According to World Bank financial inclusion data, just 31% of the adult (15+) population had a bank account in 2017; a similar proportion (32%) said they did not have one because they possessed insufficient funds.
But people are borrowing for numerous reasons – to pay school or medical fees, to help run a business and to buy items on credit, for example – and formal financial institutions are not an option for many.
Nor is the informal sector is an attractive option. Not only are borrowers at potential personal risk, but there is a cumulative impact on the economy. “Shadow banking and loan sharks, which can reach millions of US dollars in size, are a burden to the Vietnamese economy,” economist Le Xuan Nghia told VIR.
“We should facilitate the growth of consumer finance firms and regulate them closely, so that consumers can benefit from transparent and legal financial services,” he added.
Figures from the National Financial Supervisory Commission indicate that credit from Vietnam’s consumer finance firms grew 3.5 times more than overall credit in 2017, while recent merger and acquisition activity points to greater overseas involvement in this sector.
“With their international know-how and local networks, these partners hope that their financial offers can steer Vietnamese consumers away from loan sharks,” VIR observed.
Part of that will require education and reassurance in a sector where illegal money lenders often disguise themselves as consumer finance firms, with damaging effects on the reputation of legal operators.
At the same time, such firms will have to address the challenge from new credit card programmes that promise speedy approval, high spending limits, low fees and perks like cashback – all appealing propositions for unbanked consumers.
“The demand for consumer ¬finance services in Vietnam is huge, especially in rural areas where banks don’t have much presence,” said Dam The Thai, CEO of HD Saison.
“Opportunities are plenty, given that only 20% or 25% of purchases are financed by instalment loans. Moreover, Vietnamese consumers have an increasing need to buy or upgrade their electronics, motorbikes or home furniture, which is a good sign for us.”
Sourced from Vietnam Investment Review, World Bank; additional content by WARC staff