Talking to the press, Dr Nguyen Dinh Cung, director of the Central Institute for Economic Management (CIEM), said that there is a shortage of supply for small-value loans (under 50 million dong), limiting households and individuals’ access to legitimate consumer loans.
Black credit with exorbitant interest rates has caused serious consequences in society in the past time. The extremely aggressive tricks of gangs include disguising to be police and driving vehicles attached number 113 into villages to collect debts, lending with interest rate of 365 percent per year, dumping waste and dirt to threaten borrowers’ relatives, forbidding debtors to repay principal and making them pay interest for the whole life, etc. The above situation is assumingly caused by a huge unsatisfied demand for borrowing money.
Dr Nguyen Dinh Cung cited the results of the World Bank research in Vietnam in 2014 that the proportion of adults (aged 15 and over) with at least one loan within the past 1 year is 46.8 percent. However, the proportion of people with loans in legitimate financial institutions is only 18.4 percent. Notably, 20.9 percent of respondents said they could not access any form of credit when there were urgent financial needs.
‘Sometimes farmers only need an amount of money for 15 days and if they can borrow it immediately, they do not need to sell young rice. However, banks and large-scale credit institutions will ignore the customer segment with small-value loan because of its high cost and low profit. Meanwhile, the actual number of customers with this demand is large. Therefore, it is necessary to encourage a new type of business to fill this gap of the market.
To help people access legitimate credit and restrain black credit, ‘it is necessary to innovate thinking, consider households as an indispensable element in the economy and potential customers, and develop a system to meet their needs. A legal framework (sandbox) for non-traditional business models such as peer to peer lending and non-cash payments should be quickly established to meet the diverse needs of the people,’ said Dr Nguyen Dinh Cung.
According to Dr Nguyen Dinh Cung, the emergence of the average income class in Vietnam over the past decade has led to significant changes in consumer behavior. It is not necessary to ‘save first, spend later’ but can be ‘pre-purchased, post-paid’. Thus, consumer lending meets the demand for modern consumption and spending, thereby boosting economic growth. Enhancing access to modern financial banking services and legitimate financial institutions would help people have more options instead of seeking informal credit.
Experts believe that the development of consumer credit is a good solution to limit black credit. ‘In the past two years, it can be seen that Vietnam’s consumer financial market has developed very closely with the world market with the emergence of online lending and peer to peer lending models offered by fintech companies. However, the scale of this group is still very small,’ said Dr Nguyen Dinh Cung.
According to Dr Nguyen Dinh Cung, it is necessary to expand the market, formalise the informal sector, and encourage new types of businesses to accept and provide financial services to consumers, including consumer loans. There is a need to control black credit to improve market confidence.
