Securities and Exchange Commission of Pakistan (SECP) has implemented new regulations aimed at protecting borrowers and ensuring responsible lending practices by digital lenders, also known as Non-Bank Financial Companies (NBFCs).
Curbing Loan Amounts and Debt
To prevent borrowers from taking on excessive debt, SECP has reduced the maximum amount for a single nano loan from Rs. 75,000 to Rs. 50,000. Additionally, a new borrowing limit has been established. Borrowers cannot have outstanding loans exceeding Rs. 100,000 from all digital lenders combined at any given time. These measures aim to promote responsible borrowing and prevent financial strain.
Capping Interest Rates and Costs
SECP has introduced limitations on interest rates and associated costs charged by digital lenders. The daily Profit Rate (PR) cannot exceed 0.75%, resulting in an Annual Percentage Rate (APR) capped at 74%. This ensures borrowers are not subject to exorbitant interest charges. Furthermore, all loan-related costs, including interest, fees, and penalties,cannot exceed the principal amount of the loan. This protects borrowers from hidden fees and ensures transparency in pricing.
Promoting Transparency and Responsible Borrowing
SECP is prioritizing borrower education and informed decision-making. Digital lending apps and websites must now display a prompt in English and Urdu informing users about the risks of over-indebtedness and the importance of understanding loan terms before borrowing. Additionally, they must offer a loan calculator to help users evaluate the total cost of borrowing with interest, fees, and other charges. These measures empower borrowers to make informed financial decisions.
SECP continues to monitor the digital lending landscape. Any changes to whitelisted lending apps require prior notification to SECP for approval. This ensures that approved lenders continue to operate within the regulatory framework.
These regulations highlight SECP’s commitment to protecting borrower financial well-being. They aim to create a more responsible digital lending environment that fosters transparency, prevents excessive debt burdens, and protects consumers from predatory lending practices.
