Instead of waiting for a bailout, businesses could turn to P2P Lending (peer-to-peer lending) to quench their thirst for capital for the post-COVID-19 recovery. As one of Fintech’s strongest growth models with the ability to quickly and efficiently raise capital, P2P Lending would affirm its attraction in difficult economic times when the capital demand of the market was high, but investors had been more cautious with their money. Nguyen Tri Hieu, Banking and Finance Specialist, had an interview with MSDN on this issue.
Great potential
On the development of Fintech (Finance-Technology enterprises) in the Vietnam market in recent years, Hieu commented, in the past five years, Fintech had powerfully penetrated. With more than 70 million mobile phone users and 64 million internet users out of a total population of 97 million people, Vietnam had become a good development area for Fintech models in general. In particular, electronic wallets and P2P Lending were considered two prominent sites. While the e-wallet segment had more than 35 brands participating in the market, the P2P Lending segment also had more than 40 companies operating officially.
However, it should be noted that the number of companies operating in the P2P Lending segment could actually reach hundreds of companies. That was to say, both the supply and demand of this market were very high and had great development potential.
How had the appearance of P2P Lending affected the domestic credit market?
According to Hieu, in Vietnam, the number of small and medium-sized enterprises (SMEs) currently accounted for 98 percent of the total number of operating companies. That was a group of businesses with colossal capital needs but having difficulty in accessing capital from banks for several reasons such as the standard financial accounting system, the shortage of collateral, psychology afraid of procedures due to lack of experience in preparing bank loan documents.
Statistics showed that up to 70 percent of SMEs were struggling with accessing bank loans and turning to search from non-traditional sources.
The P2P Lending model with many advantages, such as no need to mortgage assets, reasonable interest rates, low service costs, and especially quick procedures under the support of modern technology, would help businesses easily connect with lenders.
Thus, the appearance of P2P Lending had become an additional playground for Vietnam’s banking system and the credit market. Besides, this model also helped borrowers avoid using shadow banking channels, which could expose them to debt collection by some unethical means.
Considered to be an effective new capital channel, but the development of P2P Lending in Vietnam still faced many barriers. How did the expert evaluate this judgment?
Despite being a potential model, in our country, P2P Lending was only at an early stage of development, so the existing barriers could not be avoided. In terms of accessibility, Vietnam had a high proportion of the population using technology and the internet. Still, it was concentrated mainly in large cities, while the proportion of people using smart applications on phones in the remote areas was limited. Therefore, in spite of the high demand for capital, many people still did not know or could not use this model.
Another significant barrier was the legal system gap for P2P Lending activities. In 2019, the government had directed the State Bank of Vietnam (SBV) to develop a pilot plan for peer lending and intend to put this type of business into a conditional business line. Hopefully, these policies would soon be issued.
While waiting for the legal corridor to be completed, individuals and businesses participating in P2P Lending needed to thoroughly research the market and choose reputable units, operating following the existing laws to ensure maximum benefits in the loan process.
Support businesses in the post-COVID-19 period
With the severe impact of the COVID 19 pandemic on the economic and financial situation, was there any noticeable fluctuation in the P2P Lending market when lenders became more cautious with their capital sources, at the same time, the demand from the borrower might probably decrease more?
It was true that at this stage, the risk of investment and capital use increased, so almost everyone would become cautious about their cash flow. Hieu answered, there were many SMEs, retail stores recently closed, sales decreased. These were the people who needed capital to recover production and business activities when the epidemic was over, and P2P Lending would be one of the channels to help SMEs quench their thirst for money in time.
The challenge for investors and borrowers was to have to find a standard connected loan floor. In Vietnam, those units that had done quite well in the evaluation process included the VNVON.COM floor of Vietnam Financial Connection Joint Stock Company (VFL). By modern technology filters applied in scoring, credit rating, this unit would quickly connect investors and businesses with capital needs effectively.
When being asked about predictions about the future of the P2P Lending market in the second half of 2020, Nguyen Tri Hieu shared. So far, the market operated cautiously because the changes and movements of the disease were still very unpredictable. The issue of economic recovery could not be like a switch immediately turning off. Instead, it would take a while and need an enormous amount of capital. Although the government had provided some bailout packages, the budget was limited and could not rescue 100 percent of enterprises. Instead of waiting, SMEs should actively seek out foreign capital. The timely presence of quality P2P Lending products at this time could become a driving force for businesses to recover from the epidemic.
In the expert’s opinion, SBV should soon submit to the government a pilot plan for peer lending to ensure the interests of investors, as well as businesses that needed to borrow capital through this channel.
-What was the appropriate product development direction to maintain the heat, as well as the growth potential of this model?
In addition to the current lending connection services, P2P units could expand customer advisory services, including advising investors on the question of which businesses should invest; or advising the borrower on the amount of capital needed, the duration and interest rates appropriate to their business operations, and well managing a loan portfolio to investors. Also, the P2P platform/business could become a connecting channel in dispute resolution cases, including assistance in debt collection, debt restructuring, and legal measures such as litigation, Nguyen Tri Hieu said.
