Digital lending companies: Compliance certificates made mandatory

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) will issue licenses to only those digital lending companies which will obtain “compliance certificates” from the Pakistan Telecommunication Authority’s approved cyber security audit firms.

The SECP officials told Business Recorder here on Tuesday at the SECP Headquarters that the commission has made it mandatory for digital lending companies to take the commission’s prior approval for launching Digital Lending Platforms/Apps after obtaining the said “compliance certificate”. The lenders will be allowed to operate only one App at a particular time and the list of Digital Lending Apps of NBFCs shall be placed on SECP’s website.

The licensed digital lending Non-Banking Finance Companies (NBFCs) have made lending to more than 2.4 million borrowers with disbursement of over Rs 63 billion during 2022. However, with growing number of loans, the SECP has noticed an increasing trend of borrower’s complaints against digital loan providers, specifically those involved in nano lending.

These complaints are not only registered directly with SECP’s portal but the social media forums like Facebook and Twitter are flooded with coverage against these loan providers. The complaints mainly relate to exorbitant interest rates, inadequate/misleading disclosures, loan disbursement without borrowers’ consent and coercive collection practices.

Digital lending firms: SECP takes notice of coercive recovery practices

The officials explained that lending is a licensed activity in Pakistan, but there are numerous digital lending apps operating in Pakistan without license and are, therefore, illegal. Entering into any loan agreements or dealings with unlicensed apps may have adverse implications, therefore, users are advised to avoid using such unauthorised apps.

The digital lender will not be allowed access to the borrower’s phone book or contacts list or photo gallery even if the borrower has given consent in this regard. The lender shall also not be allowed to contact the persons in the borrower’s contact list, other than those who have been specifically authorised by the borrower as guarantors and who have also provided their consent to the digital lender at the time of loan approval, officials said.

About the new framework, the digital lending framework aims to smoothen the digital lending process, protect consumers from unethical loan recovery practices and empowers borrower to make more informed decisions with full transparency. This framework will not only discourage ambiguity and bad practices but will also encourage the genuine players to responsibly practice lending which help foster trust and eventually growth of the sector.

The new digital lending standards are applicable on the NBFCs undertaking lending activities through digital channels/mobile applications (Apps). The requirements stipulate the minimum mandatory disclosures to borrowers at all stages after the digital App download and before entering into loan agreement.

The disclosures included information regarding App access to user data during the App registration process, and the privacy policy, markup rate, financing details, fee and charges, early settlement charges and contact details before the borrower enters into a loan agreement.

Significant disclosure in the form of Key Fact Statement (KFS) are required before the loan disbursement to the borrower including; loan amount approved, cooling-off period, Annual Percentage Rates, tenor of loan, installments/lumpsum payment amounts with date(s), all fee and charges, inter alia processing fee, late payment charges and per day charges for late payments.

The officials said that the digital lenders are restricted to make any upfront deductions (first instalment, charges, fee etc) from the approved loan amount.

Copyright Business Recorder, 2023


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