The 59-Minute Loan Scam
scam alert

MSMEs that have been badly hit by Note Ban and GST were offered a “Diwali gift” by Modi, announcing a website via which they could get loans of up to Rs 1 crore in 59 minutes.

A closer look reveals that this scheme is nothing but a way to cheat MSME loan applicants and siphon off their money to a private company that is owned by close cronies of Modi!

How does the scam work? The website for the 59-minute loan scheme is run, not by the Government but by a Gujarat-based company, named ‘Capita World.’ Every loan applicant pays a Rs 1180 application fee(Rs.1000/- Service Charge plus GST at 18%) to apply for a loan on the site - and gets an “in-principle” approval within 59 minutes or less. Remember - this “in-principle approval” is NOT A LOAN, it is a worthless scrap of paper. For the bank to sanction a loan, the applicant will have to submit collateral - and if he or she has collateral, they could easily get a loan directly from the bank! So Capita World is a private middleman that the Modi Government has introduced into the process. To sanction a loan, the bank will, as usual, charge a processing fee. Moreover the actual sanctioning of the loan will obviously take much longer than 59 minutes!

A Middleman Who Is A Modi Crony

The “application fee” goes straight into the middleman Capita World’s pockets whether or not a loan is eventually sanctioned. So if ten lakh applicants apply for a loan, Capita World would mint Rs 100 crore!  

If the loan gets approved, Capita World also gets 0.35% of the loan amount. The day after Modi made his announcement, a statistics counter on the website (which has since been quietly removed) – claimed 1.69 lakh registrations and loan approvals of Rs 23,582 crore - which means Capita World got 0.35% of that amount, i.e Rs 82.53 crore.

Who or what is Capita World, to be picked by the Government for such a huge bonanza, instead of the public sector SIDBI (Small Industries Development Bank of India)? Capita World was incorporated on 30 March 2015 and till then its income was a mere Rs.15000/- without any operations. The owners of the company are a bunch of Gujarat-based businessmen including one Mr.Akhil Hands, who was a campaign manager for Modi in the 2014 elections! Another director on the board, Vinod Modha is as a strategic advisor for corporates, including Nirma and Mudra, which was earlier owned by Anil Ambani.  

Scroll noted that the website also gains access to a lot of data: “To apply for a loan, companies have to submit critical details including not just bank statements and income tax and Goods and Services Tax returns but also their login IDs and passwords for both websites. In the age of algorithm-based lending, such data gives CapitaWorld a competitive edge its rivals cannot possibly match. As the sole company managing psbloansin59minutes, it will have deeper access to the data of India’s micro, small and medium enterprises sector than any of its peers.”

Violation Of Tender Norms

Capita World was picked to be the company to run the website in spite of the fact that it did not meet the requirements stipulated in the tender. The tender stipulated that to qualify, the company needed to have earned a fee of at least Rs 50 crore from management consulting during the three preceding years, and should have been in existence in India since April 01, 2012. Capita World was set up in 2015 and till 2016 posted a loss of Rs 38,888; in 2017 its income rose to Rs 15,680.

So just as Modi’s crony Anil Ambani’s inexperienced company was chosen over the PSU HAL in the Rafale deal, a company run by Modi and Ambani cronies, which spectacularly failed to meet the conditions stipulated in the tender, was picked instead of directly allowing SIDBI to do the job. If SIDBI needed technology, it could have simply bought the algorithm-based software from engine from Capita World if it was found suitable.

SIDBI Clarification Does Not Wash

SIDBI tweeted on 8 November that a consortium of six public banks led by SIDBI held 56% in Capita World, which gave it a public sector character. This arrangement raises even more questions about impropriety and violations of procedures. In fact, SIDBI and various state-run banks and their subsidiaries paid a premium of ₹119 per share in July 2018 to jointly buy a majority stake in Capita World, thus paying a premium to this loss-making company on the basis of its projected future earnings (guaranteed by the fact that it was bound to earn hugely via the application fees). So the public sector banks gave both business - and the capital to do business - to this company run by Modi’s cronies, while defrauding MSME loan applicants about easy-to-access loans!

The banks include the State Bank of India (9%), Small Industries Development Bank of India (8.03%), SIDBI Trustee Co. Ltd A/c Samridhi Fund (11.97%), Bank of Baroda (9%), Vijaya Bank (2%), Indian Bank (2%) and Punjab National Bank (5%), SBI Cards and Payment Services Pvt. Ltd and BoB Capital Markets Ltd purchased 3.5% each - their total stake is thus 54%.

UK Government Fund Accessed On False Pretenses

The SIDBI Samridhi Fund website says “The Department for International Development (DFID), United Kingdom, in association with Small Industries Development Bank of India (SIDBI), has envisaged the creation of the Samridhi Fund to provide capital to social enterprises which can deliver both financial and social returns, in Bihar, Uttar Pradesh, Madhya Pradesh, Odisha, Chattisgarh, Jharkhand, Rajasthan and West Bengal.” DFID is a UK Government funding agency. How did Capita World qualify for Samridhi funds without showing what, if any, social returns or developmental impact it can provide?!

This MSME loan scam is yet another instance of open, blatant cronyism and corruption which comes right up to Prime Minister Modi’s door.

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