According to experts, creating an open legal corridor for the operation of financial companies plays an important role in the campaign to fight back “black credit”.
Why is black credit still popular?
Black credit is considered a major problem of the society when this kind of subterranean lending and borrowing activities often goes beyond the control of the laws. In the period of Tet holiday, a series of black credit related cases and illegal debt collection measures have stirred up the public opinions. These cases have raised alarm to the authorities and financial institutions about the “expansion” of the black credit problems.
According to statistics, in Vietnam, the current official financial market only satisfies about 80-85 percent of capital demand, the rest is the informal credit market. Among the forms of informal credit such as borrowing friends, relatives, pawn, etc., black credit accounts for about one-third of the informal credit market, equivalent to about 5-6 percent of capital demand.
Explaining the increasing popularity of black credit, Dr Do Hoai Linh (Deputy Head of Commercial Bank Faculty, Institute of Banking and Finance, National Economics University) said: “consumer financial needs not only limit at buying houses, buying cars, but also incur in all stages of life with diverse products ranging from asset and housing purchase to education, health, tourism, etc., especially when income is not enough to pay expenses The need to borrow is inevitable. Therefore, if people do not receive capital support from formal channels such as borrowing relatives, borrowing from banks/finance companies, etc., people will seek black credit for financial support”.
Dr Do Hoai Linh also emphasized that currently, the black credit situation is quite popular: “In particular, the market of 60 million people living in rural areas where the presence of the official credit system is still very limited, together with the unfamiliarity of the people to the official credit channel, “black credit” in the form of private group deposit, pawn shops are still the main capital supply channel.
This is also the reason that black credit has “advantages” among the group of population with uncertain incomes. Even though being aware that these kinds of loans have high interest rates and even threaten their lives when the payment of principal and interest is late in accordance with the agreements, many people pushed to the edge are forced to borrow these loans.
Facing this issue, the authorities have come up with many measures to fight back black credit, but according to many experts, besides the intervention of police to remove underground lending institutions, it is still necessary to come up with an effective solution to solve the problem of borrowing needs of a part of the population.
Consumer lending: Is it possible to fight back black credit?
Until now, consumer loans from financial companies are being evaluated by experts as an optimal alternative to eliminate black credit problem. Accordingly, this form of lending fully converges the advantages in terms of ways and objects of loans as well as ensures safety for borrowers.
Although just appeared recently, it is undeniable that consumer lending has been addressing the need for a large portion of the population. This form converges the advantages such as: no mortgage, no prove of income, quick procedures, and simple forms of disbursement. With consumer lending packages, customers benefit from the availability consumption of goods and services even when they do not have enough money to purchase. And in particular, the amount of money owed will be gradually paid in accordance with income flows.
In addition, consumer loan packages often offer many small loan packages that meet the needs of people. Interest rates on consumer loans on the market are also flexibly applied by finance companies.
According to the assessment of Dr Can Van Luc, chief economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), financial companies have solved shortcomings from commercial banks on strict lending conditions. Dr Can Van Luc emphasized: “The strength of financial companies is quick, simple procedure, and willingness to provide unsecured loans, enabling many individuals to borrow money instead of using black credit”.
“In particular, compared to black credit, borrowing transactions with credit institutions clearly stipulate responsibilities and obligations from both sides. The form of consumer lending is protected by the laws when a civil contract is executed between lender and borrower”, Dr Can Van Luc analysed.
However, many experts believe that despite of many advantages, consumer lending still faces barriers when the legal corridor is not yet open due to the fact that with unsecured lending, the risks of financial companies are very large. Meanwhile, the imposition of the interest rate ceiling makes it difficult for the financial companies to fully do its role in creating loan packages, meeting customers’ requirements with appropriate policies.
As stated by Dr Can Van Luc: “In my opinion, the interest rate ceiling should not be applied since in credit transactions, lenders and the borrowers have already agreed in term of interest rates. If consumer lending is subject to interest rate ceilings, in risk conditions, no one will want to lend, which in general limit consumer lending. In fact, an analysis in the UK market has proved that interest rate ceiling distorts the consumer lending market.
