Illegal instant loan apps have become a significant problem in India, leading to financial scams and even driving some victims to suicide. These apps offer quick money but compromise users’ privacy and security. To address this, the Ministry of Electronics and Information Technology (MeitY) in India has proposed a solution.
The Problem with Instant Loan Apps
- Quick Money Temptation: Instant loan apps lure people with quick money, but they lack security and often lead to financial troubles.
- Privacy Breach: These apps access personal data, leading to privacy concerns. They have been involved in harassment and threats, pushing some victims to suicide.
- Meeting with RBI and DFS: MeitY discussed the issue with the Reserve Bank of India (RBI) and the Department of Financial Services (DFS) to find a solution.
- Proposal – KYDFA: MeitY suggested creating a detailed KYC (Know Your Customer) process called KYDFA (Know Your Digital Finance App) for companies. This is similar to the KYC process for bank accounts.
- Purpose of KYDFA: KYDFA ensures only legitimate financial apps, following the law, can use the Indian banking system. It helps trace illegal apps and take legal action against them.
Past Efforts and Challenges
- Google and Apple’s Actions: App stores like Google and Apple have removed thousands of such apps violating their policies.
- Government’s Proposal: The finance ministry suggested a whitelist of approved apps, but the problem persisted.
- Increasing Complaints: Despite previous efforts, complaints against these apps doubled in FY 23, indicating the need for a more robust solution.
Government’s New Approach
- Detailed KYC Proposal: MeitY’s new proposal emphasizes a detailed KYC process for financial apps, aiming to enhance security and legality.
- Ensuring Traceability: KYDFA will establish traceability, helping authorities track the origin of illegal apps for legal actions.
- National Security Concerns: Some illegal lending apps are linked to foreign entities, raising concerns about national security.