As a country, we love banning things. From the most basic stuff like confectionery to more sophisticated things such as mobile phones. It’s more than just economic management, more like an obsession. Nothing drives that point home better than the case of TikTok where courts along with the Pakistan Telecom Authority (PTA) have played big brother and decided what people should do with their time. After all, the moral fabric of society must be protected, never mind the fact that those championing this cause built their entire careers from their very lack of morality.

Given this obsession, one would like to think that the authorities will act swiftly when a large number of Pakistanis are falling prey to digital loan sharks. Anyone who keeps an eye on the Play Store, or even watches something on YouTube, knows about it. Scores of apps are currently out there luring average folks with instant credit, obviously with misleading terms.

According to research done by Data Darbar, 27 of the apps featuring Google Play Pakistan’s top 100 finance apps were instant credit apps as of June 28. Of them, 19 were offering loans in the local rupee and the top eight alone had estimated downloads of 15.4 million since their launch. That might not seem a lot but based on our historical trends, it is. Especially considering the time window.

For context, the top eight banks by total assets recorded downloads of about 4.4m in the comparable period, as per estimates from Appfigures. Sure, that’s a pretty lazy industry to draw a contrast to, yet one with money. But even compared to the big four digital ledger apps, which have seen a particularly impressive installs trajectory, instant credit platforms edge out. It’s only the telco-backed wallets who manage to beat them.

Instant credit apps charge exorbitantly high rates while luring customers with misleading terms, and are completely unregulated by the authorities

To be clear, most of the downloads are contributed by one player: Barwaqt with 9.27m. Licensed by the Securities and Exchange Commission through SeedCred Financial and backed by Chinese money, the app was launched on June 9, 2021, and has witnessed a remarkable growth trajectory since then.

There’s only one more licensed player operating in this space: Sarmaya Microfinance. Many are not even registered entities, to begin with, though the modus operandi of both kinds is hardly different. Promising low interests, they lure users to borrow, often even disbursing the amounts without their confirmation.

However, a sizable chunk of the amount is actually deducted at source, between 21pc and 38pc depending on the app, in the name of service and/or processing charges. That’s for 30-90 day periods by the way, sometimes even less.

Yet the annual percentage rates, which is the total cost of borrowing in annual terms, are reported to be in the range of 11-39pc. That’s a gross misrepresentation of facts. To understand, let’s say you get a loan of Rs10,000 for a 30-day period, with Rs2,950 deducted at the source. In this case, the service and processing charges alone come out to be 354pc on an annualized basis. We haven’t even factored in the interest yet.

This is both exploitation and deception of the finest order, all the while our regulator is completely missing in action. In this case, that’s the Securities and Exchange Commission of Pakistan, which is responsible for non-banking finance companies. But no one has heard from them. Not that they would have done anything more than issue a circular that only 500 people, including journalists and financial analysts, would read.

Granted, there is a limitation to what the commission can do considering many of the apps are not even legal entities of Pakistan. But what’s stopping them from regulating, instead of giving basically a no-questions-asked amnesty to those that are licensed? Or to speed up amendments to the Non-Banking Finance Companies’ Regulations and come up with more specific checks and balances? The recently proposed changes are anything but.

We also have the PTA which has built half its brand around creating no-go internet areas for netizens, from blocking dating apps, games and even blogs. They can quite easily restrict access to unregistered and unlicensed platforms, but the flag bearers of morality have more immediate matters to attend to.

And of course, this warrants an honorary mention of the State Bank of Pakistan (SBP) which loves doing anything and everything except its primary mandate. Not calling for further overreach but the SBP in the past has directed its regulated entities to block payments to Indian content platforms, meaning it has the toolkit.

While the lack of concern for the financial wellbeing of citizens is certainly one reason for the authorities’ indifference, the other is the inter-regulatory nature of the subject at hand, according to an expert who’s worked at the intersection of technology and financial services. When that happens, everyone chickens out, they say. That only gives more freedom to sharks to prey on simple folks.

The author is the co-founder of Data Darbar, a private market portal

Published in Dawn, The Business and Finance Weekly, July 4th, 2022