The dark side of the unregulated small loan market, especially the predatory practices of certain loan app companies. The misuse of technology and the lack of stringent regulations in the digital lending space can lead to severe consequences for vulnerable borrowers.
Several factors contribute to the challenges in the small loan market in India:
- Lack of Regulation: The absence or inadequacy of regulations in the digital lending space allows unscrupulous lenders to take advantage of borrowers.
- Predatory Practices: Some loan app companies resort to aggressive and unethical tactics, such as harassment and the sharing of personal information, to pressurize borrowers into repayment.
- Easy Accessibility: The ease of access to these loans, often with little or no documentation, attracts individuals who might be in urgent need of funds but are not fully aware of the terms and conditions.
- Lack of Awareness: Borrowers, especially those from vulnerable sections of society, may not be fully aware of their rights and may fall prey to exploitative lending practices.
- Digital Disguise: The digital nature of these transactions makes it challenging to trace and regulate the activities of such lenders effectively.
These quick-access loans, however, often come with exorbitant interest rates and unfavorable terms. Many borrowers, particularly those in vulnerable financial situations, may not fully comprehend the long-term implications of these loans. The lack of financial literacy and the urgency of their financial needs can lead them into what you accurately describe as “death traps.”
