India Tighten The Noose Around Digital Lenders: Asian Countries Observing Closely

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Digital lenders are in hot water in Asia. Various authoritative bodies are stepping up to increase reign in the financial services sector, which for most of its existence has operated with very little oversight in countries such as India and Indonesia.

Currently, there exist countless apps and websites offering easy-to-access loans in both India and Indonesia where a sizeable chunk of the population is still unable to get access to the formal credit system. 

According to the World Bank, as of 2017, 190 million individuals in India did not even possess a bank account whereas in Indonesia the number stood at 95 million.

Now, officials are struggling to increase supervision in the fast-growing sector as there are thousands of lending apps which operate illegally amid many that are operating legally.

The illegal apps are notorious for preying on their consumers (who often have limited financial literacy) by charging them hefty interest rates, harvesting their personal information from their phones, harassing their family members on call and so on.

Niki Luhur, Chairman of Indonesia Fintech Association, in a statement about the same, expressed how trying to police online lending apps is very similar to playing a game of “Whac-A-Mole” because the bad apples always manage to somehow slip through the system.

Last month in India, the RBI aka The Reserve Bank of India set up a panel in order to strengthen vigilance over the digital lending space after taking note of the increasing public alarm about the proliferation of illegal lending apps whose recovery-tactics have been linked to suicides and led several police investigations and arrests as well.

Prior to that, Google faced a lot of criticism in India for hosting credit lending apps after which it went on to announce it will remove all non-compilers from its app stores.

Similar to India, Indonesia’s Financial Services Authority (OKJ) has also stepped up its regulation efforts. Last year, they drew up draft proposals in order to make existing rules stricter by significantly boosting paid-up capital requirements and mandating that more board meetings take place throughout the financial year.

Soon, Indonesia might also force online lenders to secure funds from offshore investors who are already involved in the financial services sector. Besides that, the OKJ body of the country has already put in motion several measures to curb illegal apps and lenders by partnering up with other ministries to block or ban them as per the rules.

That being said, now because of the broader clampdown on the financial services sector, there has emerged a new problem. The strict rules and oversights have now started attracting heavy lobbying from the regulated fintech firms and their investors who are worried they might get caught up amid the intricacies of the new regulations and ultimately end up getting served as collateral damage.

Co-founder of MobiKwik (which offers consumer loans) Upasana Taku, in a statement about the same, said: “The RBI and government will do anything and everything to protect the consumer. I just hope they don’t go so far that it kills the proposition”.

Similarly, Chief executive of Mandiri Capital Indonesia Eddi Danusaputro, citing the increase in required paid-up capital as an example. warned that some of OJK’s proposed requirements are “too strict” and could easily stifle what he believes is a booming industry.

Thus, all in all, it now remains to be seen how far can regulation be extended to clean up the bad apples while making sure it doesn’t trample the ones who are operating well within the legal boundaiers. We will keep you updated on all future developments. Until then, stay tuned. 


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