Lessons from the ED Crack Down on a Chinese Controlled NBFC that Lent Microloans at High-Interest Rates

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Lessons from the ED Crack Down on a Chinese Controlled NBFC that Lent Microloans at High-Interest Rates

News reports have mentioned that the Enforcement Directorate (ED) on Thursday reported that it has started an investigation against a few non-banking financial companies (NBFCs) and financial digital lending platforms that offer microloans through mobile apps.

ED mentioned these businesses charge a high rate of interest by dangling the promise of instant loans to unsuspecting customers. Moreover, the businesses illegally use the personal data of these customers.

One Chinese-owned NBFC called PC Financial Services Private was specifically mentioned. The ED seized Rs 106 crore from bank accounts and virtual accounts associated with the payment gateways of the company under the Foreign Exchange Management Act (FEMA).

PC Financial Services provided instant personal microloans through its ‘Cashbean’ mobile app. The company is alleged to have illegally remitted a large amount of funds abroad as import of non-existent software and marketing services. These funds were then held in accounts of various related foreign companies.

PC Financial Services is the subsidiary of Oplay Digital Services, a Mexico-based company, which itself is a subsidiary of Tenspot Pesa, a Hong Kong-based business. This business is in turn beneficially owned by Opera Limited and Wisdom Connection I Holding Inc, two Cayman Islands-based companies run by a Chinese National named Zhou Yahui.

PC Financial Services was originally incorporated in 1995 by Indian nationals and received an NBFC licence in 2002. Ownership was transferred to the Chinese companies in 2018 after RBI approval.

The ED mentioned that the owners had bought in Rs 173 crore for lending and transferred out Rs 429 crore as payments for supposed software services provided by related foreign companies. In addition, it had shown large domestic expenditure of Rs 941 crore.

The Lesson Here

Looking at how all these transactions started with the promise of instant personal loans, as we keep stating in our newsletters and opinion pieces, Indian consumers have to be a bit wary of taking instant loans from mobile apps. Though a few companies may be doing a good job, a majority of these businesses charge a very high rate of interest that is not worth the money you get now. You only end up having to repay the instant loan at a huge cost later.

Whenever you take a loan, you are creating a liability for your future self to fulfil the needs of the present self. You have to ask the question: will your future self like your decision or will it recommend something different?

In case you need a loan, we suggest you follow the tried and tested path of taking loans from larger banks and financial institutions. For example, we have tied up with partners and NBFC that give you access to loans from some of the biggest names in the Indian loans market.

You can simply apply here.

For any queries, please email us at [email protected].

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