In a move to crack down on fintech firms backed by Chinese funds, the Enforcement Directorate (ED) has detained the CEO of a non-banking financial company (NBFC). Reportedly, the CEO has been arrested on the subject of a money-laundering probe against Chinese based fintech companies.
ED after NFBCs backed by Chinese funds
On Friday, ED arrested Pavitra Pradip Walvekar, who holds the position of a promoter, director and chief executive officer in Kudos Finance and Investment Private Limited. Later, he was presented before a special Prevention of Money Laundering Act (PMLA) court in Hyderabad which observed 15 days’ judicial custody for him.
Interestingly, ED has been investigating against several NBFCs involved in the business of instant personal loans through mobile apps.
Read more: After India’s $500 million loan, Bangladesh tightens the screws on Chinese companies
The agency reported that various fintech companies being run by Chinese funds have signed an agreement with these NBFC companies to provide instant personal microloans for the term of seven-fourteen days.
It stated, “Kudos NBFC purportedly engages fintech (digital lending partners) companies as a service provider to assist in identifying prospective customers, verifying their eligibility, collection of information/documents, conducting due diligence, collecting pre-disbursement documents, arranging execution of the loan agreement, assisting with collections/recovery of principal and interest payments and attending service requests or product related queries for the retail loans offered by the company.”
NBFC and fintech companies
As per the ED, “Although it seems that NBFC is engaging fintechcompanies for these activities but in reality, they are allowing the fintech companies to misuse the valuable NBFC licence of Kudos.”
The central agency also told that Kudos has a paltry net owned fund (NOF), but it is taking huge amounts as security deposits. It further alleged that “Kudos then opens separate merchant ID (MID) with payment gateways for eachfintech app and then deposits these security deposit in the MID of the respective fintech app.”
Kudos, as per the reports, has no mobile app of its own and is not involved in the lending business at all. It sightlessly allows fintech companies to function on the basis of MoUs between self (NBFC) and fintech mobile app companies. And this is how the entire lending operation is being done by the fintech app from its own funds.
The agency alleged that “Kudos is only lending its license and the fintech apps are the ones acting like the real NBFCs and doing end to end micro lending and reaping majority of the benefits. In return Kudos is taking a commission without doing any due diligence or hardwork.”
Read more: A Manipur lady, her Chinese husband and drugs worth Rs 500 crores
However, ED is all set to take strict action against these Chinese backed fintech firms and the nefarious agendas of China will bite the dust.