CCP warns of risks of using micro-credit, nano-loan facilities

The Competition Commission of Pakistan (CCP) on Thursday warned the general public about the risks associated with the rising trend of mobile app-based micro-credit and nano-loan facilities.

These mobile applications, available on Google PlayStore and Apple AppStore, offer short-term financing to borrowers but are currently facing numerous complaints and challenges in their track-and-trace process.

As a result, the CCP has initiated an inquiry against these applications, which are observed to constantly change their premises or undertakings behind such applications.

Until the conclusion of the inquiry, the CCP deemed it necessary to alert the general public about the many issues observed and how to avoid these issues. The CCP has also intimated to the Securities and Exchange Commission of Pakistan (SECP), Federal Investigation Agency (FIA), and Pakistan Telecommunication Authority (PTA) in this regard.

Most of these applications operate without complying with Pakistan's regulatory framework. Therefore, it is important to ensure that the applications from which consumers are borrowing are duly registered and operating under a regulatory regime.

Moreover, these applications may take complete control of the user's device by requiring the user to agree to standard access permissions for the app, breaching the user's privacy and making the user vulnerable to the app operator. Thus, users are cautioned to carefully read the terms and conditions displayed so that they can make an informed decision.

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When applying for a loan through these mobile app-based micro-credit and nano-loan facilities, users are presented with various terms and conditions that outline the time period for which the loan is extended, the exact amount of loan disbursed, deductions made from the total loan requested, payment and repayment methods, and any hidden charges. However, these terms and conditions are often at variance with what is advertised, resulting in deception or fraud.

The applications also require the user to provide two or more emergency contacts, which the operators consider as collaterals or guarantors. Recovery agents have reportedly been known to harass and abuse borrowers and their contacts for the sake of repayment. The general public is told that these lenders will, on maturity, make calls to the consumer as well as the emergency contacts for recovery of the loan.

To avoid falling prey to fraudulent activities, it is important for the public to be aware of instances where recovery agents have given their personal account details instead of the lender's valid account. This can result in payments not being adjusted against the repayment and cause further inconvenience to borrowers. Consumers must be careful and only make payments on the registered accounts of the mobile app-based micro-credit and nano-loan facilities.

The CCP strongly advised the public to exercise caution and due diligence when using mobile app-based micro-credit and nano-loan facilities. As per the initial findings, these applications have over 10 million downloads by the general public, comprising mostly of vulnerable consumers belonging to the lower to middle-income classes.