In August 2015, Anshul Raheja stood in front of a billing clerk at an upscale jewellery store in Bengaluru. He was embarrassed and angry. It was his wife’s birthday and she had selected a diamond necklace. He had asked the store to swipe his AmEx card.

Payment declined.

“Try again,” he asked the billing clerk.

Same result.

He had to give up the necklace. He walked out of the store, seething.

“This was not the first time the card wouldn’t work. I could not let it go this time,” says Raheja (name changed on request). It was his pride that was hurt. He had been humiliated in front of his wife and a store full of people.

He got on the helpline and gave them a piece of his mind. He cancelled the card and refused to pay his dues. “I told them that if they stopped calling me for two months, I would clear my dues,” he says.

Raheja says he wanted to pay back sooner but just got lazy. In November, Raheja scored a job at a hot new startup in Gurugram. He decided to apply for a loan to fund his relocation and realized his cibil score was 620.

Banks, typically, do not lend to customers who have a score less than 740 and have outstanding bills. He realized he had outstanding balance of Rs 70,000 on his credit card, which he needed to pay off to be eligible for a loan.

He Googled and found Rupeelend. It agreed to give him a short-term, no-collateral loan.

Rupeelend isn’t the only company around. There are over seven of them, which have cropped up over the past year. Three of the biggest startups have over Rs 10 crore in circulation and claim to give out 150 loans a day. They collectively have over 100,000 downloads and around 50% active users and plan to have a loan book of Rs 100 crore each by the end of FY17. Most of these companies are not accountable to Reserve Bank of India as they exist in the grey area, where they act as a marketplace for non-banking financial companies (NBFCs), which actually dispense the loan. In the US, where such lenders have been around for over two decades, a Pew Charitable Trust study found in 2013 that Payday loan borrowers spend approximately $7.4 billion annually repaying their dues. The average interest rate at such companies there exceeds 450%.

So grave is the problem in the US that there are support groups to hold sessions for survivors of payday loan sharks. In July, Google did its bit and announced on its official blog:”We’re banning ads for payday loans and some related products from our ads system.”

In India, however, the numbers look modest now but may soon become monumental.

The first hit

Financial advisors will tell you it is advisable to get a personal loan to pay off your credit card dues.

AUTHOR

Patanjali Pahwa

Patanjali has spent over seven years in journalism. He last worked at Business Standard as Principal Correspondent, where he wrote on startups, e-commerce companies and venture capital. He has worked at an array of institutions, which include Forbes India, Caravan and Outlook Business. He is a Mumbaikar, born and brought up. Patanjali did his BSc in IT from Mumbai University and then got his journalism degree from IIJNM in Bangalore. He is enamoured by Ernest Hemingway and Tom Waits and may try to sneak in references to them in his stories.

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