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The Enforcement Directorate (ED) has arrested the CEO of a non-banking financial company (NBFC) in connection with a money laundering probe against fintech firms backed by Chinese funds, the agency informed on Saturday. 

The agency arrested Pavitra Pradip Walvekar, promoter, director and chief executive officer of Kudos Finance and Investment Private Limited on Friday.

He was later produced before a special Prevention of Money Laundering Act (PMLA) court in Hyderabad that sent him to 15 days' judicial custody.

The action is part of the ED's investigation against a number of NBFCs which are in the business of instant personal loans through mobile apps.

In a statement, the agency said that various fintech firms backed by Chinese funds have made agreements with these NBFC companies for providing instant personal micro loans of term ranging from seven-14 days.

"Kudos NBFC purportedly engages fintech (digital lending partners) companies as a service provider to assist in identifying prospective customers, verifying their eligibility, collection of information/documents, conducting due diligence, collecting pre-disbursement documents, arranging execution of the loan agreement, assisting with collections/recovery of principal and interest payments and attending service requests or product related queries for the retail loans offered by the company," the agency said.

Although it is projected that the NBFC is engaging fintech companies for these activities, the ED said, "In reality, they are allowing the fintech companies to misuse the valuable NBFC licence of Kudos."

The central agency further said Kudos has a paltry net owned fund (NOF), but it is taking huge amount as security deposits and then opening separate merchant ID (MID) with payment gateways for each fintech app and then depositing these security deposit in the MID of the respective fintech app," the agency alleged.

As per the statement, the company, Kudos has no mobile app of its own. "It is not involved in the lending business at all. It has miniscule staff and is blindly allowing fintech companies to operate at the back of MoUs between self (NBFC) and fintech mobile app companies. Thus, the entire lending operation is being done by the fintech app from its own funds," it alleged.

Kudos is only lending its license and the fintech apps are the ones acting like the real NBFCs and doing end to end micro lending and reaping majority of the benefits. In return Kudos is taking a commission without doing any due diligence or hardwork, the agency alleged. 

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