Chase India to set up SRO in light of recent crackdown on Chinese loan apps

Amid the government crackdown on illegal loan apps, research firm Chase India in a report on Tuesday proposed setting up a self-regulatory organisation (SRO) for the digital lending industry.

The report on whitelisting framework for digital lending apps (DLAs) intends to support the industry, as it will add legitimacy to the practices and business operations of the DLAs, while simultaneously defining an appropriate regulatory approach in the sector.

Chase India has prepared the whitelisting framework with inputs from industry stakeholders.

The report also proposed adopting the framework as a standardised code of conduct for DLAs.

It details the requirements for the DLAs' legal establishment, business operations, safe handling of technology and data, customer safety and grievance redressal, among others.

Chase India suggested the formation of a self-regulatory organisation or dedicating a nodal agency within the regulator's purview for the digital lending industry.

The report also recommended the adoption of a Public Credit Registry (PCR) to strengthen credit lending systems and the expansion of the role of such DLAs.

These recommendations are aimed at fostering growth and stability in India's digital lending ecosystem and protecting the interests of each category of stakeholder.

"The digital lending sector is evolving with many fintech serving the under-penetrated credit markets in India, especially for small-ticket loans.

"However, the unchecked practices by DLAs threaten the economic fibre of the country and hence, a whitelisting framework is the need of the hour to foster innovation while promoting responsible players in the sector. This will bring balance between customer protection and industry growth," Chase India Vice President Kaushal Mahan said.

Recently, the government has taken note of a rise in illegal loan applications, which offer loans to individuals, particularly those who belong to vulnerable, low-income groups. These loans, given at very high-interest rates, were bundled with excessive processing fees and undisclosed charges. These loan providers also engage in predatory recovery tactics, such as blackmail, criminal intimidation, etc.

Considering the severity of the issue, the Ministry of Finance (MoF) held a meeting on the prevalence of illegal loan apps in India in September 2022, wherein it was decided that a whitelisting exercise of all the DLAs should be undertaken.

In this regard, the finance ministry in a Parliament response, shared that the Reserve Bank of India (RBI) has furnished a list of DLAs being used by RBI-regulated entities to the Ministry of Electronics & Information Technology (MeitY).

The MoF said that MeitY has in turn, shared the list with respective App Stores to ensure that only the apps figured in the list are hosted on their app stores. This, consequently, led to the recent ban of apps that were not mentioned in the list.

It is learned that the RBI will soon be publishing a list of whitelisted DLAs as well.