Amidst recent controversies surrounding digital lending apps, the Securities and Exchange Commission of Pakistan (SECP) has once again emphasized its commitment to regulating Non-Banking Finance Companies (NBFCs) authorized for lending. In its press statement, SECP highlights its continuous efforts to develop capital and financial markets, promoting ease of doing business, expanding financial inclusion, and enforcing transparent laws to safeguard people’s rights.
Unauthorized Personal Loans Through Digital Apps
Some NBFCs have delved into providing personal loans through digital apps, and the SECP has a list of approved apps available on their website. However, it has warned that all other apps available on different play/app stores without authorization are deemed illegal.
Google’s Collaboration to Combat Illegal Apps
To tackle the problem of unauthorized apps, SECP has actively collaborated with Google. Recently, on April 5, 2023, Google introduced its Personal Loan App Policy for Pakistan, effective from May 31, 2023. This makes Pakistan the sixth country to implement additional requirements for digital lending apps after India, Indonesia, the Philippines, Nigeria, and Kenya. The policy focuses on preventing illegal apps from appearing on the Play store and imposes stringent requirements to safeguard consumer personal data. As a result of this partnership, Google has already removed 84 illegal lending apps from its Play Store, reported by the SECP.
SECP’s Initiatives to Protect Borrowers
In December 2022, SECP introduced requirements for NBFCs involved in digital lending to protect borrowers’ interests. The regulations include clear and transparent disclosure of fees, loan tenure, number of installments, early and late payment charges, etc., provided to customers before loan disbursement. Access to consumers’ personal data, such as contact lists and photo galleries, is strictly prohibited. A cooling-off period of 24 hours allows customers to withdraw from the loan agreement by repaying the principal amount. NBFCs offering digital loans are restricted to operate only one app, and their call agents must adhere to ethical and legal standards while collecting loan amounts.
Licensing Process for Digital Lending
For companies seeking to engage in digital lending, SECP follows a two-tier process. Initially, they must obtain a license to establish an NBFC, which involves due diligence on sponsors and directors, nomination of an independent director on the board, and meeting minimum equity requirements. Subsequently, app approval is granted based on CSAF auditors’ certification to ensure data and app security, along with a thorough review of disclosure requirements.
Collaboration with Regulatory Bodies and Awareness Campaign
To address the issue of unlicensed digital lending apps operating illegally, SECP has been in constant communication with various regulatory bodies, including the Pakistan Telecommunication Authority (PTA), Federal Investigation Authority (FIA – Cyber Crime Wing), and State Bank of Pakistan (SBP). This resulted in SBP issuing a circular in June 2022, denying access to illegal apps through banking/payment channels.
To further raise awareness, SECP has launched a media campaign involving mainstream and social media, capacity-building workshops, and SMS/In-App notifications to educate consumers about data privacy and their rights. The public is encouraged to download only approved digital loan apps, review app permissions before signing up, and carefully assess all relevant disclosures. Additionally, users are advised to report complaints against licensed apps to SECP through a dedicated complaint portal on their website.
