New Delhi: Money-laundering, data theft, tax evasion, customs violations, extortion and fraud — these are some of the reasons why the Ministry of Electronics and Information Technology (MeitY) on Monday blocked around 138 betting and 94 loan apps, including micro-financing apps, on the recommendations of the Ministry of Home Affairs, ThePrint has learnt.
The ban comes at a time when various central agencies — including the Enforcement Directorate (ED), Income Tax Department and Directorate of Revenue Intelligence (DRI) — as well as police of different states have been investigating these firms and apps on allegations ranging from income tax evasion and customs violations to fraud and money-laundering.
In several states, micro-financing apps have been accused of harassment of borrowers by recovery agents, driving them to die by suicide.
Officially, the government has not said anything on why it has banned the apps or even which apps have been banned.
Incomplete lists have been circulating in the media that name several apps, including some run by Indian entities such as LazyPay, Indiabullshomeloans.com, quikfinance.co.in and Kissht.
While these apps are still available on Google’s app store, they seem to have halted user sign-ups.
Officials in various agencies said that though these companies (running the apps) were registered in India as entities separate from their parent firms, they were taking direct directions from China and routing substantial amounts of money back to the neighbouring country.
In some cases, there are accusations that money was being “laundered” as royalty or licence fee, while in others, it is alleged that sales books were manipulated to show losses to save income tax, while profits were channeled to shell companies, according to a person aware of the matter.
When contacted, a Google spokesperson confirmed that the company had got the order to remove certain applications from its Play Store.
The spokesperson added that the company is evaluating the order and will take action after that.
A response from Apple was awaited regarding the iOS platform.
In 2022, the Ministry of Corporate Affairs (MCA) had registered more than 700 cases against companies with Chinese links.
According to MeitY officials, the government invoked its power under Section 69A of the Information Technology Act, 2000, read with the relevant provisions of the Information Technology (Procedure and Safeguards for Blocking of Access of Information by Public) Rules, 2009, to block these applications, following concerns over money-laundering and data privacy.
In the case of some smaller fintech companies, it has been alleged that they “duped” thousands of people by giving short-term loans at high interest rates, and then hounded them using personal data mined through mobile phone apps.
“The decision to ban these apps was taken after receiving inputs from agencies, including the cyber cell units of local police across the country,” a government official told ThePrint on condition of anonymity since the government has not officially released any public statement on the subject.
“The central agencies including the ED probing cases against these apps have also found evidence to show how these apps were created and who is funding them. Banning these apps is just part of a larger crackdown,” the official added.
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‘Loans at exorbitant interest, data theft, threats – a trap’
In the last one year, the ED has come down heavily on micro-financing applications allegedly run by Chinese-owned fintech companies and has registered multiple cases in this regard. The agency has also attached assets worth more than Rs 200 crore so far in loan app cases, sources confirmed.
According to ED officials, there are several fintech firms located in India — including in Gurugram, Delhi, Mumbai, and Bengaluru — that are either directly owned by Chinese nationals or companies, or indirectly by “dummy directors” appointed in Indian companies. These companies, sources said, are getting funds, directly or indirectly, from China or Hong Kong.
According to an official, these fintech companies identified 38 defunct non-banking financial companies (NBFCs) with meagre capital ranging from Rs 3.5 crore to Rs 11 crore and “no employee or staff for their business”. These NBFCs had not been engaged in any lending business for long, the official said.
After identification of these NBFCs, these fintech companies signed MoUs with them and provided security deposits of Rs 100 crore or more, after which these NBFCs registered separate merchant IDs with payment gateways for each micro-lending app run by the partner fintech company, the sources explained.
“Essentially, these fintech companies have been using the licence of these defunct NBFCs as their own,” a source said.
ED sources also claimed that these fintech companies gave “instant micro loans” ranging from Rs 2,000 to Rs 20,000 to thousands of customers, on a very high rate of interest ranging from 182 per cent to 365 per cent per annum, along with a high penalty for default.
The time period for the loan ranged from one week to a few months and an amount of 15-25 per cent of the sanctioned loan was deducted as processing fees at the time of sanctioning itself.
ED sources have also alleged that, while processing these loans, these companies “captured personal data of customers”, and then used it against the customers, forcing them to cough up inflated interest amounts.
Digital Lenders Association of India (DLAI), which has over 90 members including Indialends, KredX, MoneyTap, ZestMoney and NeoGrowth, had said in a statement issued Tuesday that it is yet to receive any formal communication from MeitY on restricting any digital lending app or any warning on any fraudulent practices.
“We are in the process of collating information from our members and other industry associates about the details. We will approach MeitY and other relevant authorities to understand the matter in detail and implement requisite action points if required,” it said.
“At DLAI, we are committed towards responsible growth of digital lending and the fintech sector, with a focus on expanding the reach of formal financial services to larger groups of customers. Our 90+ members follow a mandatory code of conduct and follow the guidelines specified by various regulatory authorities,” it added.
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‘Banned apps will get chance to submit clarification’
A second source, from MeitY, said that according to the laid-out process, officials from the banned application will be invited to meet with the government stakeholders concerned and be given an opportunity to respond and submit clarifications.
This was the process followed in 2020 as well, when a number of apps -including the popular social media platform TikTok – were banned in India over alleged links to China.
Sector sector watchers say that the rules empower the government to move ahead with a ban even without seeking a response from the banned apps.
“Section 69(A) of the IT Act 2000, read with 2009 IT blocking Rules, have confidentiality clauses built in,” Prateek Waghre, Policy Director at Internet Freedom Foundation, told The Print.
“The government does not even need to send a notice to the affected firm. It can just inform an intermediary like a Google or a telecom operator. If we go by the actual process, the affected company may not necessarily have access to the order so they won’t even know what exactly to challenge,” he said.
Waghre acknowledged that “there is definitely a problem” with lending apps that needs to be addressed, and that people have genuine grievances against them.
“But the issue is the opaque manner in which the subject is being addressed,” he added. “We are still not 100 per cent sure which apps have been banned and why. This is part of a continuing trend. Hence, it is important that the Indian companies also look at the digital rights issues. Even if these don’t impact them now, they may in the future. The way this issue has been dealt with, the Indian fintech companies are facing the brunt of a lack of due-process.”
Whitelist of legal apps
Responding to a query on digital lending apps, Minister of State for Finance Dr Bhagwat Karad, in a written reply to the Rajya Sabha on Tuesday, said the Reserve Bank of India (RBI) had constituted a working group on digital lending, including lending through online platforms and mobile apps, to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players.
“Subsequently, the RBI has issued regulatory guidelines on digital lending aimed at firming up the regulatory framework for digital lending while enhancing customer protection and making the digital lending ecosystem safe and sound,” he said.
In a separate reply, the minister said the RBI has furnished a list of “Digital Lending Apps being used by regulated entities of RBI to the Ministry of Electronics & Information Technology (MeitY), which in turn has shared the list with the respective intermediary (app stores) and requested them to ensure that only the apps figuring in the list are hosted on their app stores”.
In September 2022, following a meeting chaired by Union Finance Minister Nirmala Sitharaman with officials from the Ministry of Finance, MeitY and the RBI on issues related to “illegal loan apps”, the government had said that the RBI will prepare a “whitelist” of all the legal apps and MeitY will ensure that only these “whitelist” apps are hosted on app stores.
The government had also said that the “RBI will monitor the ‘mule/rented’ accounts that may be used for money-laundering and will review/cancel dormant NBFCs to avoid their misuse”, among other things.
During the meeting, Sitharaman expressed concern over increasing instances of illegal loan apps offering loans/micro credits, especially to vulnerable and low-income group people at exorbitantly high interest rates and processing/hidden charges, as well as predatory recovery practices involving blackmailing, criminal intimidation, etc, an official release had stated.
It added that Sitharaman also noted the possibility of money-laundering, tax evasion, breach/privacy of data, and misuse of unregulated payment aggregators, shell companies, defunct NBFCs etc., for perpetrating such actions.
(Edited by Nida Fatima Siddiqui)
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