Picture this: You need some quick money. You ask the people around you, but no one has cash to move around on short notice. And you don’t have savings or investments that you can dip into quickly.

You decide to check your bank balance through your UPI app once again, even though you’re aware there isn’t enough money in your account. But on the app, you see another option. A loan. Even better, a loan that will apparently be disbursed very quickly, in just a few minutes. 

You tap on it, then enter a few key details to get yourself verified. The repayment schedule seems flexible enough. You only hesitate when you see the interest rate. It’s a bit on the higher side—definitely far more than your bank would charge you. But your bank isn’t going to disburse anything in just a few minutes. And with that flexible payment schedule, you feel like repayment won’t be too much of a hassle. 

So you hit the apply button, and your account is credited within just a few minutes. 

Banks, too, offer pretty much the same level of convenience and flexibility, but only when you have a fairly good credit score. Without one, it’s hard to avail any kind of unsecured loan. 

This gap is what many fintechs and NBFCs promised to bridge. They would open up credit to millions, they claimed, both individuals and small businesses. 

But in October this year, the Reserve Bank of India (RBI) asked four of these NBFCs to temporarily stop disbursing loans to customers. Navi Finserv Limited, Asirvad Micro Finance, Arohan Financial Services Limited, and DMI Finance Private Limited were charging “usurious” rates of interest, the central bank said. 

Of the lot, Navi Finserv has been allowed to resume its lending services as of 2 December, but that does nothing to change RBI’s choice of words. Usurious literally translates to “an unconscionable or exorbitant rate or amount of interest”. 

In this week’s episode of the Two by Two podcast, hosts Rohin Dharmakumar and Praveen Gopal Krishnan sat down with Ateesh Tankha, founder of Alsowise Content Solutions Private Limited and former head of Citi Merchant Services, and Mithun Sundar, Chief Partner Officer at Microsoft India and former CEO of Lendingkart, to break down some important questions around small unsecured loans in India.