Growing pains for peer-to-peer lending in Vietnam

July 31, 2019

HANOI - With technology and artificial intelligence gradually taking over the traditional banking and finance market, it is inevitable that Vietnam, a country with a population of 96 million and a 70% internet penetration rate, should be golden ground for fintech investors, says a new report from the international law firm Allens.

In recent years, the report says, peer-to-peer (P2P) lending has made its presence known, with more than 40 companies, both domestic and foreign-owned, claiming to provide P2P lending services to local citizens.

The report discusses the current operation of P2P companies in Vietnam, relevant legal restrictions and the outlook for P2P regulation.

"Under the P2P business model currently operating in neighbouring countries - in particular, Indonesia and China - P2P lending companies, in addition to connecting peer borrowers to peer lenders, are permitted to do a host of activities that are associated with traditional banking," the report says.

"These include conducting disbursement of loans on behalf of lenders, lending against the P2P companies' own balance sheet, provision of guarantees for the repayment of the loans, and trading and collection of overdue debts."

However, the report says, regulators have not caught up with the P2P business model, so Vietnam still has no legal framework for it.

As a result, P2P companies in Vietnam are limited in their business activities and require registration of several conditional business lines if they wish to conduct some functions of a model P2P business.

Looking forward, the report says that while P2P lending can create significant socio-economic benefits, it may also cause socio-economic instability, due to borrower defaults and money-laundering risks.

"These downsides are especially concerning in Vietnam, due to the preference for cash transactions, and 'loan shark' practices.

"Therefore, the Vietnamese Government has taken a very cautious approach to opening up the P2P lending market, and only recently announced that a pilot P2P programme, to provide a clearer framework for P2P lending in Vietnam, will be issued."

While investors who wish for a more open P2P lending market may find the proposed scope of the pilot programme limited, the report says, the Government's move towards legalising P2P lending demonstrates an effort to keep up with development of the fintech market globally. (ATI).