The RBI encourages borrowers to exercise prudence and caution while opting for app-based lenders, ensuring as best they can, that the app of their choosing is backed by a verified company
When the need for an immediate loan arises, the urgency of the situation may not permit a thorough authentication of the lender. However, this can have dire consequences these days since several fraudulent apps offer funds within five minutes, sometimes even instantly, but cannot be trusted as legitimate lenders.
In such a scenario, borrowers may find themselves interfacing with illegal collection mechanisms.
It is for this reason that the Reserve Bank of India (RBI) encourages borrowers to exercise prudence and caution while opting for such lending partners, ensuring as best they can, that the app of their choosing is backed by a verified company.
In this piece, we take a look at what borrowers can do
Know your lender
Just like lenders perform Know Your Customers (KYC) for each application they receive, borrowers must know their lender before applying for a loan. “Identify companies that are registered with the RBI. Legal RBI licensed lenders to follow a strict set of guidelines, a code of conduct, in working with borrowers and ensuring the best possible experience for everyone. If a lender is not RBI Approved or doesn’t have Indian incorporation, it most likely is unauthorized and is not bound by privacy rules," said Anil Pinapala, Founder & CEO, Vivifi India.
“A majority of the illegal Chinese lending apps do not have listed websites, and this must be treated as a red flag. Even if the website is listed, borrowers should check that the company is registered with the RBI or works with a bank/ Non-Banking Financial Company (NBFC) which is registered with the RBI," Pinapala said. Furthermore, check the Company Identification Number (CIN) and details of the Certificate of Registration (CoR) with RBI. Also, if a lender doesn’t have a website do not download the app.
Identify grievance redressal
Another way of identifying legal lending apps that are legitimately tied to RBI-registered NBFC’s is to check if they also list a Grievance Redressal Mechanism on their website. Verified lenders are required to adhere to various regulatory guidelines on KYC and Collection Practices which are designed to protect the customers.
Check the reviews
Finally, it is prudent to go through the app reviews on the play store or app store as this will give you insights into the worries or concerns of the lender’s previous/existing borrowers. It is also crucial to download the app from the app store and never directly from the lenders’ website.
“No transparency in loan interest or fees, coercing borrowers to take immediate action, and promising guaranteed approval without a creditworthiness check are a few other red flags to watch out for," Pinapala said.
While there are numerous innovative, technologically advanced lenders striving to improve access to credit and financial inclusion, the presence of illegal lending apps can ruin your finances. The onus is, thus, on both lenders and borrowers to remain vigilant and follow the best practices when opting for a loan via digital lenders.