SBP warns against unauthorized digital lending apps

June 23, 2023 (MLN): The State Bank of Pakistan (SBP) has raised concerns regarding the increased usage of unauthorized/unlicensed digital lending mobile applications and platforms using banking channels, for loan disbursement and collection.

Additionally for creditworthiness checks through integration with bank accounts of customers.

Such usage of digital banking channels and integrations with mobile banking platforms by these unauthorized/unlicensed digital lending apps pose serious concerns about consumer protection and may also be a cause of reputational risk for banks.

REs have been advised by SBP to ensure that the licensing status of digital lending platforms/mobile applications and their authorization to conduct business are duly verified by the relevant regulatory bodies (SECP, SBP, etc.) as part of the KYC/CDD process.

REs have also been advised to review the licensing status of their existing customers offering digital lending services and their authorization to conduct business as per the above-mentioned process.

A list of currently authorized/licensed entities involved in digital lending businesses can be accessed at web links including those from the SBP and the SECP.

Subsequently, REs are advised to implement reasonable measures, including at the time of customer onboarding and transaction monitoring, to ensure that their banking channels and platforms are not used by unauthorized financial service providers either directly or indirectly.

In this regard, REs shall not extend services such as deposits or lending products, mobile application integration with third parties, payment gateway services, credit scoring and creditworthiness checks, wallet services, and/or API integration services to unauthorized/ unlicensed digital lending platforms (individuals or businesses) either directly or indirectly.

Similarly, REs are also advised to refrain from extending the aforementioned services to entity types mentioned in SBP-EPD Circular Letter No. 8 of 2022.

These instructions have been issued under Section 3(1) of the Payment Systems and Electronic Fund Transfers Act, 2007, and shall come into force with immediate effect. Any non-compliance thereof will attract appropriate enforcement action under the applicable laws and regulations.

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