Finance debt

The legal framework must improve to combat usury

VIETNAM, October 25 –

HÀ NỘI — Improving the legal framework for consumer credit is an essential tool in the fight against usury.

Usury is the practice of lending money at unreasonably high rates of interest.

Consumer credit has exploded in Việt Nam over the past five years with an average growth rate of around 20% per year.

Statistics from the State Bank of Việt Nam showed that consumer loans were estimated at VNĐ 2.32 quadrillion as of June 30, accounting for 22.22% of total outstanding loans in the economy and in up 11.56% at the end of 2021.

Economic expert Cấn Văn Lực said that consumer credit brings benefits to the economy by increasing consumption and creating demand for goods and services, which will help promote production, create jobs, improve living standards and improve access to education, health and tourism services.

Consumer credit has also played a role in preventing and repelling black credit, Lực said.

However, the activity and brands of consumer credit companies authorized by central banks are assimilated to others which are not regulated by the law on credit institutions and related laws. These include financial advisory and investment companies, pawnshops and fintech companies that provide loans and loan applications online, said Nguyễn Quốc Hùng, Secretary General of the Việt Nam Banking Association.

Hung said it was necessary to make people understand the difference between finance companies, which are credit institutions, and those that are not, to build people’s trust and make them feel safe when they borrow money from finance companies.

The Central Bank of Việt Nam currently authorizes 16 finance companies with a total registered capital of VNĐ 31,235 billion, an increase of 3.54% compared to the end of 2021, and total assets of VNĐ 240,300 billion, or an increase of 7%. . The network included 17 branches, 41 offices and more than 74,330 service points across the country.

VPBank Finance Company Limited was the largest, with a registered capital of VNĐ 10.928 trillion.

The total outstanding loans of consumer finance companies were estimated at 145 trillion VND, up 20% by the end of 2021.

Trần Thanh Nữ Tường Vy, deputy director of SHB Finance, said that financial companies face several operating difficulties. Limits on credit growth hamper the ability of finance companies to increase revenue. Rising bad debts from 2021 also squeezed profit margins, she said.

Financial companies have also faced tough competition from fintech companies and pledge chains that the law did not strictly regulate on credit institutions.

Nguyễn Đức Độ of the Academy of Finance said that consumer credit has increased along with the development of the economy, the increase in consumer demand and in line with the trend of shifting government spending and the model of growth based on private consumption investment.

As consumer credit was a trend, it was important to ensure its development on the right track to ensure fairness, transparency and the rights of borrowers.

Độ said that there is a need to improve the consumer credit legal framework to ensure operational efficiency and security and create the conditions for small and medium-sized financial enterprises to grow and increase their competitiveness by attracting foreign investments.

Furthermore, he said that creating an enabling environment for the development of microfinance and microinsurance was important to effectively implement the national financial inclusion strategy.

According to Lực, consumer credit could be considered risky if not properly managed and controlled.

Việt Nam needed to constantly improve the legal framework for managing and supervising the operation of finance companies and the legal framework for protecting the legitimate rights of borrowers.

He said promoting the association of financial products with technology should be encouraged, but the focus should be on controlling risk and improving access to financial services.

Lực said supervision should also be strengthened to prevent bad debts from rising rapidly, especially as the economy was still struggling due to the effects of the pandemic.

He also urged financial firms to develop different market scenarios to better control risk and improve operational efficiency.

He said financial companies should develop technology platforms for consumer credit and cooperate with fintech and mobile money companies to implement new business models.

The Deputy Governor of the State Bank of Việt Nam said that the national financial inclusion strategy for 2025 with a vision for 2030 aims to develop consumer credit products with reasonable interest rates to contribute to the fight against wear. —VNS