Legal rules needed for grey areas to help unbanked, underbanked residents: experts

Vietnam needs to build up a proper legal framework to help the consumer finance market develop in a healthy manner and better support the unbanked and underbanked in the country, a Tuesday workshop heard.

"The legal system needs to be improved to help the market navigate legal grey areas," said Le Xuan Dong, head of market research and consulting services at FiinGroup - a leading Vietnamese provider of financial data and information.

"Around 70% of residents in Vietnam, with a population of 100 million, are unbanked and underbanked individuals, therefore the consumer finance market is large in size," he told the workshop held by The Investor in Hanoi to discuss measures for the market to develop in healthy ways.

Mentioning grey areas, Dong said the necessary rules are not known or clear. He said the market includes pawnshops, consumer finance firms, peer-to-peer lending, payday lending, lending apps, buy-now-pay-later services provided by fintech firms, and debt collection activities like threatening borrowers or terrifying their family members, which are not allowed by law.

Hoang Xuan Que, director of the Institute of Finance and Banking, National Economics University, said he agreed that regulators should work toward making it easy for the unbanked and underbanked to rapidly get small or payday loans, also toward protecting businesses’ rights in collecting debts.

Regarding grey areas, the legal system has to cover borrowers who intentionally say no to paying their debts so that loan providers in the market can continue to operate, he said.

Like Que, Nguyen Dinh Duc, deputy CEO of HD Saison Finance Company, argued that there must be sanctions against these persons; they have to be responsible for their debts.

Also regarding grey areas, Professor Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises, said it is necessary for the legal system to legalize debt collection as a kind of professional service. He proposed the government create a law on consumer finance.

Some participants at the workshop also suggested Vietnam needs a law on debt collection.

Addressing the event, Olena Khlon, standing deputy CEO of SHB Finance Company under Saigon-Hanoi Bank, said she supported the thinking that there must be sanctions against those who get fast and easy loans from financial services firms but mean not to pay back.

"The market holds much potential for foreign investors. Today’s global trend of digitalization is useful for the Vietnamese government to better manage the consumer finance industry in the country based on a digital foundation," she added.

Phan Duc Hieu, standing member of the National Assembly's Economic Committee, said the legal framework for the industry would be improved toward protecting both borrowers and financial services firms to help the market grow.

He mentioned three major problems, with the first being grey areas. The second and third are law enforcement and how to assure justice for borrowers and loan suppliers in the industry.

Hieu stressed the Vietnamese government is already aware of the three problems. Therefore, the government has designed a comprehensive financial development strategy with an orientation to 2030, with the main task being to ensure fairness and comprehensiveness and to protect the legitimate interests of both borrowers and lenders.

Identification work before lending

Police Major Dao Dinh Nam, deputy director of the Ministry of Public Security's National Population Data Center, said his ministry has established a national database on population and citizen identification.

The ministry is improving its data system to provide credit scoring, first on the unbanked and underbanked, then on all customers.

“The ministry is carrying out a project in which officials and local police forces coordinate to verify borrower identification before lending occurs.

“All borrowing records will be available on the system, and lenders can know from where you have borrowed and how much your debts are. This information will help lenders make their decisions,” Nam said.

The State Bank of Vietnam and the Ministry of Public Security signed a commitment on Monday to link the database with the Vietnamese banking system, focusing on connecting and exploring population data, fighting anti-money laundering, and exploring the advantages of chip-based ID cards.