ISLAMABAD: Despite Covid-19 and other technical hurdles, newly licensed digital lending fintech Non-Banking Financial Companies (NBFCs) have disbursed a cumulative loan of over Rs 13 billion to 600,000 borrowers over the last two years.
According to the latest data from the Securities and Exchange Commission of Pakistan (SECP), out of the total amount, more than Rs 11 billion was disbursed only in the first nine months of the 2021-2022 financial year.
The growth approaching 1000% indicates that digital lending platforms have become well integrated into the social fabric of the country; However, Pakistan still has a long way to go in this dimension, the SECP data added.
SECP has issued licenses to 8 digital platforms to provide instant and unsecured loans through digital apps. According to SECP data on two licensed fintechs in Pakistan – Seedcred Financial Services Limited and Sarmaya Microfinance – Seedcred’s lending volume to ordinary citizens is around Rs. on a monthly basis, with loans ranging from Rs. 2000 to Rs20,000.
The rise of the FinTech industry in Pakistan is rapidly changing the very structure of the financial system as more of the population is unbanked and lacks access to formal or informal financial services. Nearly 53% of the population does not have access to financial services and of the remaining 47%, only 23% are formally served. While huge prospects for financial inclusion and growth exist on the one hand, the diffusion of technology also poses challenges.
Speaking to Business Recorder, some creditors raised concerns about high interest rates and fees, inadequate disclosures, data privacy issues, and coercive collection practices of these digital lending platforms/apps.
SECP introduces the concept of “digital loan” for NBFCs
When contacted, Habib-ur-Rehman, CEO of Sarmaya Microfinance, told Business Recorder that since the rise of digital lending in Pakistan is a recent phenomenon, such concerns about digital lenders may be partly due general public’s lack of familiarity and awareness of loan pricing. , its terms and conditions. However, he agreed that some of the concerns appear to be real and need to be addressed at various levels by the industry and the SECP through regulatory changes, awareness campaigns, stakeholder engagements and advocacy for competition. .
Habib said that according to SECP instructions, lending platforms are required to disclose all loan terms and conditions to borrowers before entering into a loan agreement. In addition, he said, digital lending is a tested and currently practiced model globally. Embedded consumer lending has dramatically transformed the consumer experience in developed countries, where it was also initially difficult. As the sector is relatively new in Pakistan, formulating the required framework and legislation could take some time.
Technically, Habib added, the cost of funding these platforms will always be higher than conventional lending platforms (banks, microfinance, etc.) due to the higher risk, instant and unsecured nature of the personal loans offered.
By their very nature, these digital lenders are better positioned to provide emergency funds in small amounts at higher interest rates to middle and low income people.
Currently, the law imposes a cap or limit on loan pricing, which is determined by market forces and bilateral agreements between lenders and borrowers. However, the prices charged by these platforms are expected to drop as competition increases in the digital lending space as borrowers have more options to choose from.
The evolution of consumer financing offers immense prospects for the country. Pakistan, which has the lowest rate of access to household credit, can benefit greatly from it. The evolution of the microfinance industry in Pakistan provides a good example for understanding recent technological innovation.
Copyright Business Recorder, 2022