Asian authorities crack down on digital lenders

Asian authorities are cracking down on digital lenders and stepping up to conquer the less-supervised sectors of credit-hungry powers such as India and Indonesia.

Apps and websites that offer simple loans are skyrocketing in India and Southeast Asia, where hundreds of millions of people do not have access to a formal credit system. According to the World Bank, as of 2017, 190 million people in India did not have a bank account and 95 million in Indonesia did not have a bank account.

However, authorities are struggling to manage the fast-growing sector. Many apps are licensed, but thousands are working illegally. They are notorious for preying on consumers with limited financial literacy by charging exorbitant interest rates and collecting data from the phone. For example, it is used to call a family member and annoy the debtor.

Trying to crack down on illegal online lending apps is like playing a “whac-a-mole game,” said Niki Luher, chairman of the Indonesian FinTech Association, that “bad apples” continue to succeed. He said he was.

The Reserve Bank of India last month set up a panel to strengthen sector oversight. Increasing public vigilance for the proliferation of hundreds of such apps whose aggressive tactics were associated with many suicides also triggered investigations and arrests by Indian police.

Google, which faced criticism in India for hosting apps, also said last month that it would remove non-compliant from the app store.

“In the process of growth, we clearly need to bring regulation and soundness to the market,” said Anuji Gorecha, an angel investor in Mumbai who has invested in about 12 fintech companies, including lenders. ..

The Financial Services Authority (OJK) of Indonesia is also stepping up its regulatory efforts. At the end of last year, we drafted a proposal to strengthen existing rules by raising the paid-in capital requirement and requiring more frequent board meetings.

Online lenders may also be forced to secure funding from offshore investors who are already involved in the financial services sector.

OJK has already taken steps to curb illegal apps and lenders, and in 2019 it worked with other ministries to block or ban hundreds of entities.

However, broader crackdown prospects have prompted desperate lobbying from regulated fintech companies and their investors. They are worried that they may be collateral damage.

“The RBI and the government will do everything to protect consumers. Upasana Taku, co-founder of MobiKwik, an Indian fintech company backed by Sequoia, which provides consumer loans, said: I will.

Edida Nusaptro, chief executive officer of Bank Mandiri Capital Indonesia, the venture capital arm of Bank Mandiri, the country’s largest state-owned bank in terms of assets, said tightening regulations was a “good thing.” Mandiri Capital has helped many local lending startups.

However, he warned that some of the requirements proposed by OJK were “too strict” and could choke important industries, citing the required leap of paid-in capital as an example.

This step follows the crackdown on the Chinese fintech industry, where the rise of online consumer loans has created a thriving culture of fintech apps such as peer-to-peer lenders.

Beijing cracked down on the P2P industry in 2018 and stopped issuing new lender licenses. More recently, homemade fintech players such as Ant Group, the dominant consumer finance force on the mainland, have also been stalled. The initial public offering of the company was terminated by regulators last year as authorities emphasized the need to regulate financial technology.

The crackdown has locked Chinese operators out of their markets and set up stores elsewhere in Asia. According to the 2018 OJK report, half of Indonesia’s 227 unlicensed P2P lenders occurred in China. Indian analysts also say that many of the illegal apps are run indirectly from China.

Akshay Garg, CEO of FinTech startup FinAccel, which runs the credit lending app Kredivo in Indonesia and has more than 2 million customers, said the situation improved with the strengthening of OJK police, but “easy” There was no solution. ”

“We can’t do much without deep-level cooperation between tech companies and governments to initiate more active monitoring of app stores,” Garg said. “And tech companies around the world are taking a hands-on approach to cracking down online.”

He said that many apps are mostly in Chinese and are simply “practical math.” “They don’t have to worry about 10 percent of defaulted borrowers. They impose so high interest rates that 90 percent do more than cover the 10 percent you lost. I will. “

Officials and executives alike agree that digital lenders can help deal with the chronic credit shortages of the region’s fast-growing young population-increased needs only during the pandemic.

But in India, even legitimate digital lenders have so far been active in the gray area. Although not directly supervised by the authorities, they need to partner with an RBI-certified non-bank financial institution, but some have their own NBFC licenses.

India’s FinTech Association for Consumer Empowerment, an industry group, is trying to anticipate tedious interventions by working with the RBI on self-regulatory models. We propose a set of best practice criteria, such as placing a curb on the data that can be collected from the borrower’s phone.

“The impact of a reckless and unregulated ecosystem can be horrifying,” said Akshay Mehrotra, CEO of startup Early Salary and founder of FACE. “Learning is fairly common from both China and Indonesia. The lending process needs to be on the board.”

Ashish Fafadia, a partner at Blume Ventures in India, who has invested in several fintech lenders, said he believes that tightening of regulations is inevitable and will ultimately benefit the industry.

“I can’t imagine growing with ad hoc planning and systematic explosions every 10 or 20 years,” he said. “We need a transparent and immunized architecture.”

Asian authorities crack down on digital lenders

Source link Asian authorities crack down on digital lenders

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