The Securities and Exchange Commission of Pakistan (SECP) has advised borrowers of digital lending companies to thoroughly read through all of the terms and conditions of the loans, including interest/markup rate, services fees, and late payment charges/penalties, before signing up for loans using these digital apps.
Sources told ProPakistani that licensed Non-Banking Finance Companies (NBFCs) are subject to legal action if any applicable rules are violated or borrowers are given false or misleading information. Borrowers who have grievances may approach the respective NBFC for settlement and if their concerns are unresolved, they may also file a complaint with SECP through its Service Desk Management System.
Although NBFCs; digital lending apps offer quick, unsecured small ticket loans to borrowers and may act as a source of credit for otherwise underserved or unserved strata, the loan rates they charge can be proportionally quite expensive for the reason these are unsecured loans, they said.
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 helps 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 a loan agreement.
The disclosures include; information regarding App access to user data during the App registration process, and the privacy policy, mark-up 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 a Key Fact Statement (KFS) is required before the loan disbursement to the borrower including; loan amount approved, cooling-off period, Annual Percentage Rates, the tenor of the loan, installments/lump sum payment amounts with date(s), all fee and charges, inter-alia processing fee, late payment charges and Per day charges for late payments.
Officials said that digital Lenders are restricted to make any upfront deductions (first installment, charges, fee etc.) from the approved loan amount.
Similarly, the terms and conditions along with the Annual Percentage Rate as agreed between the Digital lender and borrower at time of grant of the loan shall not be subsequently changed without the prior consent of the borrower including an automatic increase in credit limit. In addition, disbursement and recovery shall be carried out only through the bank account/branchless banking accounts of the digital lender and disbursement shall be ensured to be made in the bank account/branchless banking account of the borrower.
Digital loan disbursement shall be subject to acceptance of all the underlying terms and conditions by the borrowers. Digital Lender shall also ensure the digital provision of loan sanction letter, terms and conditions, account statements and privacy policies with respect to borrower’s data, to the borrower through email/ SMS upon execution of the loan contract.
The Commission has also specified a comprehensive grievance redressal mechanism with detailed monthly reporting over and above the current NBFC grievance redressal framework.
To discourage non-licensed digital lenders, the licensed digital lender shall be required to disclose its full corporate name and licensing status (including license no.) on its lending platform(s)/app(s), documentation, materials and advertisements and also provide its license status along with approval granted by the Commission for respective App to Google Play Store and/or App Store.
The Digital Lender shall make available on its website, updated information regarding its lending products including complete terms and conditions.
Any advertisement and publication shall be fair and reasonable and not contain misleading information. Further, in order to prevent borrower’s over-indebtedness and manage credit risk, the Digital Lenders shall develop an internal mechanism to monitor the overall exposure of its borrowers by; requiring undertaking from borrowers regarding their current borrowing from all lenders; obtaining membership of CIBs; and ensuring regular/continuous reporting to all the credit bureaus operating in Pakistan on a real-time basis.
Confidentiality and privacy of data is at the forefront of the Commission’s digital lending framework and it has been made obligatory that data shall not be stored on any cloud infrastructure outside the jurisdiction of Pakistan.
Moreover, data currently stored on cloud infrastructure/hosting/data centers outside the jurisdiction of Pakistan shall be shifted/transferred inside the jurisdiction of Pakistan within the specified period. Similarly, digital lenders 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 authorized by the borrower as guarantors and who have
