The Reserve Bank of India’s (RBI) efforts to curb the proliferation of unauthorized digital lending platforms and mobile applications have shown promising results, according to a recent survey by LocalCircles. The survey reveals a significant decrease in the number of users resorting to instant loan apps, with usage dropping from 14% in 2022 to 9% in 2024.
In 2020, the RBI issued a cautionary notice to small businesses and individuals about the risks associated with obtaining loans through unauthorized digital lending apps. This warning came in response to growing reports of borrowers falling victim to deceptive platforms that offered quick and seemingly hassle-free loans. The central bank advised potential borrowers to carefully verify the credentials of lenders before engaging with online loan services.
Effective intervention
The latest survey results indicate that the RBI’s intervention has been effective in reducing the reliance on these potentially harmful loan sources. Despite the decline in usage, the survey highlights that those who did take loans through these apps faced exorbitant interest rates, with 45% of respondents reporting annual rates exceeding 25%. The data further shows that some users were charged interest rates as high as 100-200% per annum, underscoring the financial burden imposed by these platforms.
The survey also brings to light the troubling issue of extortion and data misuse during the loan recovery process. It found that 61% of users experienced threats or misuse of personal data by loan recovery agents, a significant increase over the past two years. This highlights the ongoing challenges borrowers face when dealing with unauthorized lenders.
Given these findings, the survey suggests strong public support for regulatory intervention. Approximately 65% of respondents expressed the need for the RBI to impose a cap on the interest rates charged by digital lending platforms and financial institutions on personal loans. This reflects widespread concern over the high costs associated with instant loans, particularly during times of financial crisis when borrowers may be more vulnerable to predatory lending practices.
