- The SECP has introduced new regulations for digital nano-lending apps in Pakistan.
- The regulations aim to prevent exploitative practices and protect borrowers from debt cycles.
- The SECP is also considering capping APRs and overall costs for digital nano-loans.
To prevent exploitative practices and guarantee the financial stability of borrowers in the digital nano-lending industry, the SECP has established exposure limits for both digital lenders and borrowers in accordance with Circular 10 of 2023.
Individual borrowers are now subject to a maximum cap of Rs. 25,000 from a single loan app, and the total sum of loans from multiple apps cannot surpass Rs. 75,000.
Moreover, the loan duration for nano-loans through personal loan apps has been limited to a maximum of 90 days. These exposure limits on borrowers aim to encourage responsible lending practices and prevent individuals from falling into debt cycles due to numerous loans.
To safeguard cybersecurity and the confidential information of borrowers, a requirement has been introduced. Personal loan applications must acquire a certificate from a Pakistan Telecommunication Authority (PTA)-approved Category-I Cyber Security Audit Firm (CSAF).
Additionally, apps will be required to show a pop-up alert to users before the sign-up procedure, as per SECP directives. This alert will provide information about borrowing terms, conditions, and possible consequences. Furthermore, apps must include an in-app calculator for precise loan repayment calculations and related fees.
Multiple Non-Bank Financial Companies (NBFCs) authorized by SECP have ventured into digital-based personal loans, with a roster accessible on the SECP website. In December 2022, SECP introduced a compulsory guideline for digital lending NBFCs to safeguard borrower welfare by necessitating transparent disclosure of fees, loan periods, repayments, and expenses.
Firms were forbidden from accessing consumer information and were obligated to adhere to ethical and legal criteria, including considerate debt collection procedures.
SECP has taken measures to curb unauthorized and unlawful apps, partnering with Google to launch Pakistan’s Personal Loan App Policy on May 31, 2023. Consequently, 84 illicit lending apps were removed from the Play Store by Google after SECP’s intervention.
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SECP is actively reviewing and adjusting policies to enhance financial access and counter deceitful business strategies, all in the interest of protecting both consumers and investors.
Potential cap on APRs
In the future, SECP is contemplating the implementation of pricing limits on annual percentage rates (APRs) and an overall cost ceiling on digital nanoloans. This decision will follow thorough consultation and collaboration with stakeholders, including industry contributors.
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