Vietnam’s P2P lenders suffer high default rates amid rising demand for loans

Vietnam’s nascent P2P lending industry has been paralysed by high default rates with the ratio of non-performing loans (NPLs) estimated anywhere between 8 to 20 per cent of their portfolio, industry observers reckon. The situation is expected to further escalate as the COVID-19 outbreak triggers greater demand for loans from non-traditional avenues, resulting in possibly a higher rate of NPLs.

Vietnam’s P2P landscape is dominated predominantly by about 23 lending startups, including the likes of iCare, Tima, Vaymuon, Growthwealth, Avay, Fiin, Interloan, RoboCash and Finizi, according to data from news aggregator fintechnews.sg.

A majority of these lenders target individual borrowers while a small number, including Nextlend and Lendbiz, focus on the micro and small business segment. Companies that DealStreetAsia spoke to said that demand from borrowers has jumped 20-30 per cent since the COVID-19 pandemic outbreak in the country.

Nguyen Tri Hieu, an independent expert and advisor to the National Citizen Bank, estimated transactions through non-traditional lending platforms reached over $1 billion at the rate of 3,000-3,500 transactions per year.

Nguyen Hoa Binh, chairman of technology investment firm NextTech, told DealStreetAsia that despite a spike in demand from borrowers, one of the firm’s portfolio companies, Vaymuon, has not stepped up lending, owing to the possibility of a higher rate of defaults.

“You have got to have sufficient data to secure the loans, be it for individuals or enterprises,” said Binh. “The biggest cost of a P2P lending model is the default cost.”

“After 2019, the P2P lending trend has debilitated due to operational inefficiencies. At some businesses, the actual monthly interest rates climbed to as much as over 24 per cent but the default rates remained high,” Binh asserted.

Ultimately, containing the number of NPLs comes down to the adoption of technology, and laser-sharp focus on market segments, according to industry players.

“Unlike the e-commerce or payment businesses who can burn a war chest of money to attain users, for a P2P lending company, demand is huge but we have to balance the lending capacity and the ability to manage the money. It’s all about operation,” said Binh.

He added that Vaymuon was doing a more careful job in the borrower record inspection. In addition, the company is also boosting collateral lending through its affiliate pawnshop Tienngay.vn.

Other ways to offset loans turning sour is developing credit scoring or establishing a closer relationship with telecom companies to understand borrower behaviour.

“Technology would come handy if startups leverage it to improve credit scoring and the middle/back office efficiencies,” commented Olivier Raussin, co-founder and managing partner of FEBE Ventures, a new $25-million sector-agnostic fund focused on Vietnam.

Some startups are also focusing on niche segments in P2P lending, in search of a more secure model.

Mobivi, for example, engages corporate clients to provide loans to employees for the purchase of essential goods. The company aimed at low-income blue-collar workers at first but has pivoted to include office workers in its customer base. Mobivi is funded by Grab-backer Experian and Patamar Capital.

Interloan, which has raised a seed funding round from Vietnam-based family investment office Phoenix Holding, is providing loans to employees of medium and large enterprises such as McDonald’s, BHD Star Cineplex and business process outsourcing firm Mat Bao BPO.

“As our customers are verified by the corporate clients, our proportion of overdue loans has been kept at 2.5 per cent,” Interloan CEO Tran Dai Duong told DealStreetAsia.

“We had to decline a slew of borrowers after checking their loan records,” said an executive from Tienngay.vn, a startup operating on the pawnshop model.

Scarce funding to crimp business

Still, the funding environment for P2P lending firms will turn challenging with the COVID-19 pandemic thwarting business activity across the board, according to industry sources we spoke to.

According to them, some startups such as Mony, Idong, Trust Circle and Finizi, the Vietnamese unit of Hong Kong fintech firm Oriente, are already seeing pressure on their business.

Sources told DealStreetAsia that Mony, Idong and Trust Circle have been inactive for some time. Mony’s and Idong’s marketing channels have recorded no activity since 2019, while Trust Circle’s website is inaccessible. DealStreetAsia has contacted Mony and Idong via the email addresses posted on their websites, but neither responded.
Separately, individual borrowers have also made public claims on Vietnamese social media that Finizi was only collecting debt and did not accept new loans. A spokesperson from Oriente said the company was “continuing to test and refine aspects” of its platform in the Vietnam market, adding that the local unit was still in early beta testing. Finizi was set up in 2018, according to Vietnam’s business registration bureau.
“The unprecedented impact of the COVID-19 pandemic is global and all businesses big and small are being forced to change and respond. No business is immune and Finizi too is adapting to these very fluid market conditions to better manage risk,” the spokesperson said.

Tima, arguably one of the best-funded P2P lending startups in Vietnam with a $3 million Series B round backed by Belt Road Capital Management in 2018, is also apparently facing trouble, according to a source.

The company operates a digital platform as well as a brick-and-mortar network of over 40 stores.

“Tima is struggling between the online and offline model, making its business asset-heavy instead of being a lean startup,” said a person close to the firm, who requested anonymity. “If it cannot find investors to inject some cash, it will be in trouble.” The source also added that Tima’s NPLs were higher than the market average.

But Tran The Vinh, CEO of Tima, said there was not a sudden change in terms of the NPLs and Tima was proceeding with a plan set much before the virus outbreak.

Vinh added that the company had a “strong cash reserve” and was “in progress working with several funds” on its third financing round. The executive did not reveal the company’s default rate. Belt Road Capital Management did not comment when reached.

“If a startup cannot meet the underlying requirement of curbing bad debts, it would fail regardless of how much money is raised,” NextTech’s Binh opined, suggesting that a default rate of 10-12 per cent would immediately imply an operating loss.

Lack of policy direction hurts the industry

Due to the absence of regulations or a clear-cut policy direction, several operators in Vietnam have abused the P2P model.

Local media reported in September 2019 that the interest rates charged by some of these lenders, operating via mobile apps, rose up to more than 600 per cent per year. Reports said, citing a central bank statement, that a number of such apps were affiliated to Chinese companies fleeing from Beijing’s crackdown on the P2P lending sector.

“The Vietnamese Government has taken a very cautious approach to open up the P2P lending market due to borrower defaults and money-laundering risks,” said a 2019 report by law firm Allens Linklaters. “These downsides are especially a cause for concern in Vietnam due to the preference for cash transactions, and ‘loan shark’ practices.”

Discussion about a sandbox for P2P lending in Vietnam started in 2019, but industry watchers do not expect licensing to happen for at least a couple of years more. Nevertheless, industry players see room for growth.

“I believe P2P lending has a lot of room for the future, given the significant demand, especially from micro and SMEs in Vietnam, which account for 90 per cent of the country’s enterprises,” said Tram Tran, a manager at research firm YCP Solidiance.

FEBE Ventures’ Raussin said the early-stage fund preferred to look into opportunities in the SME lending space over consumer loans, and will potentially consider some regional startups with an expansion plan to Vietnam.

“If fiscal policies encourage interest rates to go down, then lending capital will remain robust,” he concluded.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.