Peer-to-peer (P2P) lending, which is new to Vietnam, helps strengthen comprehensive financing, but Vietnam does not have a legal corridor for this debt financing method, and both borrowers and lenders are not protected by law.

A bank teller holds stacks of Vietnamese banknotes. Vietnam does not have a legal corridor for P2P lending, and thus both borrowers and lenders are not protected by law 

Several platforms in China’s P2P lending industry have collapsed, serving as a warning to Vietnam, according to a report published in Lao Dong newspaper.

The local newspaper reported a case in Hanoi, in which a borrower sought a loan via a lending application instead of through a bank. Using a vehicle registration certificate, the borrower received an instant loan of VND15 million, which was half the value of her Lead scooter. After 30 days, the borrower needed to pay VND17.25 million in both principal and interest, in addition to a monthly rate of 15%.

The borrower could have also opted for using a household registration book to borrow VND10 million in 30 days. On the due date, the borrower would have needed to pay VND11.5 million.

With P2P lending, borrowers and lenders are connected through an application. P2P lending platforms offer various loans, such as unsecured loans, collateral loans and installment loans, using wages, household registration books, and vehicle registration certificates.

The presence of fintech companies has opened a new channel of capital access for customers who do not meet the borrowing requirements of banks. This has helped reduce the number of loan sharks.

The advantages of P2P lending include simplified procedures, rapid processing of borrowing applications, easy online transactions and competitive interest rates.

An expert told Lao Dong newspaper that since there was no legal corridor for P2P lending in Vietnam yet, this method of debt financing is governed by the Civil Code.

In March 2017, the central bank established a steering committee on fintech to present solutions, including the legal corridor, to facilitate the operations of fintech firms.

According to lawyer Truong Thanh Duc of Basico Law Firm, the major risks of P2P lending are high rates and pressure in the case of late debt repayment. Where P2P lending platforms are merely brokers connecting lenders and borrowers, both sides have to deal with any disputes that arise. When these platforms organize capital mobilization, they violate regulations on lending by credit institutions.

With P2P lending platforms acting as brokers, lenders are the ones who evaluate the borrowing applications, and the platforms do not take responsibility if borrowers fail to pay off their loans.

Banks can use the data of the National Credit Information Center to assess risk and make lending decisions. However, P2P lenders do not have this information.

Tran The Vinh, director of Tima Group, had earlier told VTV24 that the lender would assess the borrower’s ability to repay debts before deciding on lending the amount requested. The company is not responsible for bad debts, he added.

There are mixed opinions on P2P lending. According to Duc, this method is risky and should not be encouraged, at least not until Vietnam has sufficient regulations in place for it.

Meanwhile, P2P companies believe that this method is directed at customers who have difficulty proving financial ability. Using other sources of proof enables borrowers to access investors.

At a conference on comprehensive financing, central bank deputy governor Nguyen Kim Anh noted that while the city residents and large companies have easy access to services, residents in remote areas and smaller companies face problems. With customers’ access to bank loans still limited, the P2P method should be encouraged, but there needs to be measures in place to control it, he added.

SGT