Improving the legal framework for consumer finance is an essential tool in the fight against usury.

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

Consumer finance boomed in Viet Nam in the past five years with an average growth rate of around 20 per cent per year.

Statistics of the State Bank of Viet Nam showed loans for consumption was estimated at VND2.32 quadrillion as of June 30, accounting for 22.22 per cent of the total outstanding loan in the economy and up by 11.56 per cent over the end of 2021.

Economic expert Can Van Luc said that consumer finance brought benefits to the economy through increasing consumption and creating demand for goods and services, which would help promote production, create jobs, enhance living standards and improve access to education, healthcare and tourism services.

Consumer finance also played a role in preventing and repelling black credit, Luc said.

However, the operation and brands of consumer finance companies that the central banks licensed are being equated with others which do not operate under the Law on Credit Institutions and related laws. These include financial consulting and investment companies, pawnshop service companies, and fintech companies which provide online loans and lending apps, Nguyen Quoc Hung, general secretary of the Viet Nam Banking Association, said.

Hung said that it was necessary to make people understand the difference between finance companies, which were credit institutions, and those not to consolidate people's trust and make them feel secure when borrowing money from the finance companies.

The central bank in Viet Nam currently licenses 16 finance companies with a total chartered capital of VND31.235 trillion, an increase of 3.54 per cent against the end of 2021, and a total asset of VND240.3 trillion, an increase of 7 per cent. The network included 17 branches, 41 offices and more than 74,330 service points across the country.

VPBank Finance Company Limited was the largest one, with a chartered capital of VND10.928 trillion.

The total outstanding loans of consumer finance companies were estimated at VND145 trillion, up by 20 per cent by the end of 2021.

Tran Thanh Nu Tuong Vy, deputy director of SHB Finance, said that finance companies were facing several difficulties in operation. Credit growth limits hamper the ability to increase the incomes of finance companies. Rising bad debt from 2021 was also narrowing profit margins, she said.

Finance companies also encountered harsh competition from the emergence of fintech companies and pawn chains which the Law did not strictly regulate on Credit Institutions.

Nguyen Duc Do from the Academy of Finance said that consumer finance increased along with the development of the economy, the increase of consumer demand and in line with the trend of shifting from Government spending and investment-based growth model to private consumption – based.

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

Do said that it was necessary to improve the legal framework on consumer finance to ensure operational efficiency and safety and create conditions for small and medium-sized finance companies to develop and increase competitiveness by attracting foreign investment.

In addition, he said that creating a favourable environment for the development of microfinance and microinsurance was important to implement the national financial inclusion strategy effectively.

According to Luc, consumer finance could be considered risky if it was not put under proper management and control.

Viet Nam needed to continuously improve the legal framework for management and supervision of the operation of finance companies and the legal framework for protecting the legitimate rights of borrowers.

He said that promoting the association of financial products with technology should be encouraged, but the focus must be placed on controlling risks and increasing access to financial services.

Luc said supervision should also be enhanced to prevent bad debts from increasing rapidly, especially in the context that the economy was still struggling due to the impacts of the pandemic.

He also urged finance companies to develop different market scenarios to control risks better and improve operational efficiency.

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

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