The State Bank of Vietnam (SBV) is leading the development of a legal framework for Peer-to-Peer (P2P) lending and will submit it to the government for piloting this activity in the near future.
Previously, the SBV once warned about the P2P lending activity in Vietnam because this model is still inadequate such as the advertising is not transparent in terms of profitability, there is no information or inaccurate information is provided about the risks that participants may face, or unreasonably high interest rates are given to attract borrowers.
If a dispute arises due to the failure to recovery loans, lenders may lose money and can hardly claim liability from the P2P platform providers.
Nguyen Kim Anh, deputy Governor of the SBV affirmed that P2P lending has developed in various forms since its first presence in the UK in 2005. P2P lending is developing very fast in Vietnam but it contains many potential risks, due to the lack of a full legal framework.
Among 40 P2P companies operating in Vietnam, 10 are sourced from China and some are from Indonesia and Singapore. Some of these 40 businesses have made some violations to the banking law.
Instead of being intermediaries to connect information, these companies mobilise multi-level finance to cheat and appropriate capital; mobilise capital for widespread lending, generate bad debts, lose the ability to pay and perform illegal intermediary payment functions to appropriate capital and fraud.
The nature of P2P lending is a new business model with innovative services based on digital technology that directly connects borrowers and lenders (investors) without going through financial intermediaries. Accordingly, P2P lending company provides online trading platform for borrowers to connect and directly borrow from lenders. All of the activities of borrowing, repaying debts (principal and interests) between borrowers and lenders are recorded and stored in the online trading platform by electronic and digital tables.
Expanded after pilot time
The SBV is developing a pilot scheme for this type of business and expects to bring P2P lending into conditional business lines.
In order to pilot this model, in the short term the SBV may choose businesses with good financial capacity to apply and test models of products and services to serve the public. This will also helps these businesses to assess the impact, profitability and overall business model. After that, the SBV will screen out good products and services as well as potential businesses to provide an appropriate legal framework. Accordingly, when these businesses meet the requirements, the SBV will allow wide application on the P2P lending market.
The SBV’s deputy Governor stressed that “the expansion of P2P lending for businesses and people to participate is good, because this is market economy-based business model, but the legal framework is incomplete. If the pilot is effective, the SBV will put it into operation in accordance with the legal framework, avoiding causing risks to related parties.”
