To protect borrowers from unfair practices and ensure their financial stability in the digital nano-lending industry, the SECP (Securities and Exchange Commission of Pakistan) has introduced new rules through Circular 10 of 2023. These rules set limits on the amount of exposure that both digital lenders and borrowers can have, aiming to create a safer and more sustainable lending environment.
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.
Moreover, the duration for which a nano-loan can be obtained through personal loan apps has been limited to a maximum of 90 days. These boundaries on the amount of money borrowers can access aim to encourage careful borrowing practices and to safeguard borrowers from falling into cycles of debt brought on by taking out multiple loans.
To guarantee the safety of online systems and the private information of borrowers, an additional requirement has been introduced. Personal loan apps are now obligated to acquire certification from a cybersecurity audit firm categorized as Category-I and approved by the Pakistan Telecommunication Authority (PTA). This measure is designed to enhance cyber security and protect the sensitive data of individuals borrowing through these platforms.
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 non-banking financial companies (NBFCs) authorized by the Securities and Exchange Commission of Pakistan (SECP) have ventured into offering personal loans through digital platforms. You can find a comprehensive list of these companies on the official SECP website. Notably, in December 2022, the SECP took a significant step towards safeguarding the interests of borrowers. They made it mandatory for digital lending NBFCs to uphold transparency by disclosing all pertinent information. This includes details about fees, loan duration, installment plans, and any additional charges.
To ensure ethical and lawful practices, these companies were explicitly prohibited from accessing consumer data without proper authorization. Furthermore, they were required to adhere to high ethical and legal standards, including the adoption of respectful practices when collecting debts from borrowers.
To counter the proliferation of unauthorized and illegal lending applications, the SECP took an active stance. On May 31, 2023, they collaborated with Google to implement Pakistan’s Personal Loan App Policy. This resulted in a notable achievement as Google eliminated a total of 84 illegal lending apps from its Play Store. The SECP’s diligent efforts continue to pave the way for a more secure and accountable digital lending environment.
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
Moving ahead, the SECP is thinking about putting limits on the annual percentage rates (APRs) and the overall costs for digital nano loans. This comes after thorough and inclusive discussions and collaboration with various groups, including those in the industry.