Unemployed Pakistani software engineer Ali turned to a digital lending app to pay his overdue electricity bill, hoping to find a quick solution. Within minutes of completing the application, he received the money in his account, minus a processing fee. However, his relief soon turned to fear as he started receiving calls demanding immediate repayment or imposing penalties for extensions. The stress became unbearable, leading him to take another loan from a different app to pay off the first one. Unfortunately, the second lender charged exorbitant interest rates, causing Ali’s initial loan of Rs15,000 to balloon to Rs230,000.
Ali’s experience is not unique. The proliferation of mobile-based lending apps in Pakistan has created an environment ripe for scams and fraud, according to digital rights and consumer defense groups. While many of these apps are regulated, they have still been the subject of numerous complaints filed with the Securities and Exchange Commission of Pakistan (SECP). Complaints range from data abuse to aggressive recovery tactics such as threats and blackmail.
The use of personal finance apps in Pakistan has more than doubled in recent years, driven by increased smartphone penetration and the need for accessible credit. However, this boom has also led to an increase in complaints against illegal lenders who exploit customers’ data and employ unethical practices. Many cases go unreported due to poor digital literacy and the lack of contact details for recourse.
The cumbersome process and bureaucratic hurdles involved in obtaining a bank loan have further fueled the popularity of these loan apps. Banks typically require income statements and do not offer small or short-term loans. As a result, people in need of quick financing turn to these apps as an alternative.
To address the rising complaints, the SECP has issued new guidelines for digital lenders. Non-bank financial companies (NBFCs) will have to disclose loan details, rates, fees, and charges to consumers through various channels. They will also be prohibited from accessing borrowers’ contact lists or photos, even with consent. Google has also implemented restrictions on personal loan apps, requiring country-specific licensing documentation and limiting access to user contacts and photos.
However, digital rights activists argue that stronger regulations are necessary to ensure compensation and redress for victims. They emphasize the need for consumer protection, mechanisms for reporting fraudulent apps, and avenues for recovering lost amounts. Ali, who experienced the pitfalls of relying on such loan apps, advises people facing financial difficulties not to resort to these unscrupulous lenders, stating that it is better to endure hardship than to borrow from loan sharks.
