As financial inclusion is picking up pace in Pakistan, so are various scams and scandals. Of late, many exploitative lending apps have surfaced, luring people with misleading terms. One such scandal which comes under the category of extortion is being reported for “Barwaqt” app that is offering instant credit of up to PKR 25,000 in less than half an hour to clients. The surprising fact is that the entity is registered with Securities and Exchange Commission of Pakistan (SECP) but is involved in many shady deals. Its ownership is also dubious as there is clear evidence that it is being managed by hackers outside mainland China. The growth of exploitative loan apps appears to be unstoppable as more and more apps are being launched with each passing day e.g. PK Loan, Easy Loan, Fori Money, FlexiMoney, OliveCash, AiCash and WeCash etc.
Barwaqt stands out as the clear leader in terms of total installs for it was only the second player to release its app in June 2021, barely two weeks after AiCash. According to Appfigures, the former has over 9.26M estimated downloads while the latter has 1.33M. Meanwhile, Easy Loan has crossed the 3M mark, putting it second in the overall tally.
Lending is a regulated space in Pakistan, where State Bank of Pakistan (SBP) oversees banks and the SECP looks after non-banking financial companies (NBFCs). Yet, very few of the platforms currently active on the Play Store have any sort of licensing to issue loans. SeedCred (Barwaqt) and Sarmaya Microfinance (EasyLoan) are the only two licensed entities providing nano loans.
Despite lending being regulated, most of these instant credit apps operate in a regulatory vacuum. Licensed or not, their modus operandi is no different. The user downloads the app, enters their details, is assigned a limit, and the amount disbursed. But countless reviews point to how the platforms disburse the loan without seeking confirmation from them. Another recurring complaint is how there are technical glitches at the time of payback, resulting in delays and late charges.
There are concerns with respect to data as well, as these loan apps require access to the users’ contacts. In some cases, the platform leverages that information to name and shame late payers by reaching out to their friends and family. This tactic is actually becoming a scary reminder of the incidents in the past where the instances of borrower committing suicide was common.
Finally comes the cost of loan where the information is deliberately misleading or incomplete. For example, Barwaqt claims that the annual percentage rate is capped at 24% while service charges are different for everyone ranging between 21% to 38%. Others, like WeCash, claim APR of just 10.95%. Microfinance banks, which theoretically have access to relatively cheaper funds, lend at 30%. So 11-24% for even riskier loans sounds like too good to be true.
Digital lending is a fairly new concept in Pakistan and it has many similarities with the growth of the credit cards sector some two decades ago. While it’s true that the cost of financing digital platforms would always be higher than conventional lending platforms because of the higher risk and instant and unsecured nature of personal loans on offer, however, currently there is no legal obligation in the system to place a cap or limit on loan pricing, markup or interest rates, and these are determined by market forces and bilateral agreements between lenders and borrowers.
Digital nano loans are at an evolution stage in Pakistan, where more than 100 million people don’t have bank accounts. These lenders would eventually develop into digital banks, disbursing large loans. With growth expected in the nano loans sector, complaints of defaults by clients and exploitation by lenders too will rise.