Chinese investors exit Pakistan's digital lending market amid regulatory crackdown

Chinese investors have pulled billions of rupees out of Pakistan's once-booming digital lending industry following increased regulatory scrutiny and a government crackdown on predatory lending practices, industry sources told Nuktaon Monday.

The withdrawal marks a significant reversal in a sector that had attracted substantial foreign capital to Pakistan, a South Asian nation of 220 million people that has struggled with economic instability and is seeking foreign investment across various sectors.

Sources familiar with the matter, who requested anonymity because they weren't authorized to speak publicly, said Chinese investors had been the primary financial backers behind dozens of digital lending apps that surged in popularity across Pakistan in 2022.

While some of these digital lending platforms operated with approval from Pakistan's Securities and Exchange Commission (SECP), many functioned without proper authorization due to weak enforcement by both the SECP and the State Bank of Pakistan, officials said.

20 million borrowers

SECP data shows the commission has issued licenses to 104 lending companies between 2020 and 2025, while revoking five licenses during the same period.

The lending apps typically offered small loans of up to 20,000 Pakistani rupees (approximately $72) despite charging high interest rates and employing aggressive collection methods.

According to officials, more than 20 million borrowers took out loans worth billions of rupees from these digital platforms. Eight major lending companies saw their apps downloaded over 15 million times from Google's Play Store.

Suicide triggers crackdown

The government crackdown intensified after Muhammad Masood, a resident of Rawalpindi, committed suicide on July 11, 2023, after allegedly being blackmailed by an illegal digital lender.

These unauthorized platforms typically gained access to borrowers' personal information, including family contacts, mobile phone data, and social media accounts—access that was technically granted when users accepted the apps' terms of service.

Pakistan's Federal Investigation Agency (FIA) subsequently launched a nationwide operation against illegal loan apps, registering 74 inquiry cases based on victim complaints. The agency arrested 17 suspects operating illegal online loan schemes across various cities and blocked more than three dozen accounts.

FIA's controversial crackdown

Industry sources claim the FIA's investigation methods became increasingly aggressive, targeting even properly registered companies.

"When we presented ourselves before the Investigation Officer, we were surprised to learn that we hadn't even given a loan to the complainant who filed against us," an official from a registered lending company told Nukta, speaking on condition of anonymity due to the sensitivity of the issue.

"The IO told us they could produce more complaints against our company if we didn't cooperate. We had no option but to comply, especially as our Chinese investors wanted to exit this problematic situation," the official added.

Sources indicated that many companies reportedly settled matters with the FIA, after which ongoing inquiries against most digital lending apps stalled. Meanwhile, dozens of victims of these companies' practices are still awaiting resolution of their complaints.

Nukta contacted senior FIA officials for comment, but no response was received by the time of publication.