With the establishment of a series of consumer finance companies, millions of people have the opportunity to access official credit channel for the first time. However, there are also suggestions that consumer lending rates now are “too high”. So, what is the reasonable interest rate for both sides?
*Large demand, banks do not dare to lend
Only within five recent years, consumer credit scale has increased five times, reaching 1,100 trillion dong. Despite high growth, in fact, customers who have access to consumer credit are still good income earners and have collaterals. The majority of the people are low and middle income earners who have not been able to access bank loans.
Statistics show that out of this 1,100 trillion dong, banks have accounted for more than 91 percent of market share, the total outstanding loans of consumer finance companies are just about 90 trillion dong now.
However, statistics of Dr Can Van Luc -economic expert show that because of accepting small, short-term loans, so far, finance companies are serving as many as 30 million customers.
Most customers of finance companies have low and lower middle income, no credit history, no collaterals, even have bad debt, which are normally called sub-prime customers.
As such, instead of having to access to black credit as in the previous time, dozens of millions of customers have been able to borrow from official credit channel to satisfy their capital demand.
Dr Nguyen Duc Kien, deputy Chair of the National Economic Committee of the National Assembly, said developing consumer finance is the overall trend around the world and Vietnam cannot stay outside. In fact, the demand for loans of low-income and lower middle income earners is very large but still cannot be fully met. This is also the reason why “hot” loans, usury loans, black credit, etc. still exist a lot in the rural area.
Over the last period, though hundreds of cases related to black credit have been criminally prosecuted, this is only the tip of the toil. To solve the problem of black credit, there must carry out by economic measures, i.e. to meet the capital demand of low income, lower middle income earners by official credit channel.
“If we have change in awareness, right thinking in supporting consumer finance companies and other financial institutions to develop strongly in the rural area to serve disadvantaged people, not only black credit will decrease but also support the consumption development, and stimulate production”, said Kien.
*Should interest rates ceiling be imposed on consumer loans?
Do Hoang Phong, general director of the National Credit Information Centre (CIC) say that the focus on customer segment with low and lower middle income makes the risks of finance companies be very high. This is also the reason why lending rates of finance companies to be higher than banks.
Regarding this, Dr Nguyen Duc Kien also said “Lending rates must follow the principle that large risk leads to high profits to offset. We cannot ask finance companies to lend more risky customers than banks but with as low lending rates as banks.
Calculations of experts show that on average, for every 10 loans, finance companies have to accept to lose two loans. Therefore, lending rates are applicable to these 10 loans. Apart from costs for operation mechanism and suitable profit margin, there must offset the loss of these two loans, not to mention the fact that the mobilised capital cost of finance companies is many times higher than banks.
With the opinion that there must consider reapplying lending rate ceiling for consumer loans, Dr Nguyen Duc Kien said borrowers will naturally expect low consumer interest rates and lending conditions must be easier. Meanwhile, they are not accepted when borrowing from banks. That is the dispute between supply and demand.
To imagine about whether we should apply a ceiling for consumer loans of finance companies or not, Kien said “For example, customers have demand for hospitalisation for surgery. The hospital gives them two choices either to pay 20 million dong for immediate surgery, or queue at least three months for insured surgery. How will customers choose?”
Of course, all comparisons are awkward but the reality shows that many people have urgent demand for borrowing money, and they only had two choices: either to borrow from finance companies or black credit with dozens or even hundreds of times higher interest rates than consumer loans. Therefore, experts suppose that there still needs to have credit channels such as consumer loans to be life-savings for low and medium low income earners.
According to economic experts, one of the reasons for high consumer loans like now is the lack of customer database, credit organisations lack the credibility to lend safely. Therefore, in order to reduce interest rates, there firstly needs to build national database of citizens. These data have to be updated regularly and shared widely, used for the whole society but not only for the public security and justice.
In addition, finance companies need to be more transparent in information, focusing more on the promotion for customers to understand about their rights and obligations.
“Finance companies must make sure that borrowers understand the importance of timely repayment, knowing how bad debt will affect themselves because when not carrying out the liability, customers will be very difficult to borrow or have to borrow at very high interest rates at other credit organisations”, warned Do Hoang Phong.
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