ISLAMABAD: Despite Covid-19 and other technical hurdles, the newly licensed digital lending fintech non-banking finance companies (NBFCs) have disbursed cumulative loans in excess of Rs.13 billion to 600,000 borrowers over the past two years.

According to the latest data from the Securities and Exchange Commission of Pakistan (SECP), over Rs.

The growth of almost 1000% shows that the digital lending platforms have integrated well into the country’s social fabric; However, Pakistan still has a long way to go in this dimension, SECP data added.

The SECP has licensed 8 digital platforms to provide instant and unsecured credit 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 people is about Rs. 4.3 billion, while Sarmaya Microfinance lends to 100,000 customers monthly, with the lending ranging from Rs pass. 2000 to Rs20,000.

The rise of the FinTech industry in Pakistan is rapidly changing the structure of the financial system itself, as more of the population is unbanked and lacks access to formal or informal financial services. Almost 53% of the population does not have access to financial services and of the remaining 47%, only 23% are officially serviced. While there are tremendous prospects for financial inclusion and growth, the proliferation of technology also presents some challenges.

Speaking to Business Recorder, some creditors expressed their concerns about the high interest rates and fees, inadequate disclosures, privacy issues, and forced collection practices of such digital lending platforms/apps.

SECP introduces concept of “digital lending” for NBFCs

When contacted, Sarmaya Microfinance CEO Habib-ur-Rehman told Business Recorder that the rise of digital lending in Pakistan is a recent phenomenon and such concerns about digital lenders are partly due to a lack of public familiarity and awareness the credit prices are due to its general terms and conditions. However, he agreed that some of the concerns appear to be genuine and need to be addressed at various levels by industry and the SECP through regulatory changes, awareness campaigns, stakeholder engagement and promotion of competition.

Habib explained that according to the instructions of the SECP, lending platforms are obliged to disclose all the terms of the loans to the borrowers before the conclusion of the loan agreement. In addition, digital lending is a model that has been tried and tested worldwide and is currently being practiced. Seamless consumer lending has transformed the consumer experience in developed countries, where it was initially challenging. As the sector is relatively new in Pakistan, it may take some time to formulate the necessary framework and legislation.

Technically, Habib added, the funding costs of such platforms are always higher than traditional lending platforms (banks, microfinance, etc.) due to the higher risk, instantaneous and unsecured nature of the personal loans offered.

These digital lenders are inherently better able to provide emergency funds in small amounts at higher interest rates to middle- and low-income people.

Currently, the law sets a cap or limit on loan prices, determined by market forces and bilateral agreements between lenders and borrowers. However, the rates charged by these platforms will come down as competition in the digital lending space increases, with borrowers having more options to choose from.

The development of consumer finance has tremendous future prospects for the country. Pakistan, which has the lowest household credit access rate, stands to benefit greatly. The development of microfinance industry in Pakistan is a good example to understand recent technological innovations.

Copyright Business Recorder, 2022