Peer-to-peer lending (P2P lending) allows borrowers such as individuals and businesses to directly borrow money from lenders through online services without dealing with intermediaries, such as banks and credit companies.
P2P Lending Declines In China
This form of technology-based lending practice offers option to borrowers who are hampered by strict loan requirements of traditional loan providers, but it is far riskier.
This business model boomed in China, but following a regulatory clampdown by authorities on risky financial practices, the number of fintech and peer-to-peer (P2P) lending platforms in the country dropped from about 1,900 a year ago to just 900 in May.
Chinese P2P Companies Now In Vietnam
It now appears that some of these Chinese P2P lending companies have not necessarily disappeared. They simple ventured into new markets and in particular Vietnam.
According to the State Bank of Vietnam (SBV), there were 40 peer-to-peer lending companies operating in Vietnam as of March. Of these, 10 companies are from China.
Data from Nexttech Group chair Nguyen Hoa Binh, showed that in July, about 60 to 70 companies that provided P2P lending service in China have gone to Vietnam following the collapse of the business model in their home country.
Risks Of Dealing With Chinese P2P Companies
As these Chinese companies flee to Vietnam, local lending firms sound the alarm. Tran Viet Vinh, CEO of Fiin Financial Technology Innovation JSCone, said that the prevalence of Chinese P2P companies in Vietnam comes with risks.
One is that borrowers would pay very high interests due to these companies exploiting the market. The manner of loan collection in this form of lending practice can also be troublesome. The lenders may employ intimidation and harassment during debt collection, and may even have poor record keeping of loan payments.
Tran Viet Vinh said that these behaviors could have psychological impact on people, resulting in the market to be viewed negatively.
Companies that employ questionable practices and violate the law need to be eliminated. Otherwise online lending would have a bad image, which can affect transparent peer lending companies.
Unfortunately, there is more work to be done to protect Vietnamese consumers from P2P lending companies. Financial expert Nguyen Tri Hieu said that Vietnam currently does not have regulations, or regulatory framework on this form of lending.