Online lending booms in Vietnam, but lack of regulations

It is easy these days to find a site for online lending and borrow quickly with simple procedures. Companies have entered the peer to peer (P2P) online lending realm that directly connects borrowers, whether individuals or companies, with lenders, and get up to 2,000 customers a day, Can Van Luc, chief economist of the state-owned creditor BIDV, said.

This lending format does not require the involvement of an intermediary. It is flourishing because there are always people who have need for loans or want to lend money, and the rapid growth of technology precludes the need to go through intermediary financial institutions, he said.

“This model has several strong points, including low cost and quick disbursement time, but the worry is it is easy for investors to make use of it for other purposes. There are many lenders who come to the P2P platform not to find borrowers but to invest in other fields and the relationship between the suppliers of the platform, borrowers and lenders is unclear due to the lack of a legal framework.”

And because of this, lenders have been using gangs to recover their loans and put up their interest rates much higher than the legal cap set by the State Bank of Vietnam.

Luc said there is a risk for both borrowers and lenders.

He said authorities need to create a legal framework for this model soon to meet the strong demand in the market for credit.

Economist Nguyen Tri Hieu argued authorities should create legal regulations related to contracts, interest rate, fees, and other aspects to avoid problems.

Nguyen Thi Hong, Deputy Governor of the central bank, told a government meeting early this month that online lending has more or less turned into loan sharking.

It is a no-go area for the central bank but it would monitor and make recommendations to the government to regulate the market, she said.