Non-bank lending an emerging solution

Non-bank lending an emerging solution - illustration photo

Jinchang Lai, Asia Pacific financial infrastructure lead at International Finance Corporation (IFC), noted that non-deposit-taking lenders (NDTLs) should offer great potential to grow the leasing industry in Vietnam – and with an enabling environment, it can be further improved. “Personally, I know that there are private investors, both Vietnamese and foreign, who want to pour money into the leasing industry,” Lai said, adding that commercial NDTLs are currently missing from the Vietnamese market with the exception of a handful of financial leasing companies.

Non-deposit-taking finance companies are non-bank lending institutions that do not issue a prospectus or take deposits from the public. Funding for these institutions generally comes from wholesale financial markets or from parent companies.

According to a survey from Validus Vietnam, nearly 60 per cent of investors consider financing small- and medium-sized enterprises (SMEs) as an attractive investment channel in the current challenging economic environment after the COVID-19 pandemic.

In addition, 58.5 per cent of investors assume that fintech platforms are an attractive investment channel to finance SMEs. It is believed to become a new financial channel and will gradually replace the current financial models for such enterprises.

Vu Ngan Ha, business strategy director of Vina Digital Finance Platform Co., Ltd., a subsidiary of South Korea-based Mirae Asset Consulting, said that amid the pandemic, the company has financed up to 50 SMEs. And for each customer, the amount of loans can oscillate between VND2 billion ($87,000) and VND10 billion ($435,000).

“SMEs look for our company because there is not any requirement from face-to-face interaction or verifying financial reports. Additionally, we use an e-platform, which allows customers to use digital signatures instead of signing physical papers like banks to supply disbursement as quickly as possible,” she said.

Moreover, Vina Digital ensures fast evaluation and disbursement time. From the time customers place orders, the transactions will be disbursed within 24 hours. Ha confirmed that the fastest transaction was within three hours after the orders were taken.

There are many reasons why SMEs choose NDTLs like Vina Digital for loans. Ha explained that most enterprises choose the company because they do not have enough collateral and cannot access bank loans. However, the number of NDTLs such as Vina Digital accounts for a merely small portion in Vietnam.

Can Van Luc, chief economist and president of the Training and Research Institute at BIDV, claims that NDTLs play an important role in the finance supply chain. However, solutions are mainly provided by commercial traditional banks, as NDTLs such as finance companies have not yet entered the market.

Luc added that in Vietnam, supply chain finance is low at about $1 billion per annum, while the total trade revenue hit $527 billion in 2019. Therefore, counting particularly in the trade sector, funds for SMEs are still limited while the need for supply chain finance rises increasingly.

In the eighth conference of APEC’s Financial Infrastructure Development Network, Jonas Grunder, deputy head of Cooperation for the Embassy of Switzerland in Vietnam, stated that financial services are one of the more critical elements for improving the competitiveness of supply chains and boosting trade.

“However, the supply chain finance market in Vietnam is still at the nascent stage of development. Increasing access to supply chain finance solutions, subsequently, will help SMEs grow their businesses, expand into new markets, and drive Vietnam’s economy,” he explained.

Lai of IFC meanwhile highlighted that to facilitate NDTLs, governments generally should have good regulatory regimes that are relatively liberal and easy, so that investors can get licences.

Besides that, governments need to improve NDTLs as part of the full financial system so that SMEs can access funding, credit reporting services, or any other services that are necessary for financial institutions to function. “In some countries, SMEs can also access the interbank market so that they can borrow, because they do not take deposits,” he added.

Nowadays, Lai said, many international associations provide training services so people can more easily get training online. If investors can get licences, experience or knowledge are not big issues.

“In regards to funding, because there is no deposit, NDTLs need to get funding resources,” Lai added. “There are about a 1,000 sources of funding for NDTLs such as long-term financial providers, banks, shareholders, or a high network of individuals, and all these need to be allowed.”

Luc also suggested that the government should improve the Law on Credit Institutions, while it may also be necessary to accelerate the construction of legal corridors for new business models, and build databases for both individuals and businesses.