apps require borrowers to grant access to their contacts. These users said that recovery agents used them in the event of default or late payment These contacts.
Google said this month that it has reviewed hundreds of loan apps in India and removed apps that violated its loan term terms. It also says that developers must only access the permissions required to implement current features and services.
Legislators are discussing a long-delayed “Personal Data Protection Regulation” that will require and store personal data conditions, and will be punished for misuse of such data.
Consumer activists in India and Africa also warned that these short-term loans could lead people into a debt trap. China recently issued rules to strengthen the supervision of online microfinance.
EarlySalary’s Mehrotra said that India’s digital lenders are already operating in accordance with the corporate governance standards of their private equity investors. They have established a “consumer authorization” agency and are promoting the development of industry codes of conduct.
Prabhakar said there is an urgent need to increase transparency and clarity on existing standards.
“Can the recovery agent call the student borrower’s parents when the student borrower defaults, or should telephone contact methods be completely prohibited?” she said.
“If users share personal data instead of loans, the app should disclose the possibility of loan approval. If I know the average approval rate is 15%, I can judge whether I really want to exchange data to a 15% approval rate.”
Thomson Reuters 2021 ©
What is the most exciting technology conference in 2021? We discussed it on the weekly technical podcast Orbital, you can subscribe via Apple Podcast, Google Podcast or RSS, download the episode, or click the play button below.