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Asian authorities clamp down on digital lenders

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Authorities in Asia are clamping down on digital lenders, stepping up to rein in a sector that has charged ahead with little oversight in credit-hungry large economies such as India and Indonesia.

Apps and websites offering easy loans have proliferated in India and south-east Asia, where hundreds of millions of people are unable to access the formal credit system. In India, 190m people did not have bank accounts as of 2017, according to the World Bank, along with 95m in Indonesia.

But officials have struggled to control the fast-growing sector. While many apps are licensed, thousands operate illegally. They are notorious for preying on consumers with limited financial literacy by charging exorbitant interest rates and harvesting data from phones, used for example to embarrass debtors by calling family members.

Trying to police illegal online lending apps is like playing “a game of Whac-A-Mole”, said Niki Luhur, chairman of the Indonesia Fintech Association, who said “bad apples” continue to get through.

The Reserve Bank of India last month set up a panel to strengthen oversight of the sector. Mounting public alarm about the proliferation of hundreds of such apps, whose aggressive tactics were linked to a number of suicides, also sparked Indian police investigations and arrests.

Google, which faced criticism in India for hosting the apps, also said last month it was removing non-compliers from its app store. 

“The way it is growing, obviously there’s a need to bring some regulation or sanity in the market,” said Anuj Golecha, an angel investor in Mumbai who has invested in about a dozen fintech companies including lenders.

Indonesia’s Financial Services Authority (OJK) has also stepped up its regulatory efforts. It drew up draft proposals late last year to toughen existing rules by boosting paid-up capital requirements and mandating more frequent board meetings.

It may also force online lenders to secure funds from offshore investors that are already involved in the financial services sector.

The OJK had already taken measures to curb illegal apps and lenders, working in 2019 alongside other ministries to block or ban hundreds of entities.

But the prospect of a broader clampdown prompted frantic lobbying from regulated fintech companies and their investors, who worry they would become collateral damage.

“The RBI and government will do anything and everything to protect the consumer. I just hope they don’t go so far that it kills the proposition,” said Upasana Taku, co-founder of Sequoia-backed Indian fintech company MobiKwik, which offers consumer loans.

India’s fintech sector has grown since 2016

Eddi Danusaputro, chief executive of Mandiri Capital Indonesia, the venture capital arm of Bank Mandiri, the country’s largest state-owned bank in terms of assets, said more regulation was a “good thing”. Mandiri Capital has backed a number of local lending start-ups.

But he warned that some of the proposed requirements by OJK were “too strict” and could stifle a crucial industry, citing the leap in required paid-up capital as an example.

The steps follow a crackdown on the fintech industry in China, where the rise of online consumer loans spawned a thriving culture of fintech apps such as peer-to-peer lenders.

Beijing cracked down on the P2P industry in 2018, suspending the issuance of licences for new lenders. More recently it has also hobbled homegrown fintech players such as Ant Group, a dominant force in consumer lending in the mainland. The company’s initial public offering was scuttled by regulators last year as authorities emphasised the need to regulate financial technology. 

That crackdown, in turn, led the Chinese operators shut out of their home market to set up shop elsewhere in Asia. A 2018 OJK report found that half of the 227 unlicensed P2P lenders in Indonesia originated in China. Analysts in India say many of the illegal apps there are also run indirectly from China.

Akshay Garg, chief executive of fintech start-up FinAccel, which operates credit lending app Kredivo in Indonesia and has more than 2m customers, said the situation has improved with the OJK’s increased policing but there was “no easy solution”. 

“Unless there is a deep level of co-operation between tech companies and governments to start more proactive surveillance of the app stores, not much can be done,” Garg said. “And tech companies globally have taken a hands-off approach to policing online.”

A lot of the apps, the majority of which are Chinese, are just “working math”, he said. “They don’t need to worry about the 10 per cent of borrowers that default. They charge such a high interest rate that the 90 per cent that do more than covers the 10 per cent you lost.”

Officials and executives alike agree that digital lenders can help address a chronic shortage of credit for the region’s fast-growing, young population — a need that has only increased during the pandemic.

Yet in India, even legitimate digital lenders have so far operated in something of a grey area. They are not directly supervised by authorities but must partner with an RBI-accredited non-bank financial company, though some secure an NBFC licence themselves.

India’s FinTech Association for Consumer Empowerment, an industry body, is looking to pre-empt heavy-handed intervention by lobbying the RBI for a self-regulatory model. It has proposed a set of best-practice standards, such as placing curbs on data that can be harvested from a borrower’s phone.

“The impact of a reckless and unregulated ecosystem could be horrendous,” said Akshay Mehrotra, chief executive of start-up EarlySalary and a founder of FACE. “The learnings are pretty common from both China and Indonesia. The lending process needs to be above board.”

Ashish Fafadia, a partner at India’s Blume Ventures, which has invested in several fintech lenders, said he believed a tighter regulatory leash was inevitable — and would ultimately serve the industry’s interests.

“I can’t imagine that we’ll be able to grow with ad hoc planning and systemic blow-ups every 10 or 20 years,” he said. “One needs to have an architecture which is transparent and immunised.”



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White House warns of ‘large number’ of victims in Microsoft hack

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The White House has warned that hackers may have compromised a “large number of victims” in the US by exploiting recently disclosed vulnerabilities in Microsoft software. 

Jen Psaki, White House press secretary, said on Friday that there was currently an “active threat” from hackers exploiting four flaws in Microsoft’s Exchange email application, which the tech group disclosed earlier this week. Microsoft has blamed a Chinese state-backed hacking group for the attacks.

“This is a significant vulnerability that could have far-reaching impacts,” Psaki said. “We are concerned that there are a large number of victims and are working with our partners to understand the scope.” 

Brian Krebs, a cyber security researcher, claimed in a blog post on Friday that at least 30,000 organisations “including a significant number of small businesses, towns, cities and local governments” had been hacked in the past few days following Microsoft’s disclosure, citing multiple sources briefed on the matter. 

On Tuesday, Microsoft published a blog post in which it said a group of hackers had launched “limited and targeted attacks” to gain access to emails. It also said the hackers had tried to go deeper into victims’ computer systems in order to lurk there unnoticed for a long period of time.

Microsoft has attributed the campaign to a group of Chinese state-sponsored hackers called Hafnium. China on Wednesday denied responsibility, according to a Reuters report. The White House did not link the campaign to any particular country.

It is unclear who has fallen victim to the attacks. Microsoft said that Hafnium has tended to target “infectious disease researchers, law firms, higher education institutions, defence contractors, policy think tanks, and NGOs” in the past.

Late on Thursday, Jake Sullivan, National Security Adviser, said in a tweet that the White House was “tracking . . . reports of potential compromises of US think tanks and defence industrial base entities”. 

He and Psaki urged the government, private sector companies and academic institutions to patch their systems after Microsoft issued fixes for the vulnerabilities. 

The concerns come after revelations in December that a sprawling cyber espionage campaign, likely backed by Russia, had been targeting US government agencies and businesses unnoticed for at least a year.

Authorities are still struggling to understand the scope of the fallout from the SolarWinds hack, which has prompted calls for President Joe Biden to prioritise US cyber security. The Biden administration is now preparing sanctions and other executive orders in response to the hack. 

James Lewis, a cyber expert at the Center for Strategic and International Studies, said it appeared that Microsoft and the US government had uncovered the Chinese attack while “poking about looking for SolarWinds”.

“This is the downside of a big hack by somebody else as it increases the chance that you’ll be found out,” Lewis said. “The Chinese should send the Russians a bill.”



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Polish women count cost of tough abortion curbs

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Even before Poland all but outlawed abortion, Zofia has been thinking about moving abroad. But the near-ban that took effect earlier this year helped her make up her mind: this autumn she plans to move to Prague in the Czech Republic.

“I feel better there, freer, and being a woman there doesn’t make me feel weaker or worse,” she said. “I love my life in Warsaw. But when the [abortion ban was mooted], I thought, I don’t want to live here any more . . . And I don’t want my kids to live here.”

The 31-year-old artist is one of thousands of Polish women outraged by the tightening of the country’s abortion laws which, even before the overhaul, were among the strictest in the EU. Their anger centres on a ruling by the Constitutional Tribunal in October last year, which declared that a 1993 law allowing abortions in the case of severe foetal abnormalities was unconstitutional.

The ruling came into force in January, leaving only two grounds for an abortion in Poland: a threat to the mother’s health or if the pregnancy is a result of rape or incest. Such cases made up just 2.4 per cent of the 1,100 legal abortions in Poland in 2019.

Hundreds of thousands of Poles took to the streets when the ruling was announced in October, and activists have called for another round of protests on International Women’s Day this Monday. Polling suggests that a majority of Poles back some form of liberalisation.

Anti-abortion campaigners, often guided by their religion in what remains one of Europe’s most strongly Catholic countries, say the change was needed to protect the rights of unborn children.

“An unborn child is a separate person, which has its own body and its own rights. A child must not be deprived of the fundamental right of every human being — the right to life,” Kaja Godek, one of Poland’s most prominent anti-abortion campaigners, wrote on Facebook last month.

A pro-life poster in Krakow. Many Polish opponents of abortion are guided by faith in one of Europe’s most strongly Catholic countries
A pro-life poster in Krakow. Many Polish opponents of abortion are guided by religion in one of Europe’s most strongly Catholic countries © Omar Marques/Getty Images

But activists say the ruling will force women to give birth to babies with such severe abnormalities that they have no chance of survival. They also say the government has done too little to help the families of children born with disabilities, who receive only limited support.

“I’m terrified because for me as a woman in reproductive age, it means getting pregnant in Poland became dangerous. And I’m afraid for my sister, for my colleagues and friends, for my relatives and for many other women I meet every day as clients,” said Kamila Ferenc, a lawyer from the Federation for Women and Family Planning, a women’s rights group.

“They will be in a horrible position . . . they have lost the possibility to decide freely on their own, because it’s not so easy to have an abortion outside the system.”

In the past, Polish women who could afford it were able to seek abortions in neighbouring countries with more liberal laws, such as the Czech Republic or Slovakia. But with the pandemic limiting travel, experts say women are likely to turn to the internet to buy drugs from overseas that would allow them to carry out abortions at home. Women are not prosecuted for self-managed abortions carried out before the 22nd week of pregnancy.

“It used to be the case that illegal abortions were through surgical procedures by doctors and back-alley providers. Then abortion tourism rose in the early 2000s after Poland joined the EU. Now we are seeing an increase in self-managed abortions, which can be less of a financial and emotional burden,” said Maria Lewandowska, a researcher into reproductive health at the London School of Hygiene and Tropical Medicine.

Justyna Wydrzynska, from Abortion Dream Team, a group that helps women who want to terminate their pregnancies, said that since the abortion rules were tightened in January, the organisation had received three times the normal number of calls from women seeking help.

“We get around 600 to 700 phone calls a month. Around 100 of them need to go abroad [for an abortion], and for the rest, . . . these are mostly people in need of pills, assistance in taking pills or post-abortion care,” she said.

“Often they are human dramas. Some people approach it in a task-oriented way, others very emotionally. Sometimes it is very difficult.”

Despite the huge protests last year, women’s rights groups acknowledge that as long as Poland’s conservative-nationalist Law and Justice party remains in power, the prospect of the laws being loosened is minimal. But they hope that in the long run, the debate sparked by the ruling will lead to greater support for liberalisation.

“The factual situation of pregnant women is worse. But on the other hand I think we are now on a better track to change the situation than when [the previous government led by the centre-right] Civic Platform ruled and everybody thought everything was all right,” said Ferenc.

“There is more courage in society to speak about abortion. People educate themselves and each other. I think that we now have more solidarity and strength in society to fight for reproductive rights. ”



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Hong Kong dropped from economic freedom index after crackdown

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Hong Kong has been dropped from a prominent index of the world’s freest economies, underlining growing concerns over Beijing’s tightening grip on the Asian financial centre after it introduced a national security law last year.

The announcement from the Heritage Foundation, a conservative US think-tank, came as the majority of a group of 47 pro-democracy politicians were refused bail in a case that critics say shows the rapid decline of civic freedoms in the city.

The Heritage Foundation also dropped the Chinese special autonomous region of Macau, a casino hub and former Portuguese colony, from the rankings.

The foundation in recent years has been aligned with the administration of former US president Donald Trump.

“No doubt both Hong Kong and Macau . . . enjoy economic policies that in many respects offer their citizens more economic freedom than is available to the average citizen of China,” the Heritage Foundation said. “But developments in recent years have demonstrated unambiguously that those policies are ultimately controlled from Beijing.”

Beijing imposed the national security law on Hong Kong last year in response to anti-government protests that engulfed the city in 2019.

The measures are part of a clampdown on civil and political freedoms guaranteed to the city for 50 years following its handover from the UK to China in 1997. Authorities are targeting anyone viewed as disloyal to the Chinese government in politics, education and the media.

The Hong Kong government has long taken pride in studies showing its economy to be one of the most liberal in the world, with the city marketing itself as an international business haven given its low tax rates and open port.

The Heritage Foundation last year replaced Hong Kong at the top of its “Index of Economic Freedom” with Singapore, toppling it from a position it had held for 25 years, but still included the territory in the rankings in second place.

The Hong Kong government said it was ‘dismayed’ by the Heritage Foundation’s decision and said it was “politically biased”.

The case against the 47 pro-democracy lawmakers and activists has been seen as a test of whether the city’s legal system can withstand pressure from Beijing.

Authorities charged the group with subversion, alleging they aimed to topple the government by staging an unofficial primary vote to select candidates to run for election to the city’s legislature. Subversion is punishable with up to life imprisonment under the national security law.

The bail hearings, presided over by a judge appointed to oversee national security cases, entered their fourth day on Thursday.

Victor So, the judge overseeing the case, only granted bail to 15 out of 47 defendants under harsh conditions, but the prosecution immediately appealed the ruling, returning them to custody until the appeal hearing takes place. 

On top of the usual bail conditions, the court ordered the defendants to not participate in elections or make any public political statements.

Sessions have often stretched late into the evening, including one that continued until 3am before the defendants were hauled back before the court the next day. At least one defendant collapsed inside the courtroom and six others were sent to hospital for treatment.

As they exited the court, some defendants shouted: “Political criminals are not guilty, Hong Kongers will not die!”

Simon Young, a law professor at the University of Hong Kong, said the treatment of the defendants was “most unsatisfactory”. Jerome Cohen, a Chinese law expert at New York University, said the way the hearing was conducted “makes a farce of procedural fairness”.

Some of the defendants have faced multiple trials simultaneously and were forced to shuffle between courtrooms.

The defendants’ lawyers said on Tuesday their clients had not bathed in three days, forcing the judge to delay the hearing to allow them to wash.

Hong Kong has tight restrictions on reporting the substance of bail hearings.

Hundreds of supporters have queued each day in an attempt to watch the proceedings in person. Many held placards and chanted banned political slogans, risking prosecution under the security law.



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