China Backed Online Lenders To Face The Heat Soon As ED, State CIDs Set To Begin Probe Against Them

China-backed fintech lenders in India may soon face the troubles as the Enforcement Directorate (ED) and Criminal Investigation Departments (CID) of various state police forces are going to launch a probe against them, reports The Economic Times.

It is reported that the investigation agencies have already directed payment gateways, including Razorpay and Paytm, to stop processing transactions and payments of these online lenders.

“ED and several state CIDs have issued notices to payment gateways to cancel the accounts of several Chinese-backed fintech entities. These companies are also being questioned about the reasons behind opening accounts for such dubious firms,” an official said to The Economic Times.

“There is a big flaw here. Payment gateways, in a hurry to generate more cash flows, went and opened accounts for these Chinese entities. They have to do the know-your-customer (KYC) checks to figure out the money trail,” he added.

A payday loan is a short-term unsecured loan, often characterized by high interest rates. To meet an immediate need for cash, borrowers take small loans for a short term, normally from one payday to the other.

Most of these online apps currently in circulation are not registered with the Reserve Bank of India (RBI) and therefore do not have the authority to lend to the public. Most of these apps have a Chinese backing and do not have a registered address or a valid mobile number.

Taking note of the issue, on 13 January, the RBI announced a committee to look into business practices adopted by the digital lending sector.

Recently based on red flags submitted by users and government agencies in India, Google had reviewed hundreds of personal loan apps and those who were found violating its policies were immediately removed from its play store.