SECP to Issue Licenses to Only PTA-Compliant Digital Lending Apps

The Securities and Exchange Commission of Pakistan (SECP) has decided to issue licenses to only those digital lending companies which will obtain compliance certificates from Pakistan Telecommunication Authority (PTA) approved cyber security audit firms.

Under the new digital lending standards., the commission has made it mandatory for digital lending companies to take the commission’s prior approval for launching Digital Lending Platforms/Apps after obtaining the said compliance certificate.

The lenders will be allowed to operate only one App at a particular time and the list of Digital Lending Apps of NBFCs shall be placed on SECP’s website.

The licensed digital lending Non-Banking Finance Companies (NBFCs) have made lending to more than 2.4 million borrowers with the disbursement of over Rs. 63 billion in 2022. However, with the growing number of loans, the SECP has noticed an increasing trend of borrowers’ complaints against digital loan providers, specifically those involved in nano lending.

These complaints are not only registered directly with SECP’s portal but the social media forums like Facebook and Twitter are flooded with coverage against these loan providers. The complaints mainly relate to exorbitant interest rates, inadequate/misleading disclosures, loan disbursement without borrowers’ consent, and coercive collection practices.

Lending is a licensed activity in Pakistan, but there are numerous digital lending apps operating in Pakistan without licenses and are, therefore, illegal. Entering into any loan agreements or dealings with unlicensed apps may have adverse implications, therefore, users are advised to avoid using such unauthorized apps.

The digital lender 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 also provided their consent to the digital lender at the time of loan approval, officials said.

The new framework, 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 to the NBFCs undertaking lending activities through digital channels/mobile applications. 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 included information regarding App access to user data during the App registration process, the privacy policy, markup rate, financing details, fees and charges, early settlement charges, and contact details before the borrower enters into a loan agreement.

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