In recent years, Pakistan has witnessed a surge in online scams and frauds ranging from investment and loan applications to unregulated brokers who provide legitimate services before ‘cashing out’ their built-up credibility upon collecting a substantial amount of money.
Investment & Loan Applications
Wearing the cape of legitimacy, these ‘branded’ fraudulent applications attract individuals with the promise of generating quick and sizeable returns on their investments in exchange for watching a few videos – commonly referred to as multi-level marketing. To add to the false sense of trust, the applications make use of two-factor authentication systems and international phone numbers when contacting their users.
Starting off with introductory free trials, the application lures its users by offering returns in exchange for no investment at all. Once they step into the web of deceit, they are enticed with cleverly designed investment packages which warrant a transfer to the application’s wallet from their personal Binance account or require a substantial amount of referrals. As users begin to invest more and more of their personal funds to purchase these packages in hopes of earning greater returns which are ‘too good to be true’, the scam unfolds. User withdrawals can no longer be processed, the pool of money collected by the minds behind the scheme disappears, and the users are left in financial and emotional ruin.
Besides these dodgy investment applications, there are a number of loan apps which engage in predatory lending practices. Aiming to lure potential borrowers through offering attractive interest rates, these apps steadily increase them as the loan terms progress, eventually drowning their borrowers in insurmountable debt. In addition to this, hidden fees, penalties, and aggressive collection tactics further exacerbate the financial burden. Caught in a state of desperation, borrowers frequently resort to borrowing from multiple apps or acquiring additional loans to repay their existing debts, plunging further into a cycle of financial fragility.
Recognizing the need to restore faith in the fintech landscape, the Securities & Exchange Commission of Pakistan (SECP) is taking initiative to safeguard the country’s citizens from such fraudulent investment apps and predatory lending practices by not only banning them, but by educating the public through releasing a whitelist of secure loan apps which have been approved by them.
Unregulated Brokers
Not strictly ‘scams’, unregulated brokers in Pakistan provide legitimate services before running away with their customers’ money, leaving them with no defense. Two such incidents were popularized in the country due to the magnanimity of the losses incurred by the victims of the scheme.
In 2013, Sidra Humaid embarked on an initiative to engage people in a committee. This involved organizing regular gatherings of both women and men, where each member would contribute money to a central pool. Through the drawing of lots, the lucky member would receive the entire accumulated sum. As Humaid’s proposal to save money spread, it gained traction among her friends, acquaintances, neighbours, and even online acquaintances. Initially, the monthly contribution was as modest as fifty rupees, with the total amount to be received reaching 5,000 rupees in some setups. Her concept quickly gained popularity, prompting her to establish a comprehensive structure. From just one committee, she expanded to managing a remarkable 117 committees, all operating simultaneously. Little did her committee members know that she was creating ghost members and running a Ponzi-like scheme which resulted in an embezzlement of Rs. 420 million.
Similarly, Muhammad Hassan aka ‘Major Zippy’, who sold gaming PCs and consoles through a group on Facebook, Pakistani PC Gamers, collected a sum of Rs. 145 million for pre-orders of the PlayStation 5 before eloping the country. Hassan and his company ZipTech had successfully cashed in on the trust they had built over the years in the gaming community of Pakistan. From delivering pre-orders on time to being endorsed by some of the country’s most popular YouTubers – Ganjiswag and VideoWaliSarkar – ZipTech was trusted by everyone.
The Impact on Pakistan’s Digital Landscape
Pakistan’s digital economy has long been poised for significant expansion, with a young and growing online population drawing the attention of numerous startups and venture capitalists. These players are eager to tap into the potential of transforming the predominantly cash-based informal economy into a thriving digital landscape.
Nonetheless, the adoption of formal ecommerce platforms in Pakistan has been relatively limited due to the prevalence of cash-based transactions. While this may be attributed to the presence of a significantly large unbanked population, it is also because sellers often choose to remain outside the tax system and customers find it difficult to trust the sellers. Scams in the digital investment, lending, and commerce landscapes have further complicated the situation by creating a trust deficit between the key stakeholders in the ecosystem – the buyer and the seller – which must be removed to truly digitize the country.
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