Domestic peer-to-peer (P2P) businesses expected that the test mechanism that the State Bank of Vietnam (SBV) was about to issue would eliminate shadow banking.
Lack of legal corridors, P2P disguised in a race
Nguyen Hoa Binh, President of NextTech, the business was operating the P2P floor named vaymuon.vn, said that the nature of the P2P model was very good. However, since there was no regulatory corridor, hundreds of flowers bloomed, easily abused, disguised. As a result, while Vietnamese start-ups operating in this field had crept up, foreign loan applications had jumped in, hiding from P2P, boosting shadow banking lending.
The lack of a legal corridor turned Vietnam into fertile soil for malicious and disguised P2P models, while properly operating P2P companies were being overwhelmed. Therefore, having a legal corridor whether piloted was essential to protect both borrowers and P2P businesses properly, Binh emphasized.
According to SBV data, there were 40 P2P companies in the country. However, as reflected by businesses in this field, there were actually more than 100 P2P lending applications in operation, of which about 70 percent were operated by foreigners, the most were from China. These apps advertised to operate under the P2P model but were a shiny shadow banking, like the Cashwagon app that was discovered by police in early June 2020.
Nguyen Viet Hung, Chair of the Board of directors, general director of Lendbiz Joint Stock Company, said that many companies were taking the name of P2P, but there were no individual investors, loans and operations depended on the company’s own money, of which interests and debt collection were identical to the black credit model, damaging the P2P model.
According to the assessment of Vietnamese enterprises operating P2P platforms, the demand for this market was huge. For example, after five years of operation, Tima’s loan sales reached over 93.4 trillion dong, higher than many domestic banks. The number of customers of this company exceeded 4 million. Meanwhile, the business entering the market later also owned thousands of borrowers.
Nguyen Hoa Binh said that the development potential of the P2P market was huge because the demand of borrowers was very high. This model was not new, had existed for thousands of years in the form of borrowing from relatives and friends. P2P was just the ‘technologisation’ of this borrowed relationship. The introduction of this model, if well managed, would promote comprehensive finance, giving people, households, small and medium-sized businesses more opportunities to access financial services at low cost, lighter procedures.
Meanwhile, Nguyen Viet Hung affirmed that the percentage of small and medium enterprises signing refinancing contracts in Lendbiz was up to 80%. This rate showed that P2P lending was a very effective capital access channel for not only people but also businesses.
Tighten sources of money and lenders
According to banking experts, many lending online apps that sheltered behind the P2P model did not directly connect investors with borrowers but used their money to lend at exorbitant interest rates. Therefore, to control the P2P market, first of all, it was necessary to control the source of loans strictly.
In Vietnam, there were many P2P models in operation, some were operating properly, but there were also variable models. Therefore, the P2P testing mechanism needed to clarify the investor lending, the loan source, the qualifications of the company’s leaders, Nguyen Tri Hieu, a banking expert, suggested.
Binh said that SBV had identified the downside of the P2P market. Therefore, in the pilot mechanism, SBV would stipulate how enterprises could participate in piloting this model. Specifically, the lender must be an individual having a bank account or e-wallet for the State to manage. Also, the lending approval mechanism must be clear, and so on.
Although feeling anxious to wait for the pilot mechanism, but sharing with the reporter of the Investment Review Newspaper, Nguyen Viet Hung expected, this mechanism should not be controlled too tightly. Otherwise, businesses would be difficult to carry out. Because the nature of credit was always accompanied by the risk of bad debts, including banks, with P2P, the risk was even greater. Therefore, if the management were too tight, the enterprise could not meet the conditions, then the P2P pilot would lose its meaning.
Naturally, the introduction of the conditions of P2P companies, such as charter capital, managerial qualifications, was essential. Standardising P2P activities also helped customers identify standard companies to invest or borrow.
Banking experts expected that the SBV’s legal framework for the P2P testing mechanism would provide reasonable and sufficient regulations so that businesses could operate within the allowed scope. Besides, the management should also be tight enough to eradicate shadow banking lending applications, clearly define the rights and responsibilities of the parties so that the law could easily adjudicate when disputes occurred.
Also, the publication of the list of P2P companies allowed to be tested would help people identify legitimate companies, not be trapped by disguised shadow banking.
According to Can Van Luc, an economic expert in the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), the P2P model was the inevitable trend of the digital economy, would grow sharply in Vietnam. Therefore, the introduction of a trial legal framework would put these companies in the framework, better protect investors and borrowers, and increase access to capital for people and businesses.
