Like much of the Fintech space, peer-to-peer, or P2P, lending in Vietnam is a relatively new and growing field. It also remains largely unregulated. In an official letter issued a year and a half ago, the state bank of Vietnam acknowledged that the space lacked regulation and warned banks and credit institutions of various dangers inherent in operating P2P lending platforms. It did not, however, offer any guidance on what it expected those same institutions to do as regards licensing, reporting, or monitoring any platforms they may decide to pursue.
This lack of regulation, however, has not stopped Vietnamese businesses from developing P2P lending platforms. The bulk of businesses operating in the sector have so far operated as technology solutions providers licensing as e-commerce sites or using existing banking infrastructure to offer a slightly different product than traditionally falls within banks’ purview.
Four Models of P2P Lending in Vietnam
According to economics expert Nguyễn Trí Hiếu (as cited by Voice of Vietnam here) there are four basic approaches to P2P lending in Vietnam. First, the company stands in the middle, using technology to connect investors and parties seeking funds. Second, companies appraise people seeking funds and introduce them to people who provide funds. Third, companies appraise rates, terms, and methods of debt repayment. And finally, companies that not only make connections but also act as a bank to mobilize capital and provide funds.
This suggests a number of potential sectoral classifications for the various P2P lending models. If providing only a marketplace for borrowers and lenders to connect without offering any appraisal services or mobilizing capital then the platform would have a strong argument that it only provides a digital solution or an e-commerce site. If the platform goes farther, however, and offers an appraisal of loan applications, rates, terms, and other aspects of the potential borrower’s pitch, then they would be acting in the realm of credit rating and appraisal. Finally, if they act to mobilize and provide funds they are acting in the place of a bank and providing loans, even if as a trustee, and therefore would become a lender.
Possible Regulatory Models
P2P lending in Vietnam may be subject to regulations governing three different sectors: e-commerce (or the act of conducting transactions through electronic means), credit rating and appraisal (or the analysis, assessment, and rating of borrowers’ ability to repay their debt), and lending (or the extension of credit whereby the lender delivers or undertakes to deliver to the borrower a sum of money to use for a definite purpose for a definite term as agreed, on the principle that principal and interest are fully repayable). I’ll take these one at a time.
This one’s straightforward. Companies seeking to provide e-commerce services in Vietnam must be registered to provide the proper services with their local Department of Planning and Investment and must notify the Ministry of Industy and Trade prior to publishing an e-commerce website. They are subject to data privacy (see article on individual data privacy protections here
) and cybersecurity regulations. Depending on how the funds are transferred from investor to borrower, by using an e-wallet for instance (see article on e-wallet regulations here
), they may also need to register a business activity of intermediary payment services and obtain a license for thus acting from the state bank. It is also possible that, due to the fact that a P2P lending platform tends to act similarly to a social network, they may want to pursue registration of providing a social network on telecommunications as well as abiding by regulations relevant to that activity.
In order to provide credit rating services, the platform will need to obtain a credit rating license from the Ministry of Finance, something that also entails consultation with the state bank and the Ministry of Planning and Investment. They must have a registered and paid-up capital of at least 15 billion VND and maintain at least five qualified credit raters on staff. They are also subject to additional requirements of prudential and fiscal responsibility. It would seem, too, that obtaining this license is difficult as it took four years from the promulgation of the law on credit rating services until the granting of the first license.
Lending activities are regulated by the state bank of Vietnam. Though a P2P lending platform may argue that they are not technically lending, if they are conducting activities that could be classified as lending on a regular basis then they must register as a relevant credit institution. The same may be true of individual lenders that use a P2P lending platform regularly as a lender (though they could argue they are an investor, at which point they may be liable to comply with the law on investment). This is where banks excel in the P2P lending space as they are already licensed to conduct lending activities and thus have no need of obtaining a new or additional license to operate P2P lending models that require acting as a lender.
Regardless of what model a P2P provider uses, the Government is likely to impose regulations on the space in the relatively near future. Last year the government published a draft decree that set out the basic requirements for a Fintech regulatory sandbox. This sandbox would allow companies operating in financial activities that aren’t currently regulated to participate in close cooperation with relevant ministries to bring the company into compliance with existing regulations and to assist in the development of new legislation to govern those sectors. Eligible sectors would include:
- P2P lending,
- Open API,
- Innovative and technology-based solutions (such as blockchain), and
- Other services supporting banking activities.
As mentioned, however, this is so far only a draft and the sandbox itself has yet to be officially sanctioned. If it does move forward it will provide the government an opportunity to catch up with several areas of innovation that it has so far failed to regulate properly. (For more on the regulatory sandbox see Indochine Counsel’s Special Alert on the subject here.)
That’s it. Though P2P lending remains a minor element in Vietnam’s economy — Statista.com estimates that alternative lending only accounted for approximately 1.1 million USD in 2020 — the potential for a major boom in the sector remains. Vietnam is keen on high risk/high return investments and has a history of investing in products that may not be backed by proper due diligence. This tendency to make risky decisions financially lends itself to platforms that provide limited appraisals and are largely based on the applicant’s untested intellectual property.