In order to curb predatory practices and ensure the financial sustainability of the borrowers in the digital nano-lending sector, the SECP has imposed exposure limits on digital lenders and borrowers through its Circular 10 of 2023.
A maximum limit of Rs. 25,000 has been imposed for individual borrowers from a single loan app, and the aggregate amount of loans from multiple apps has been restricted to not exceed Rs. 75,000.
Further, the loan period/tenor for a nano-loan through personal loan apps has been restricted to not more than 90 days. The exposure limits on borrowers shall promote responsible lending behaviors and prevent borrowers from being trapped in debt cycles due to multiple loans.
In a bid to ensure cyber security and protect the sensitive data of borrowers, a condition has also been imposed whereby personal loan apps must obtain a certificate from a Pakistan Telecommunication Authority (PTA)-approved Category-I Cyber Security Audit Firm (CSAF).
Moreover, before the sign-up process, apps will be obligated to display a pop-up alert following directives from SECP to inform app users about the terms, conditions, and potential ramifications of borrowing. An in-app calculator for accurate loan repayment computations and associated charges is also mandated.
Several NBFCs licensed by SECP have entered personal loans through digital applications, with a list available on the SECP website. In December 2022, SECP introduced a mandatory requirement for digital lending NBFCs to protect borrower interests by requiring transparent disclosure of fees, loan duration, installments, and charges.
Companies were prohibited from accessing consumer data and required to adhere to ethical and legal standards, including respectful debt collection practices.
The SECP has also restricted unauthorized and illicit apps, collaborating with Google to introduce Pakistan’s Personal Loan App Policy on May 31, 2023. As a result, Google removed 84 illegal lending apps from its Play Store following SECP’s reports.
SECP is proactively evaluating and adapting policies to increase financial access and curb manipulative business practices aimed at safeguarding the interest of consumers as well as investors.
Potential cap on APRs
Going forward, the SECP is considering imposing pricing caps on annual percentage rates (APRs) as well as a total cost cap on digital nano loans after extensive, all-inclusive consultation and coordination with stakeholders, including industry participants.
