LAHORE: When he applied for a tiny, 30-day loan using a digital lending app in the latter part of last year, unemployed Pakistani software engineer Ali believed he had discovered a method to settle his past-due power bill.
Minutes after submitting the application, the money appeared in his account, which is a major draw of the lending apps that are quickly becoming popular among Pakistanis of lower income who are struggling with the country’s economic crisis and a lack of readily available bank loans.
“In only 10 minutes, the 15,000 Pakistani rupees ($53) that I had applied for was in my account minus the processing fee,” the 30-year-old, asking not to use his real name, was quoted as saying in Reuters report.
But just seven days later, his relief turned to fear as he received calls demanding the money back immediately or ordering him to pay a penalty for a one-week extension.
The new lender also turned out to be unscrupulous and charged a sky-high interest rate, meaning his initial 15,000-rupee loan ending up costing him 230,000 rupees.
Experiences like his are increasingly common as more people in the country of 220 million turn to dozens of mobile-based lenders, creating fertile ground for scams and fraudsters, digital rights and consumer defence groups say.
Many of the apps are regulated, but they too are the source of hundreds of complaints filed so far this year with the country’s capital market regulator, the Securities and Exchange Commission of Pakistan.
Reflecting a jump in smartphone use, the number of Pakistanis using personal finance apps more than doubled to 19% in 2022 from two years earlier, boosting low rates of financial inclusion, found a survey earlier this year by Karandaaz Pakistan, a nonprofit.
But while the apps offer quick, collateral-free credit to the largely unbanked, the boom has led to a surge in complaints about illegal lenders that routinely abuse customers’ data and use aggressive recovery tactics including threats and blackmail.
The country’s capital market regulator, the Securities and Exchange Commission of Pakistan, had by May received 1,415 such complaints against licensed digital lenders and 181 against unlicensed ones, and federal police are investigating apps involved in blackmailing clients.
Many of the apps do not include contact details, making it impossible for aggrieved customers to seek redress. Dad said poor digital literacy had made people vulnerable to apps that promise quick solutions.
The loan apps are also cashing in due to the cumbersome process and bureaucratic hurdles involved in getting a bank loan, industry experts say.
