In October 2021, Jafar Khan, 26, urgently needed some money to pay the hospital bills for his wife Shafi’s delivery. A resident of Pune, a tech hub around 150 kilometers from financial capital Mumbai, Khan had heard, from a friend, about a mobile app called Rich Cash. 

“I just shared my bank details [on the app] and applied for a loan of 5,000 rupees (around $65),” Khan said. 

But when Khan went to repay the loan a week later, he could not find the app on his phone or anywhere on the Google Play store. Khan said that the app vanished for months.

Then, in February 2022, a man claiming to be an agent from Rich Cash called Khan, asking for 10,000 rupees — double the initial loan — citing growing interest rates. The agent threatened Khan that if he didn’t pay up, there would be consequences. Khan didn’t have the money and told the person on the phone so. The next morning, a friend called Khan to inform him that he had received some intimate photos of him. The Rich Cash agent had somehow accessed Khan’s phone book and sent his personal photos to the contacts in Khan’s WhatsApp account whose names started with A. A panicked Khan quickly arranged 7,350 rupees and paid the agent. “I also shared a screenshot of the money sent with him, and he assured this case was closed,” he said.

“The agent “started calling my contacts, cursing them, and sending them obscene photos of mine. He told me that he is not scared of the police.”

But a month later, another person claiming to be a Rich Cash agent called Khan, seeking 10,000 rupees more, also threatening dire consequences. Khan said that when he tried to explain the situation, the agent “started calling my contacts, cursing them, and sending them obscene photos of mine. He told me that he is not scared of the police.” That’s when Khan, who works at a software company, went to the Pune cyber police station, where he spoke with Rest of World in March.

Sonali Manjare, 35, has also filed a similar complaint at the police station. In March, Manjare borrowed 5,000 rupees (around $65) from a quick loan app, called Sharp Loan, to spend on the final rites of her grandmother. She repaid the amount within a few days, using payments app PhonePe. Yet, a few days later, an agent called her insisting that the company had not received her payment. The agent threatened that if she did not make the payment, he would tell all her contacts about her inability to repay. Manjare, who works as a clerk at a private company, ended up paying double the amount.

Khan and Manjare’s grievances are two of over 700 complaints of harassment by recovery agents from digital lending apps made to the cyber police station in Pune in the first three months of 2022, said senior police inspector Dagdu Hake. The station had received around 900 such complaints in all of 2021 and just over 700 similar complaints in 2020.

Digital lending has seen a more than twelvefold increase in India from 2017 to 2020, according to a November 2021 report by the Reserve Bank of India. The report was published by an RBI working group on “digital lending including lending through online platforms and mobile apps,” which was constituted in January 2021 to protect consumers, following concerns over how digital lending apps operate.

A majority of Indians do not qualify for loans from banks, in part because of a lack of collateral and a poor understanding of the loan process. Among the 220 million Indians who are eligible for loans from legal financial institutions, only 33% have access to a bank account. “It takes time to get the loan approved from banks. Many either don’t have bank accounts, or accounts are not active,” Manik Kadam, a social activist from Maharashtra, told Rest of World. “Illiterate people find it difficult to go through the procedure of loan applications at banks. Thus, people in need find it easier to go for private money lenders or such.”

Over the last seven years, a host of legal mobile lending apps — such as Dhani, Navi, PayMe India, and IndiaLends have emerged to meet their needs. “There are 200 to 500 mobile lending apps or startups, and half of them would have got funding. Each app company is of the size of a few lakh rupees to 100 to 150 million rupees,” said Srikanth, the convener of CashlessConsumer, a consumer awareness collective. These apps offer loans starting from 500 rupees to a few lakh.

But the rise of the legal mobile lending industry has also encouraged the emergence of scam apps, such as Rich Cash, Cash Fish, Best Paisa, Speed Loan, and Happy Wallet. Between January and February 2021, nearly half of the 1,100 digital lending apps available in India were illegal, as per the RBI working group report. Sachet, a portal to file complaints with the RBI, received 2,562 complaints of lending apps promoted by unregulated entities between January 2020 and March 2021. Google Play store had removed over 205 such apps as of November 2021.

Several fake lending apps are run by shell companies owned by Chinese entities.

Several fake lending apps are run by shell companies owned by Chinese entities, according to CashlessConsumer, which studied over 1,000 mobile lending apps between December 2020 and January 2021. These apps disappear from online stores every few months and then emerge again with different names, Srikanth of CashlessConsumer told Rest of World. “Earlier, they would run customer call centers for grievance redressal. Now they provide WhatsApp numbers to customers so that police cannot track calls or conversations,” he said. “The police also fail to trace apps or companies that run DLAs [digital lending apps] as they disappear.”

Formal cases are rarely registered because victims have little hope of recovering their losses, said Rohin Garg, associate policy counsel at the Internet Freedom Foundation (IFF). “Victims either don’t approach the police or don’t pursue complaints, as they are aware that this exercise will be futile. The central government has been promoting digital payment, and, thus, the number of such lending apps will go up, and so do cases of fraud,” Garg said. In the absence of a formal complaint, such apps are not reported to the RBI, and no action can be taken against them, police inspector Hake said.

The RBI working group has proposed setting up a self-regulatory organization to cover all stakeholders in the digital lending ecosystem. It has also proposed legislation to prevent illegality in digital lending apps. “RBI needs to proactively set up a regulatory body to get these lending apps into the ambit of regulations,” Garg of IFF said.

In the absence of regulations, people like Khan will continue to be targeted. While Khan has not been approached by Rich Cash agents since he filed a complaint with the Pune cyber police, he says, “I will approach banks to take loans in the future, and I will never go to mobile lending apps.”