App-based lenders charge exorbitant fee, flouting banking norms

These companies partner with RBI-licensed non-banking financial institutions to lend money to people

Money-lending app
These players mostly cater to the unbanked and the under-banked population | Photo: iStock

The app-based lending companies that have popped up in recent years, are fleecing the customers by charging exorbitant interest rates, services fees and penalties, banking on the digital illiteracy in the country.

These players mostly cater to the unbanked and the under-banked population in India even as the smartphone penetration is growing by the day.

Their interest rates vary from 25-40 per cent, while processing fee ranges from 15 to 20 per cent. In addition, 18 per cent GST is levied on processing fee. Some even charge one per cent interest (365 per cent annually) per day on the principal amount for delayed payments.


In contrast, banks generally charge a processing fee of 1-3 per cent, and interest rate on personal loans at 12 and 20 per cent, and credit card loans at 30-36 per cent annually.

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Though there are laws governing money lending, which prohibit exorbitant interest rates, with the lack of checks and cap on interest rates, the companies are brazenly exploiting the customers.

Besides, these non-banking financial companies (NBFCs) are required to report to the Reserve Bank of India fortnightly about their lending amounts and rates. But with RBI remaining silent over these issues, such money-lending apps are seemingly exploiting the market, sucking money out of the poor.

Firms having Chinese backing like Cashbean, Wificash, Robocash, CashBus, Cashmama, Kissht, Rupeeplus, and Indian companies such as Instamoney and Loanflix, have all been overcharging customers.

All these firms partner with RBI-licensed non-banking financial institutions like Chadha Finance Ltd, Wel Fin Securities Ltd, PC Financial Services Pvt Ltd, LendenClub, Onion Credit Pvt Ltd, among others, to lend money to people.

Data Analytics firm Tracxn, in a report shared with The Federal, noted that 434 app-based lending platforms have come up since 2015. The Federal trawled through the Registrar of Companies (RoC) database to check filings by 10 such lending companies, and found that eight of them had Chinese connections.

Their target remains students, the working class aged 21-40, low income groups in tier-2 cities and others. With advertisements on YouTube, TikTok, Google and Facebook, they lure the young and new digital users. With terms and conditions written in English, many regional language speakers fail to understand such terms and blindly accept it.

For instance, Sunil Kumar, a migrant worker from Uttar Pradesh’s Aligarh, had taken a loan of ₹10,500 for a month from Wificash, operated by Chadha Finance. He was charged 36 per cent annual interest, 20 per cent processing fee (upfront deduction), and a GST of 18 per cent on that fee. With no income during the lockdown, he had failed to repay the loan.

Even as the government announced a moratorium, he was charged one per cent on the principal amount as penalty. His overdue charges during the lockdown period shot up to ₹9,792. The company asked him to pay almost double the money he had borrowed for a loan that he had taken for just one month and was delayed by two months.

Only after repeated complaints, they waived off the penalty. However, not many are as lucky as him. Unless one complains to the RBI and questions these companies, the moratorium is not applied. This despite the RBI announcement in March, allowing three months’ extension of interest on loan moratorium.

Aftter hearing a petition, the Supreme Court on June 12 ordered the RBI and the Union finance ministry to hold a meeting within three days to even decide on waiver of interest on deferred payments of instalments for loans during the moratorium period.

Besides these financial overcharges, the customers also alleged that these lending firms accessed their phone contacts and messaged to threaten their immediate relatives for non-repayment of loans, and even sent fake FIRs and legal notices to their WhatsApp accounts.

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In response to The Federal’s queries, Robocash and Cashbean (PC Financial), however, denied any wrongdoing.

“We do not collect any personal information like customers’ personal contacts, SMSs, etc. In fact, we have offered an amnesty scheme to our customers and are waiving the entire overdue interest,” Robocash said.

Meanwhile, PC Financial said the company’s interest rate policy has been adopted by its board of directors, within the ambit of Indian laws and regulations, after taking into account all necessary considerations associated with the business of the company, including cost of funds, borrowing cost, risk associated, opex cost, etc.

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