• SECP reiterates efforts to regulate digital lending apps amid recent outcries.
• SECP emphasizes its commitment to developing capital and financial markets through policy updates.
• SECP implements specific requirements for NBFCs in digital lending to protect borrowers’ interests.

Following the recent outcry against digital lending apps, the Securities and Exchange Commission of Pakistan has reiterated its efforts to regulate authorized Non-Banking Finance Companies (NBFCs) involved in lending activities.

In a comprehensive press statement, the SECP emphasized its commitment to developing capital and financial markets by continuously reviewing and updating policies. It aims to promote ease of doing business through technological advancements, enhance financial inclusion, lower entry barriers, and ensure transparent enforcement of laws to safeguard people’s rights.

Certain NBFCs have extended their services to offer personal loans through digital apps. The SECP maintains a list of approved apps on its website. Any apps not listed on their website are unauthorized and considered illegal.

84 lending apps were removed by Google.

To tackle the issue of illegal apps, SECP has been collaborating with Google. On April 5, 2023, Google announced its Personal Loan App Policy for Pakistan, which will be effective May 31, 2023. Pakistan becomes the sixth country, following India, Indonesia, the Philippines, Nigeria, and Kenya, to have additional requirements introduced by Google for digital lending apps.

The policy incorporates measures to prevent the listing of illegal apps on the Play Store and imposes strict requirements to safeguard consumer personal data. As a result of SECP’s reporting, Google took down 84 illegal lending apps from its Play Store.

Steps by SECP

In December 2022, the SECP implemented specific requirements for NBFCs involved in digital lending to safeguard borrowers’ interests. The regulations mandate transparent disclosure of fees, loan tenure, number of installments, early and late payment charges, etc., all of which must be provided to customers before loan disbursement. Moreover, access to consumers’ personal data, such as contact lists and photo galleries, is strictly prohibited.

The SECP has established a cooling-off period of 24 hours, allowing customers to withdraw from the loan agreement by repaying the principal amount to the lender. Additionally, NBFCs offering digital loans are restricted to operating only one app. Furthermore, company call agents can only contact customers through registered phone numbers using recorded lines. Lenders and their agents are required to adhere to ethical and legal standards during loan collection, ensuring no unfair practices such as contacting borrowers at inappropriate times, using violence or illegal means, employing offensive language, or engaging in improper debt collection tactics. The SECP has a robust enforcement system in place to monitor compliance with these regulations.

Licensing requirements

For companies interested in digital lending, the SECP follows a two-tier process. Firstly, they must acquire a license to establish an NBFC, which involves a thorough evaluation of sponsors and directors’ suitability, the nomination of an independent director on the board, and meeting minimum equity requirements. In the second stage, app approval is granted based on the CSAF auditors’ certificate, ensuring data and app security following a comprehensive review of disclosure requirements.

In response to the problem of unlicensed digital lending apps operating unlawfully in the country, SECP has collaborated extensively with various regulatory bodies, such as the Pakistan Telecommunication Authority (PTA), the Federal Investigation Authority (FIA-Cyber Crime Wing), and the State Bank of Pakistan (SBP). As a result of these efforts, SBP issued a circular in June 2022, denying access to illegal apps through banking and payment channels.

Awareness campaign

SECP initiated a media awareness campaign to educate consumers about data privacy and their rights. The campaign includes mainstream and social media, capacity-building workshops, and SMS and in-App notifications. The public is encouraged to only download approved digital loan apps.

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Borrowers are advised to review the app’s permissions carefully before signing up and assess the disclosures related to fees, late payment charges, loan tenure, cooling-off period, and the privacy policy. Additionally, users are encouraged to report complaints against licensed apps to SECP through the dedicated complaint portal on SECP’s website.