Developing Vietnam’s consumer finance market

With a population of 100 million people and a young average age, Vietnam is considered to hold substantial potential in consumer finance, analysts said at “The current situation and solutions for healthy development of the consumer finance market in Vietnam” seminar on April 28.

Vietnam’s consumer finance market includes both formal and informal credit channels. Official consumer finance includes credit institutions licensed by the State Bank of Vietnam (SBV) and operating under the Law on Credit Institutions, such as commercial banks and finance companies.

Informal consumer finance, under provisions of the Civil Code 2015, includes pawn shops, P2P lending, online lending apps, and “Buy now pay later” services.

Over recent years, along with the development of the economy and science and technology, the consumer finance market has exploded, with many diverse types of consumer lending services on offer.

There are 16 consumer finance companies licensed by the SBV to operate under the provisions of the Law on Credit Institutions. Borrowers tend to be unbanked or underbanked people who find it hard to access bank loans.

The market also sees the presence of many other types of consumer lending, such as pawn chains and small pawn shops, fintech companies, and finance companies operating under the provisions of the Civil Code and the Law on Investment 2020.

This shows that consumer credit activities in general and the activities of mainstream consumer finance companies in particular have played a major role in Vietnam’s socio-economic development and in improving quality of life.

However, the market is showing signs of complex and unstable problems. Vietnamese authorities have recently found organizations and individuals that may have infringed upon lending and debt collection rules. Several consumer finance firms have faced difficulties and obstacles due to shortcomings in the legal system.

Mr. Le Xuan Dong, Managing Director of FiinGroup, said the pawn business is a traditional lending activity that has existed for a hundred years and is popular in many countries. “As long as customers have needs, this activity will continue exist,” he added. “The problem is about interest rates and debt recovery. We have to have a management framework.”

Lawyer Truong Thanh Duc said consumer finance lenders have difficulty in debt recovery. “However, debt collection services were banned after the Law on Investment 2020 took effect,” he added. “I think we need to take a closer look at this issue.”

Dr. Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), told the seminar that debt collection should be recognized as a type of service. “In general, the government needs to develop legislation for consumer finance,” he said.