Morality in Digital Lending: How ancient wisdom affects regulation in India
The INDIAN POPULACE HAS ALWAYS been averse to the idea of debt. Nearly three decades after liberalization, credit card penetration in India stands at a meagre 3%, adding credence to the widely held belief that Indians are averse to the idea of borrowing. Lack of access to institutional credit and uneven development notwithstanding, the common perception regarding debt can be traced to cultural norms surrounding finance.
For a nation that is both lauded and criticized in equal measure for its reluctance to give up traditions, it’s only natural to assume that the modern equivalent of timeless activities such as lending are heavily affected by the local culture. Debt can be a powerful instrument by way of empowering the borrower to uplift themselves out of poverty and destitution. However, in India, the taboo surrounding debt runs so deep that it can effectively destroy the social fabric of any community.
The proliferation of a slew of unscrupulous, unregulated and disreputable apps did not bode well for the Indian youth, most of whom were in dire straits during the months that followed the pandemic. In December of last year, there were several cases of young people who had committed suicide as a result of the harassment that they suffered at the hands of agents acting on behalf of the aforementioned apps.
The Debt Driven Boom
Looking back at the sudden rise and fall of these usurious apps, it’s easy to see how the situation became a zero sum game, with the borrowers often paying with their lives. The conception of debt as an empowering tool continues to elude Indians, especially in the face of overwhelming usury that runs rampant in the rural and semi-rural portions of the country. Despite being a little too late to react, both the RBI and other governmental bodies have begun work towards instituting a framework that would govern digital lending apps and ensure that such incidents would never occur again.
The sudden halt in economic activity forced many young people, most of whom were living a hand-to-mouth existence to look for alternate ways to sustain themselves. Digital lending apps proved to be a very enticing solution as they removed the hassles and inconveniences associated with borrowing while providing a level of anonymity that ensured that their names would not be sullied.
With no real way to distinguish between legitimate players and illicit ones, many borrowers unwittingly turned to the illicit ones as they had promised near-instant cash with little to no requirements. Unfortunately for the borrowers, these illicit apps were invasive and operated on ludicrous terms of repayment. In the end, borrowers were subject to such levels of harassment that many saw no way out apart from ending their own lives. The RBI’s declaration to beware illegal digital lending apps came shortly after a string of suicides were reported. The lag in an institutional response proves that India continues to grapple with the moral implications of lending, with little to no certainty regarding how it could be approached in a healthy manner.
Contextualizing Regulations
Digital lending might be a novel tool that can be touted as the next big solution for enabling financial inclusion in the country, but we must not forget that the parties to the transaction are human. The veneer of speed, convenience and modernity has masked the inherent dangers that unregulated lending comes with.
For the RBI, and any other public institution that seeks to combat this menace, the most effective tactic to deploy is to appeal to the conscience of the people. When all else fails, appealing to deep rooted sentiments that have been propagated over years can work wonders, even when seemingly modern solutions fail.
While there is a lot of positivity surrounding the prospect of tech-enabled financial inclusion, marching towards a $5 trillion economy and architecting state-of-the-art digital payments systems, it is easy to overlook the flipsides of going digital. Nationwide implementations of any technology ought to be accompanied by an equally robust policy and governance framework that keeps malafide actors from corrupting the system.
The digital lending industry will not only need to be bound by strict laws that limit its reach, but also needs to be composed of industry veterans who can put in place a system of self-regulation that has strong roots in India’s cultural traditions and morals. Undoubtedly, building governance models with morality as a bedrock can be stifling and the RBI will need to strike a balance between innovation and self-regulation to realize the transformatory potential that digital lending truly has.
Conclusion
Until recently, in many shops in rural Tamil Nadu, one could see signs that read “Kadan uravai kedukkum” (Debt destroys relationships). This was later redacted to ‘No credit’, and now seems to have disappeared altogether as the country is beginning to embrace debt. True to the saying, debt does indeed destroy relationships, sometimes by triggering the demise of the borrowing party. The RBI will need to consider the ethical ramifications of digital lending and keep the interest of citizens as the guiding force for drafting regulations.
