StoxPlus promotes consumer finance

A successful year highlighted growth in consumer lending and financial technology

At StoxPlus Executive Breakfast event on “Vietnam Consumer Finance Market 2016” last week, the representative from the State Bank of Vietnam (SBV) together with 20 high-profile executives from foreign, local consumer finance companies, e-wallet and payment companies gathered for the first time and had a very active discussion on the strong growth of Vietnam’s consumer finance market throughout last year. Specifically, according to StoxPlus’ latest report on the market, the total outstanding consumer loans in 2015 reached $15.12 billion, with CAGR of 44.1 per cent.

However, consumer finance companies only accounted for $2 billion of these loans, showing that there is still significant room for growth. Leading companies in the market are FE Credit, Home Credit and HD Saison Finance.

StoxPlus noted that the most important distribution channel for consumer finance companies is point-of-sale (POS) via retail stores. “However, consumer finance companies now face stiff competition at retail stores as there can be four to five consumer finance firms in the same POS at any store downtown,” said Nguyen Quynh Lan, managing director of Business Information Services at StoxPlus.

As a result, consumer finance firms are moving towards new product lines such as cash loans and credit card issuances. They are also trying to tap into the untapped market with estimated total outstanding loans of $50 billion, which are mostly managed by pawnshops or individual lenders. Another potential area for growth is the collaboration between consumer finance lenders and FinTech companies. In 2015, investment in FinTech is estimated to reach over $2.9 billion. In the future, it is likely that consumer finance companies will partner with FinTech start-ups to take advantage of their innovations.

However, representatives at the event also noted that consumer finance firms in Vietnam must strive to erase negative reputation concerning excessive interest rates, which currently is around 39 to 46 per cent a year.

Nguyen Huu Nhan, CEO of HD Saison Finance, explained that consumer finance firms had to offer high lending rates as they did not require collateral and mostly serve “sub-standard” customers that are unable to borrow from banks. In return, finance firms issue their loans very quickly (usually less than a day), thus instantly serving the emergent needs of customers. According to StoxPlus’ survey on more than 1,000 consumer finance customers, convenience and easy-to-access lending are now one of the key factors for customers while borrowing from consumer finance companies.

In response to public concern about high lending interest rate of consumer finance companies, Nguyen Hoang Minh, deputy director of the SBV-Ho Chi Minh Branch commented that these interest rates were reasonable given the high risks and high operation costs faced by consumer finance companies. The SBV representative also clarified that currently SBV only provided basic interest rates as a reference. Credit institutions are free to offer loans based on negotiated rates with customers. Therefore, the interest rates of consumer finance companies, despite being blamed by the media for being high, comply with current regulations.

Minh noted that awareness about consumer finance activities should be enhanced in Vietnam to help people better understand the social and economic benefits that these companies bring to the society. In order to support the growth of consumer finance companies, SBV is proposing adjustments to Decree 39, which regulates the operation of consumer finance companies in Vietnam.