Consumer finance destined to enhance locals’ lives

When consumer finance gains traction, black credit will be repelled from the market

Superseding black credit

Prior to consumer finance being introduced in Vietnam in the past 10 years or so, black credit or illegal lending activities with excessively high interest rates were popular across the nation, from big cities to small towns and rural areas. The chipping in of consumer credit has done wonders to many people that need them most, though not exactly wiping out black credit and its tragedy as a whole, but to a certain extent taking away the business of those that are behind it.

It was just last year that the local police unearthed a barbarous illegal lending case where 200 people were trapped by a loan shark in Ho Chi Minh City with a total loan value of over VND510 billion ($22.17 million). Interest rates of up to 1,000 per cent that borrowers had to pay for were not the only thing that astounded many people, but the harassments, assaults, and even death that both the borrowers and the debt collectors working for that loan shark had to suffer for late interest payments.

Economist Le Xuan Nghia estimated the scale of the local black credit market at tens of millions of US dollars and referred to it as a burden to the economy. “It is vital to eliminate black credit and this should be done through licensing finance companies to conduct transparent business under the supervision of the State Bank of Vietnam (SBV) and other related agencies,” said Nghia, adding that with the SBV’s Circular No.43/2016/TT-NHNN in effect since March 2017, consumer finance companies are now aided by specific legal guidelines to govern their operations.

Numerous consumer finance companies have capitalised on the regulation and the sector’s potential, with new entrants in recent years, like locally-owned Easy Credit in late 2018 or Korean-backed Lotte Finance that acquired Techcom Finance last March.

One of the early pioneers in this space is FE Credit, which has established itself through several years of hard work as the largest consumer finance company in Vietnam in terms of market share. Its existence alone, and of the entire industry, have done a good deed in helping the nation and its citizens move away from black credit, to get access to modern and civilised lending activities.

FE Credit vice chairman and CEO Kalidas Ghose said that consumer finance could not only help reduce the level of black credit to an almost negligible level, but also bring in other benefits in terms of establishing healthy financial behaviour for customers.

“Consumer finance obviously provides solutions to prevent black credit and make credit accessible to customers who need them, whether it is for improving life or for entrepreneurial purposes.

“Coming with it is the ability to stimulate retail behaviour in the fast moving consumer goods and consumer durable goods markets, where customers can spend more when backed by consumer loans. This way, these industries and us are growing together,” said Ghose in an interview in Ho Chi Minh City.

In addition, the digitised or automated lending solutions and platform that have been introduced in the consumer finance industry recently will establish a digital ecosystem for Vietnam, where digitals payments will fit in perfectly with the government’s objective of going cashless by 2020, and to a greater extent the socioeconomic development of the nation in the long term, according to the CEO.

“FE Credit is now establishing an ecosystem starting with payments but expanding to various stakeholders including financial institutions, healthcare providers, retail network, and various other types of stakeholders in the economy who will benefit from it,” noted Ghose.

Consumer education that matters

It takes more than just good intentions behind each consumer finance company to facilitate sector growth in Vietnam. It requires proper education to the mass public to enlighten what consumer credit really is and how it helps them thrive in life. Together this way, consumer finance businesses and customers are both happy.

In a workshop training on consumer credit knowledge held in last October in Ho Chi Minh City, BIDV chief economist Can Van Luc claimed that one of the reasons why consumer credit in Vietnam has not flourished is that people have a limited understanding of this type of lending activity.

“Many people cannot comprehend consumer credit, so they are afraid of applying for loans,” noted Luc.

Consumer credit, as he went on to say, only accounted for some 18 per cent of the nation’s total outstanding credit, and merely 12 per cent if taking away housing loans. In comparison to China, where consumer credit reached 21 per cent of the total loans last year, and up to 75 per cent if factoring in real estate credit, the potential for consumer credit growth in Vietnam is thus plentiful.

“Some people tend to think consumer finance is often associated with high interest rates. Sometimes those rates are misrepresented, but more importantly, they are actually much lower than the alternative sources of fund or credit lines from the black market, which are usually three-four times higher,” said Ghose of FE Credit. “In fact, consumer finance companies can make customers’ life easier by providing them credit in a more organised and transparent way, at a more appropriate and reasonable price.”

According to Ghose, what FE Credit is doing right now, with the hope that the whole industry will follow them, is enhancing the way customers prove their financial strength and their willingness and ability to service credit in a more disciplined manner. “This way, when these customers come back to borrow from us a second or third or fourth time, we do make significant adjustments to their interest rates to be able to let them service those credit lines better, but also access more and more credit lines required for improving their life.”

The industry, as the CEO stressed, has to do its own bit by taking part in organising and leading customer education programmes. At the same time, there is an opportunity for even the regulators and the government to be supportive through publishing facts and figures on mass media to help customers understand the situation better, to be aware of what consumer finance is all about and the disciplines they must take in the way they borrow and manage their credit exposure.

“So the government and regulators would have a role to play, and all the players in the industry obviously have to do their own bit. This is an opportunity for all of us to partner up to deliver that awareness better,” said Ghose.

To continue with the quest of educating consumers, Ghose shared that FE Credit will both join hands with the SBV as well as work on its own to propagate consumer finance discipline. The company will also employ print media, electronic media, social media, and face-to-face seminars and events to orient and deliver superior financial knowledge to its customers.

Giving back to the community

To further reinforce customers’ awareness on consumer credit and support the local community, consumer finance companies like FE Credit have held numerous corporate social responsibility (CSR) events throughout the year.

The company, in particular, offered free bus tickets and insurance packages for blue-collar workers in industrial zones in the southern provinces of Binh Duong, Binh Phuoc, Dong Nai, and so on. According to its CEO, such events were not only good deeds in their own right, but also an opportunity to for the company to provide proper knowledge of consumer finance to blue-collar workers who will subsequently communicate it back to their family and community, helping them to distinguish and make better decisions when it comes to borrowing money.

“We continue to work on well-researched CSR activities to build awareness. We do measure the results that they have delivered, but at the same time, there will always be opportunities to improve, which we will continue to seize as we go along,” said Ghose.

When awareness is raised, black credit will be repelled from the market, ensuring a healthy and transparent financial system for the nation.

Community activities are an opportunity to provide proper knowledge of consumer finance to blue-collar workers

FE Credit offered free bus tickets to blue-collar workers for the Tet holiday