P2P loans finding favor
Peer-to-peer lending fills a critical gap in Vietnam's financial landscape but full regulation is lacking.
Hoping for a cheap holiday to South Korea, Mr. Nguyen Trung Kien, an IT worker in Ho Chi Minh City’s District 10, took out a loan through peer-to-peer (P2P) lender VayMuon.vn. “Despite paying interest of 20-30 per cent per annum, I still think taking out the loan was a good idea because I wanted the money for a holiday,” he said.
Mr. Kien and many others in Vietnam are finding favor with P2P lending services, as it’s not only a quick financing source but also an effective investment channel, offering investors a much higher return than other traditional investment methods. In just the last few years, P2P lending has made its presence felt in the financial market, with more than 40 active businesses, both domestic and foreign owned, operating in Vietnam.
P2P lending is one of many modern fintech solutions, directly linking borrowers and investor-lenders and squeezing out the middleman. It promises to become a “next generation bank” thanks to advanced technologies supporting transactions. Taking advantage of artificial intelligence (AI) and automation, P2P lending possesses many advantages compared to traditional lending in terms of speed, operating costs, and interest rates.
Local platform VayMuon.vn announced in late July a partnership with Vietinbank Insurance (VBI) and has been calling for Series A financing of $5-10 million by the end of the year, after previously closing Seed round funding from the Nexttech Group. “This would allow the company to continue investing to improve the system and technologies as well as launch more products with extensive support from Nexttech’s multi-sector ecosystem,” said Ms. Dao Thi Trang, CEO of VayMuon.
It’s also considering going global, with plans to expand to regional markets targeting four countries by 2020. It posted impressive business results for the first half. Disbursed transactions outpaced the number last year as a whole, bringing total customers to 2 million. More than 350,000 individual lenders now participate in the system, with first-half revenue up 12.8 times year-on-year.
VayMuon is unique in that cash is transferred directly between the borrower and the lender via a third-party payment platform licensed by the State Bank of Vietnam (SBV), making the transaction clear for all parties. Tima, meanwhile, provides all sorts of consumer loans, from funds for students to mortgages and motor vehicle loans. The company has its own credit scoring system that is generated by analyzing data from the borrower’s social media accounts to determine credit worthiness.
As one of the largest P2P lenders in Vietnam, Tima has catered to over 4 million customers looking for loans and over 40,000 investors keen to lend, with successful loans standing at $4 billion. It successfully raised funds from the Dunearn Singapore Fund and G Capital in 2016 in a Series A round, and from Belt Road Capital in a Series B round, pushing the company’s valuation close to $20 million.
Tima appraises the financial capacity of borrowers and lenders before approving loans. “This process is executed by machine learning based on multi-dimensional data provided by customers, in combination with traditional appraisal methods,” said Mr. Tran The Vinh, CEO of Tima. “We also cooperate with banks, such as Nam A Bank and NCB, to manage loan transactions and guarantee transparency.”
Vietnam has a population of around 96 million, 76 per cent of whom are of working age and 70 per cent of whom have a mobile phone, with average incomes rising fast and people preferring to use advanced technology. Access to financial-banking services, however, remains modest compared to the region, with 69 per cent of the population being unbanked. Fintech developers have been quick to capitalize on the conditions to offer financial services and products to unbanked consumers.
According to the World Bank, only 40 per cent of adults in Vietnam have bank accounts compared to 80 per cent in China and 74 per cent in the Asia-Pacific region. “With these parameters, Vietnam is truly a potential gold mine for the P2P model, with increasing interest from businesses and venture capital funds both domestic and foreign,” said Mr. Tran Dai Duong, CEO of Interloan.
As the latest name to enter the market, Interloan differentiates itself from the majority of P2P lending models by establishing connections between enterprises and lenders. With this approach, only employees of enterprises that have joined the partnership can seek loans via Interloan, increasing transparency and reducing risk for investors. The company now has over 3,000 customers who are employees of McDonald’s Vietnam, the Mat Bao BPO JSC, the Vien Dong Insurance JSC, or the Viet Money JSC.
Interloan’s general goal in expanding cooperation with banks and businesses is to improve the foundation of online high-tech P2P lending, supporting the systematization of advance salary payments for employees, minimizing pressure on working capital for small and medium-sized enterprises (SMEs), and providing workers with more financial access for urgent short-term needs. Users can lend a maximum of around $3,000 with a preferential interest rate of 16.5-19 per cent per annum.
The rise of P2P lending as an alternative source of capital in Vietnam has unfolded quickly. The global P2P market is estimated to be worth $490 billion by 2020, and Vietnam’s slice is expected to be $7.8 billion - almost double the $4.4 billion in 2017 - according to estimates from consultants Solidiance.
There are actually yet to be any official figures on transaction value in Vietnam’s P2P lending market. According to Mr. Alexey Sidorov, Co-founder and CEO of Silkway Ventures Group, total transaction value stands at around $1 billion in the country, with 3,000 to 3,500 transactions made every day. These are usually quite small amounts, of about $100-300, and for very short terms of usually 30 days, similar to micro-finance transactions.
Legal framework necessary
The potential for growth in Vietnam’s P2P lending market are tremendous, as shown in other countries in Southeast Asia. But a full and complete legal corridor is still to come, with recent bankruptcies of many P2P lenders in China recently being of some concern. With or without a complete legal framework, however, there can be no doubt that P2P lending will remain a trend in the finance sector and it helps resolve many problems in Vietnamese society.
Regulators are yet to catch up with the new platform. As international law firm Allens noted in its “P2P Lending in Vietnam” report released in July, P2P companies in Vietnam are limited in their business activities and require registration in several conditional business lines if they wish to join the market.
The ill-defined legal framework is of course an obstacle to P2P lending’s development. “A number of bad actors have taken advantage of legal gaps and loopholes to cheat customers and many people lost trust in the market,” said Mr. Vinh from Tima. “The government needs to build a clear legal framework to control the P2P market for sustainable development and to promote the use of consumer credit, especially to those with difficulties approaching banks and financial companies.”
Being without official licensing and regulation from the government creates two challenges, according to Mr. Duong from Interloan. Firstly, it encourages other types of lenders (online lenders, pawn shops, etc.) to call themselves P2P lenders. This can create a bad image among actual P2P lenders if customers are wronged and may even make people view P2P lending as being on par with loan sharks.
Secondly, it limits resources coming into the segment, since serious players can see the potential risks. It may already be too late to establish major P2P players that can compete regionally and internationally. “This year, however, we have seen some decisive moves from the government to regulate the segment and I hope results will come in the very near future,” he said. VN Economic Times