predatory lending Apps in Pakistan

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Legal Update – July 18, 2023:

In a countrywide operation against illegal loaning companies, the Federal Investigation Agency (FIA) has taken significant actions to address the issue of unlawful online loan schemes. The FIA has registered 74 cases for inquiries based on complaints from affected individuals and has lodged three First Information Reports (FIRs) against both individuals and companies involved in these activities.

As part of the operation, 17 suspects running illegal online loan schemes from various cities have been arrested, and 30 accounts have been blocked to prevent further illicit activities. Additionally, the FIA cybercrime wing has sealed five offices of companies engaged in these illegal practices.

FIA has issued directives to all field units of the cybercrime wing to take stringent action against companies and individuals offering loans through unregistered and illegal mobile applications. The FIA emphasizes the importance of obtaining licenses from the Securities and Exchange Commission of Pakistan (SECP) for online loan payment apps, as the SECP serves as the registration and regulatory authority for Non-Banking Financial Companies (NBFCs) providing loans through online apps.

Furthermore, the Pakistan Telecommunication Authority (PTA) collaborates with Apple and Google to remove illegal apps involved in micro-financing activities in Pakistan. The crackdown on illegal loan apps is being conducted nationwide to curb such financial malpractices.

The FIA DG urges citizens to verify whether a company’s app is licensed by checking the SECP website. For victims of loan app scams, FIA Cybercrime Reporting Centers throughout Pakistan are available for assistance and reporting of such incidents.

Legal Update – State Bank of Pakistan Circular No. 02 of 2023 (dated June 21, 2023)

The State Bank of Pakistan (SBP) has issued a circular to all regulated entities (Banks, MFBs, PSOs, PSPs, EMIs) concerning digital payment services to unauthorized digital lending apps. The circular highlights the risks associated with un-authorized/un-licensed digital lending mobile applications and platforms using banking channels for loan disbursement, collection, and credit checks, posing serious concerns on consumer protection and reputational risk for banks.

Key Points of the Circular:

  1. Verification of Licensing Status: Regulated entities are advised to ensure that the licensing status of digital lending platforms/mobile applications and their authorization to conduct business is duly verified from relevant regulatory bodies, such as the SECP (Securities and Exchange Commission of Pakistan) and SBP, as part of the KYC/CDD process.
  2. Review of Existing Customers: Regulated entities must review the licensing status of their existing customers offering digital lending services and their authorization to conduct business following the mentioned process. A list of currently authorized/licensed entities involved in digital lending businesses is available on the SECP and State Bank websites.
  3. Prohibition on Services to Unauthorized Lending Platforms: Regulated entities are instructed to implement reasonable measures, including during customer on-boarding and transaction monitoring, to ensure that their banking channels and platforms are not utilized by unauthorized financial service providers, directly or indirectly. Services such as deposits or lending products, mobile application integration with third parties, payment gateway services, credit scoring and credit worthiness checks, wallet services, and API integration services must not be extended to unauthorized/unlicensed digital lending platforms (individuals or businesses).
  4. Prohibition on Services to Specific Entity Types: Regulated entities are also advised to refrain from providing the aforementioned services to entity types specified in SBP-EPD Circular Letter No. 8 of 2022.
  5. Legal Authority and Enforcement: These instructions are issued under Section 3(1) of the Payment Systems and Electronic Fund Transfers Act, 2007, and shall be effective immediately. Non-compliance may lead to appropriate enforcement action under applicable laws and regulations.
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This circular aims to address the risks posed by unauthorized digital lending apps and ensure the protection of consumers and the reputation of financial institutions in Pakistan. Regulated entities are expected to comply with these guidelines promptly to prevent any potential legal consequences.


The surge of financial inclusion in Pakistan has brought with it a disturbing rise in predatory loan apps, exploiting unsuspecting borrowers with misleading terms and unethical practices. This article delves into the alarming prevalence of such apps, focusing on the notorious “Barwaqt” app, offering instant credit to clients while operating in a regulatory vacuum. Despite the oversight of State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP), most of these platforms lack proper licensing to issue loans. In our write up, we have tried to shed light on the modus operandi of these apps, data privacy concerns, and the deliberate misrepresentation of loan costs. As digital lending evolves in Pakistan, the article highlights the potential risks and challenges that may arise with the growth of the nano loans sector.

  1. Introduction

As financial inclusion gains momentum in Pakistan, a troubling trend of exploitative loan apps has emerged, enticing individuals with deceptive terms and unethical practices. This article aims to shed light on the prevalence of predatory loan apps in the country, focusing on the “Barwaqt” app as a prominent example. Despite regulatory oversight by SBP and SECP, the majority of these platforms operate outside the realm of proper licensing and regulations, posing significant risks to consumers.

  1. The Rise of Predatory Loan Apps

The proliferation of predatory loan apps has escalated rapidly, with numerous new apps being launched daily. These apps, including PK Loan, Easy Loan, Fori Money, FlexiMoney, OliveCash, AiCash, and WeCash, often function without any licensing to issue loans, creating a regulatory vacuum in the digital lending landscape.

  1. Regulatory Lapses and User Complaints

Despite being a regulated space, many instant credit apps operate without proper oversight. Users frequently report that loan disbursements occur without their explicit consent, and technical glitches during repayment lead to delays and additional charges. Privacy concerns arise as these apps demand access to users’ contacts, sometimes resorting to shaming late payers by reaching out to their acquaintances.

  1. Misleading Loan Terms

Loan apps frequently employ misleading or incomplete information regarding loan costs, making it challenging for borrowers to understand the actual expense. “Barwaqt” claims a capped annual percentage rate (APR) of 24% but applies service charges between 21% to 38%, while “WeCash” boasts an APR of just 10.95%. These figures are alarmingly low for risky, unsecured loans, raising suspicions of hidden fees and exploitative practices.

  1. Regulatory Gaps and Legal Obligations

Digital lending in Pakistan is still in its nascent stage, paralleling the growth of the credit card sector two decades ago. However, there is currently no legal obligation to limit loan pricing, markup, or interest rates. As digital nano loans gain popularity, the industry is expected to evolve into digital banks, which may lead to an increase in client defaults and lender exploitation.

  1. Data Privacy and Ethical Concerns

The app’s requirement for access to user contacts raises privacy concerns, leading to alarming instances of borrower harassment and the potential risk of self-harm. The absence of robust data protection measures in the digital lending space compounds these ethical issues.

  1. Conclusion

Predatory loan apps have become a worrisome menace in Pakistan’s digital lending landscape, preying on vulnerable individuals with deceptive practices. Despite regulatory oversight, the lack of proper licensing and loopholes in the system allow these apps to operate with impunity. Policymakers, regulators, and industry stakeholders must collaborate to address these challenges, establishing clear guidelines to protect consumers from the potential risks and exploitation in the evolving digital lending sector. Only through comprehensive reforms can financial inclusion truly be a force for good in Pakistan’s economy.We will keep this page updated with legal developments on this topic.

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Google’s ‘Personal Loan App Declaration Policy for Pakistan’

Google’s recent restrictions on unauthorized digital lending apps are a welcome response to the challenges of surveillance and security in the digital space. These measures will help filter out illegitimate apps and enhance control, aligning with the efforts of the Securities and Exchange Commission of Pakistan (SECP) to enforce regulations.

The SECP had already taken steps in March 2023 to halt Non-banking Finance Companies (NBFCs) from offering services through digital platforms, recognizing the trend of unauthorized apps posing as NBFCs. Despite these efforts, more action was needed, making Google’s restrictions on personal loan apps a positive move towards tighter control and compliance.

Under the new Google Loan App policy for Pakistan, each NBFC lender is limited to publishing only one Digital Lending App (DLA). Developers attempting to publish multiple DLAs per NBFC face potential termination of their accounts. Furthermore, proof of approval from the SECP is mandatory for offering digital lending services in Pakistan.

This update makes Pakistan the sixth country to implement additional requirements for personal loan apps. Apart from controlling digital lending apps, consumer welfare in the Fintech space requires attention, particularly concerning data privacy and security. As these loan apps gather sensitive personal information, robust data protection measures are essential to prevent unauthorized access and misuse.

Moreover, ensuring transparency in lending practices and setting clear terms for loan approvals, repayment plans, and associated fees is crucial. By doing so, consumers can make informed decisions and avoid falling into debt traps caused by predatory lending and high interest rates.

In conclusion, Google’s restrictions on unapproved digital lending apps and the SECP’s efforts to regulate NBFCs demonstrate the commitment to fostering a safer and more secure fintech environment in Pakistan. However, continuous vigilance and proactive measures are necessary to protect consumers and foster responsible lending practices in the evolving digital lending landscape.

Developers targeting users in Pakistan with personal loan apps must complete the declaration form and submit necessary documentation before publishing the app. The app category must be set to “Finance” in the Google Play Console, and the developer account name must match the registered business name provided in the declaration. The review process may take up to a week, so the app’s launch date should be planned accordingly.

The declaration confirms that the app has obtained approval for digital lending from the Securities and Exchange Commission of Pakistan (SECP) as a Non-Banking Finance Company (NBFC) or as a facilitator working with licensed NBFC(s). The app must be compliant with applicable laws.

The provided information must be accurate and up-to-date, and any attempt to bypass or provide false information will result in the app’s removal and impact the developer account standing. The declaration may be shared with regulatory authorities as requested lawfully, and Google reserves the right to request additional information for review.

The developer agrees to defend and indemnify Google and its affiliates against any third-party claims, losses, liabilities, damages, costs, and expenses arising from false representations, violations of laws, or inaccuracies in the declaration.

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SECP’s collaboration with Google Play

The Securities and Exchange Commission of Pakistan (SECP) has advised borrowers to review the legal status of digital loan applications before signing up, following Google’s introduction of a new policy to protect consumers from fake loan apps. Borrowers are encouraged to carefully assess disclosures related to fees, late payment charges, loan terms, cooling-off period, and privacy policies.

To address the issue of unlicensed digital lending apps operating illegally, the SECP has collaborated with various regulatory bodies, including the Pakistan Telecommunication Authority (PTA), Federal Investigation Authority’s (FIA) cybercrime wing, and the State Bank of Pakistan (SBP). The SBP issued a circular in June 2022, denying illegal apps access to banking/payment channels.

An awareness campaign on data privacy and consumer rights has been launched, involving mainstream and social media, capacity-building workshops, and SMS/in-app notifications.

To combat illegal apps, the SECP has engaged with Google, resulting in the introduction of the Personal Loan App Policy for Pakistan on April 5, 2023, effective from May 31, 2023. Pakistan is the sixth country worldwide for which Google has imposed additional requirements for digital lending apps, ensuring checks and balances to prevent listing illegal apps on the Play Store and protecting consumers’ personal data. Google has already removed 84 illegal lending apps reported by the SECP from its Play Store.

Licensed digital apps now undergo enhanced scrutiny audit certifications. Companies seeking to engage in digital lending must follow a two-tier process: obtaining an NBFC license, involving due diligence and minimum equity requirements, and complying with stringent requirements to ensure consumer protection.

Legal Update 2022: Securities and Exchange Commission of Pakistan (SECP) Issues Directive for Digital Lending Companies

 In response to growing concerns regarding mis-selling, breach of data privacy, and coercive recovery practices by licensed digital lending companies, the Securities and Exchange Commission of Pakistan (SECP) has taken action to protect the public interest and ensure fair treatment of borrowers in the digital lending ecosystem.

Circular No. 15 of 2022, issued by SECP, establishes digital lending standards applicable to Non-Banking Finance Companies (NBFCs) engaged in lending activities through digital channels or mobile applications (Apps). These standards require NBFCs to make certain minimum mandatory disclosures and provide a Key Fact Statement (KFS) to borrowers before loan disbursement. The KFS must include details such as the approved loan amount, annual percentage rates, loan tenor, installment/lumpsum payment amounts with dates, and all applicable fees and charges.

To ensure transparency and easy comprehension, the lending App must present a summary of the KFS through a video/audio, screen shot, email, and SMS in both English and Urdu languages. Any fees not disclosed in the KFS cannot be charged to the borrower. Additionally, to discourage non-licensed digital lenders, licensed digital lending companies must prominently display their full corporate name and licensing status on their lending platform(s)/App(s) and ensure that any advertisements and publications are fair and devoid of misleading information. Furthermore, SECP has outlined a comprehensive grievance redressal mechanism to supplement the current NBFC grievance redressal framework.

In order to safeguard the confidentiality and privacy of borrower data, digital lenders are prohibited from accessing the borrower’s phone book, contacts list, or photo gallery, even with the borrower’s consent. The lender is also restricted from contacting individuals listed in the borrower’s contact list, except for those authorized by the borrower as guarantors, who have also provided their consent to the digital lender at the time of loan approval. Moreover, borrower data shall not be stored on any cloud infrastructure located outside the jurisdiction of Pakistan.

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