DEBT TRAPS CAUSED BY UNSECURED FINTECH LOAN APPLICATIONS AMONG YOUNG BORROWERS IN INDIA

Abstract

India's fintech lending revolution did what banks failed to achieve; it brought credit to millions of youths whom the official banking sector could never see. In Noida, for instance, a college student can access up to Rs. 10,000 within just three minutes using only a smartphone and his or her Aadhaar identity. This access is very much real, and it has benefited many. However, the reason for this study is that access alone cannot be taken for granted. This research project, entitled 'Debt Traps Triggered By Unsecured Fintech Loans Applications Amongst Young Debtors in India', was undertaken as a Major Research Project in the context of MBA program at Delhi School of Management, Delhi Technological University. The research was undertaken in the Delhi-NCR area amongst individuals aged between 18 to 30 years who have accessed at least one fintech unsecured lending application within the last two years. A total of fifty respondents answered the surveys which were circulated using Google Forms. The research attempted to address four major questions concerning factors influencing excessive usage of payday lending apps. Namely, do financial illiteracy and lack of knowledge cause late payments, can certain characteristics of the app itself cause individuals to borrow more, how does social media impact attitudes towards borrowing money and which populations suffer from this problem the most. To explore these questions, three specific hypotheses were tested during the research. Although the first one showed an interesting trend that people lacking basic knowledge about interest rates missed payments almost twice as frequently as financially literate individuals, there wasn't enough evidence to prove a statistically significant correlation. However, the last hypothesis proved to be very relevant in terms of its contribution to the results. Specifically, the analysis showed that people who scored high on platform design susceptibility borrowed significantly more averaging 1.48 loans in the past 12 months compared to 0.62 for the low susceptibility group (p = 0.005). Surprisingly, even though social media did not increase the likelihood of borrowing among participants in the experiment, 68% percent of young users considered using such applications as normal behavior. These are the three recommendations that arise from the above observations. Firstly, fintech platforms must by regulation display the total cost of the loan in rupees within one page before any loan is concluded. Secondly, financial literacy especially on the reading of an APR and calculating the total costs repaid must be included in university curricula. Finally, RBI’s guidelines on digital lending must be followed strictly as there is enough room for improvement according to the data gathered thus far. Financial inclusion which exposes youths to financial products they barely comprehend cannot be considered true financial inclusion at all.