Made in China: How the racketeering of instant loan apps exploded in India

A large percentage of instant loan applications have the same software backend, but a different frontend brand. Chinese investors then bring these applications to India with proxy administrators.

Bhumana Prasad, a resident of Hyderabad, took a 3,500 rupee loan from ‘My Bank’ – a digital loan application – in November 2019. Within a week, he paid off the amount with interest, and soon, took out another micro-loan, of Rs 4,400, from the same application. Within days, however, Bhumana noticed something strange. There were Rs 26,000 deposited into his SBI bank account from various sources – namely 14 different loan applications that he had never downloaded – and very soon all of them started harassing him, demanding a refund totaling Rs 44,000.

How did these apps “loan” money to Bhumana? And why? Police believe “My Bank” shared their details with other apps run by the same company – Jhia Liang Technology in Pune. As to why investigators and experts say this is part of the modus operandi adopted by fraudulent instant loan applications. They collect your personal data, use that personal data as collateral to manipulate and harass you, and use other predatory methods to collect high interest rates – sometimes as high as 200 or 500%.

And just like many other things – like phones, plastic toys, and clothing – this product, a FinTech scam, was made in China.

How does fraud work

The COVID-19 pandemic has resulted in job losses and pay cuts, starting in March 2020, and the need for credit among people has increased dramatically. It has also become the opportune time for instant loan applications to open a store and collect customers in India.

These companies give everyone a large number of smaller loans at a very high interest rate. That way, even if there is a defect, it doesn’t cause the business much loss.

The reason why these apps have become so popular is also because they grant loans to everyone regardless of their creditworthiness and without KYC documents, definitive loan agreement etc.

“For example, at Moneytap, we reject 95% of people. These apps approve 95% of people. By lending, you are supposed to reject more than approve because you are not supposed to give money to those who do not have the means, the capacity or the intention to repay, ”says Anuj Kacker, secretary and Chairman of the Digital Lenders Association of India and COO of MoneyTap.

But once people like Bhumana are trapped, debt collectors adopt coercive means for loan collection, accessing phone contacts, pictures, location and more. Data from the phones of these loan defaulters was used to make threatening calls, made from call centers operated by the loan applications. Cases have emerged where photos of failing women have been pulled from the phone’s gallery, turned into pornographic material, and shared with the defaulter’s contacts and via WhatsApp groups.

Made in China…

Several of these tactics were used in China by instant loan applications, from 2012 until a government crackdown in 2016. more than The predatory payback tactics of instant loan apps in China had issued loans worth $ 100 billion. Moving almost killed the sector.

Like china same set up an office of the management team of Internet financial risk special rectification work and given instant loan applications, also known as Peer-2-Peer (P2P), 2 years to clear outstanding loans and exit the industry, it seems that many of these lenders have turned their attention to India.

Police crackdown on Chinese-owned apps has so far resulted in the arrest of 7 Chinese nationals and more than 35 Indians by three police forces in southern India. Police said they are still investigating the business network and the Law Enforcement Directorate has also launched an investigation.

… imported to India

Balaji Vijayaraghavan, a Chennai-based criminology student had installed the Snapit app (later removed by Google) in October 2020 but quickly observed that his bank account was being used for transactions unrelated to him, “There is had a death in the family and needed a little more money so I identified a few places to get a loan. I didn’t even log into the app but they were still able to access to my bank account. I had Rs 90,000 in my bank account, but I noticed that transactions worth Rs 8.49 lakh were being carried out on my account, ”explains Balaji who now helps Telangana police and Maharashtra in its survey of applications.

Balaji is a member of the SaveIndia Foundation, a team of cybersecurity professionals investigating instant loan applications operating in India. The researcher claims that instant loan applications were introduced in India through the fintech fairs held annually in Indonesia, Malaysia and Singapore.

“While the event is going in a positive spirit, a few Chinese exhibitors showcase their instant loan applications there and a few Indian businessmen are drawn to the business model. The software development kits (SDKs) are then sold either at a nominal price or with equity to the Chinese who invest in the Indian company, ”explains Balaji.

“About 85% of these apps were deployed using the same SDKs, so it’s a company that creates a white label app and then individual companies brand name it. The technological backend remains the same. We’ve seen three or four white label companies that these apps are based on, ”says Srikanth L of Cashless Consumer, a consumer collective that works to raise awareness of digital payments. The collective examined 1,050 instant loan applications and found a series of irregularities in their operation. About 750 of these apps are still available on the Google Play Store; of them, only 300 have websites – with very little information; and only 90 have a physical address.

Chinese nationals looking to set up these instant loan app companies would use attorneys as administrators and then hire accountants to set up the company.

A data war?

In 2020, a sharp increase in the registration of instant loan applications was seen in India, says Cashless Consumer. All the apps stored user information, such as facial recognition data and personal data, on Chinese servers. The exact number of instant loan applications is not yet fully known.

In one observed model, individuals came to set up a business with the help of a few Indians. “It would be created as a micro-finance company with loan amounts as low as Rs 2,000 and transactions are done through digital payment gateways such as Google Pay, Paytm and others,” says Srikanth L of Cashless Consumer .

Srikanth during a webinar, KillerApps – Detecting Predatory FinTech apps – said that approximately 600 of the 1,050 applications analyzed were found using some form of “activity detection” – to authenticate the user under the shape of a selfie.

Cashless Consumer has discovered that the selfie taken on these apps is performed through artificial intelligence (AI) software with servers in China. “It may seem non-trivial, but it is a national security issue,” says the researcher.

“It collects facial recognition (FR) worthy images as well as the individual’s personal details, so it practically has the potential to mirror the Aadhaar database if the person also provided Aadhaar when requesting.” loan. These entities then collect other credentials. They can build a parallel Aadhaar system. This needs to be studied in depth as to the type of data they store and process, ”he adds.

Why India is ripe for fraud

Anuj Kacker says that payday loans are a hugely profitable business and therefore have attracted a lot of them as a way to make money fast. While it has shown over the years and across the world that it is profitable, it has led to all kinds of debt traps and therefore banned in most countries. This has happened in the UK, many African countries, China and Indonesia.

India, experts say, was ripe for this venture because we are not new to the business of unorganized loans at high interest rates – it has spread among local unorganized pawn shops. What has happened now, according to Anuj, is that instead of doing it in a physical market, people have created apps for it.

He adds that although Indian regulators are stricter than most countries, for those looking to make a quick buck, it’s a risk worth taking.

“They are very opportunistic and are not there for the long term. They are here as long as they can earn the money and then move on, ”adds Anuj.

RBI’s action so far and what can be done further

The Reserve Bank of India (RBI) in December learned about the practices of these instant lending companies and issued a warning, asking the public to stay away from unauthorized digital lending applications.

He also urged people to never share KYC documents with unidentified people, unverified / unauthorized apps and asked people to report such fraudulent activity to law enforcement agencies or the RBI. . Sachets portal.

RBI also mandated the digital lending platforms used on behalf of banks and NBFCs to disclose the name of the bank (s) or NBFCs to customers upfront.

While there are also reports that RBI is examining the source of funds for these loan applications, no further action has been taken by the banking regulator.

The Digital Lenders Association of India (DLAI) suggests that there should be a law prohibiting short-term loans with terms of less than 60 days and that interest rates should be posted in advance before processing the loan. .

“When you start doing a 60, 90, or 120 day minimum, it’s not easy to spin the money, and companies will have to raise a lot of capital, fundraise appropriately, and so on. You also cannot charge very high interest rates, which makes the business less profitable and the margins are reduced, ”says Anuj.

(With contributions from Haripriya Suresh)

Read the second part – Investigation: Chinese owners, Indian agents and ghost addresses

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