(Tiểu luận) tiểu luận môn lý thuyết tài chính tiền tệ peer to peer lending in the world and vietnam

BÀI TIỂU LUẬN MÔN LÝ THUYẾT TÀI CHÍNH TIỀN TỆ PEER TO PEER LENDING IN THE WORLD AND VIETNAM Lớp học phần 222FB9106 Giảng viên hướng dẫn Nguyễn Hoàng Anh Sinh viên thực hiện Họ và tên MSSV Vũ Thị Oanh[.]

ĐẠI HỌC QUỐC GIA THÀNH PHỐ HỒ CHÍ MINH TRƯỜNG ĐẠI HỌC KINH TẾ - LUẬT KHOA QUẢN TRỊ KINH DOANH BÀI TIỂU LUẬN MƠN LÝ THUYẾT TÀI CHÍNH TIỀN TỆ PEER-TO-PEER LENDING IN THE WORLD AND VIETNAM Lớp học phần : 222FB9106 Giảng viên hướng dẫn : Nguyễn Hoàng Anh Sinh viên thực : Họ tên MSSV Vũ Thị Oanh Nguyễn Hoàng Mỹ Xuân Hồ Trần Thu Hà Nguyễn Từ Quyên Lê Nhật Minh Hằng K214101937 K214100783 K214100764 K214101938 K214101931 Thành phố Hồ Chí Minh, tháng 03 năm 2023 h TABLE OF CONTENTS Introduction CHAPTER 1: OVERVIEW OF THE RESEARCH SITUATION AND THEORETICAL BASIS OF PEER-TO-PEER LENDING I Overview of research situation II Theoretical basis of Peer-to-peer lending Definition .3 Characteristics and Functions Models Process III Advantages and disadvantages of peer-to-peer lending Advantages Disadvantages 10 IV Evaluation of peer-to-peer lending with other types of loan 11 V Advantages and Disadvantages of Traditional Bank Loans and Credit Cards: 12 CHAPTER 2: OVERVIEW OF PEER-TO-PEER LENDING IN SEVERAL COUNTRIES AND VIETNAM 13 I Peer-to-Peer lending in several countries 13 American (US) 13 United Kingdom (UK) 13 China 14 Vietnam is in the early stages of its P2P development 16 II Peer-to-Peer lending in Vietnam 16 General context 16 Characteristics of P2P financial lending in Vietnam .17 CHAPTER 3: CHALLENGES AND OPPORTUNITIES OF P2P LENDING’S DEVELOPMENT IN VIETNAM .18 I Challenges 18 II Opportunities .19 III Some recommendations for future development of P2P lending in Vietnam .20 Conclusion .21 h Introduction Peer-to-peer (P2P) lending is a rapidly growing sector in the financial industry, which allows people to lend and borrow money directly from each other without the involvement of traditional financial institutions such as banks or credit unions This form of lending has disrupted the traditional lending industry by providing borrowers with a faster and more convenient alternative to traditional banks and credit card companies P2P lending platforms are based on a technology-driven approach that allows borrowers and investors to connect directly with each other, cutting out the middlemen and lowering the cost of borrowing for consumers This report examines the evolution and current state of P2P lending in different countries, as well as its advantages and disadvantages compared to traditional lending options such as bank loans and credit cards The report also highlights the characteristics of P2P lending and provides a detailed analysis of the risks and benefits associated with investing in P2P loans By providing an in-depth analysis of P2P lending, this report aims to help consumers make informed decisions about their borrowing and investment options in the changing landscape of the financial industry h CHAPTER 1: OVERVIEW OF THE RESEARCH SITUATION AND THEORETICAL BASIS OF PEER-TO-PEER LENDING I Overview of research situation A wide variety of potential borrowers can now choose from a variety of alternative funding options that have recently emerged on the financial market P2P lending is one type of this new stream (P2P) P2P lending is a brand-new platform for financial exchanges that connects lenders and borrowers without the use of traditional middlemen This new digital intermediary, which was developed using the concepts of microcredit (Yum, Lee, and Chae, 2012), has expanded quickly in recent years Despite the fact that this business model is still quite new, numerous platforms have popped up all over the world and the market has experienced rapid growth II Theoretical basis of Peer-to-peer lending Definition Peer-to-peer (P2P) lending, according to Jukia Kagan (2023), is a type of financial technology that enables individuals to lend or borrow money from one another without going through a bank P2P lending platforms link investors and borrowers directly The website determines the fees and conditions and permits the transactions P2P lending eliminates a lot of the paperwork, credit score evaluation, and general trouble compared to traditional loans conducted through banks or credit unions In exchange for that ease, borrowers frequently pay greater fees Characteristics and Functions Characteristics Since its introduction in the UK in 2005, P2P lending has expanded in several nations Peerto-peer lending has typical characteristics that set it apart from conventional financial investment channels at this moment It can occasionally be done to make money Some factors contribute to this First of all, more and more people are using the internet The International Telecommunication Union (ITU) estimates that 5.3 billion people, or over 66% of the world's population, are currently utilizing the internet As a result, the P2P lending platform can reach more clients and companies h Second, excellent return on investment For example, in 2016 roughly 10% of online lending rates offered higher returns than the 1.5% of the basic savings deposit rate for a year Third, compared to other forms of investing, investors can invest in loans with a modest amount of capital, diversify their portfolios, and get larger returns Due to this, P2P lending is occasionally carried out only for financial gain, despite the risks it may pose to both borrowers and lenders There is no required prior connection or mutual bond between the lender and the borrower Lending and disbursement procedures and processes are kept to a minimum in peer-to-peer lending Avoid going through a difficult review process and stringent specifications while signing administrative procedures Thirdly, transactions happen online based on a direct relationship between lenders and borrowers, without the need of financial intermediaries The online transaction platform uses electronic and digital tables to record and maintain all borrowing and repayment actions (principal and interest) between borrowers and lenders Fourthly, unless the P2P platform allows it, lenders can frequently pick and choose which borrowers to fund On some P2P lending platforms, investors have the freedom to pick and choose which partners they want to lend money to Information about borrowers may be used by direct lenders (including before lending) Lenders have the ability to keep an eye on borrowers' plans for using loans Furthermore, government insurance is typically not provided for loans, which can either be unsecured or secured The government does not offer the lender insurance or any other form of protection in the event of the borrower's bankruptcy or insolvency As a result, before using P2P lending platforms, you should check out various websites that offer information on default rates, like Financial Times and Market Watch Last but not least, loans are securities that can be transferred to another party for profit or debt recovery Functions The first function of P2P lending is providing access to credit Access to credit is made possible via P2P lending, which gives customers a source of credit they might not have been able to access through conventional financial institutions For those who might struggle to get credit owing to a lack of credit history or low credit scores, this can be very helpful h Secondly, P2P lending increases the variety of available investment opportunities: P2P lending gives investors access to a new asset class that might yield higher returns than conventional investments By purchasing a variety of loans, investors can spread their risk and perhaps even increase their returns while diversifying their portfolios Lowering costs is another function of P2P lending P2P lending platforms frequently have lower overhead expenses than traditional banks, allowing them to provide borrowers with cheaper interest rates and investors with larger returns Streamlining the lending process is also a crucial function The lending process is often streamlined on P2P lending platforms using technology, making it quicker and more effective for investors and borrowers Models There are two primary categories of P2P lending models: direct lending models and indirect lending models Direct lending models First off, direct lending models like ZOPA (UK) and Funding Circle (UK) are straightforward forms of financing, much like regular internet buying and selling The borrower submits a loan request using the appropriate form on the P2P Lending platform, and the lender chooses the loan that they believe is possible to finance (Figure 1) Figure Direct lending model The benefit of this model is that P2P Lending firms not have to assume the risk of a loan because the lender makes the lending decision, even though it may censor and examine the loan application Before it is made public on the general portal, the loan should be determined Direct capital transfers will take place between stakeholders, and a P2P lending h company will take part in the loan process to facilitate connections, assist with risk assessment, and earn service fees Indirect lending models Secondly, commercial banks like Prosper (USA) and Peerform indirectly promote the P2P Lending concept (USA) As a result, lending takes place on the P2P Lending platform, and commercial banks will clear, possibly even advance cash, and purchase loan insurance Customers may have insurance or use a P2P company's reserve fund in some situations when they don't make timely payments Lending This concept states that P2P Lending businesses will send a borrower's loan request to a partner commercial bank If the loan proposal is authorized, the bank will provide a debt receipt to the P2P Lending company so that consumers can get their disbursement at the commercial bank with this debt receipt After that, the P2P Lending company will use the lender's funds to pay the bank for this obligation and issue the lender with a loan certificate (Figure 2) Figure Indirect lending model The borrower gains indirect benefits from the P2P Lending model because it is more liquid, allows for extra guarantees like insurance and reserve fund loans, and eliminates the need to wait for the lender to approve As a result, when it comes to practical implementation, the indirect model is frequently preferred over the direct approach h Process The main process of lending mechanisms are almost the same across different online peer-topeer lending platforms Potential users, including borrowers and lenders, first have to register with personal information, such as ID card number, bank account, personal information in a third-party credit institution, etc Based on this information, credit rating of users are calculated The lending procedure is initiated by borrowers Borrowers indicate the amount they want to borrow and the maximum rate they are willing to offer, and to provide some other optional information, such as loan purpose, repayment period, listing auction format, etc Lenders provide a certain amount of money and choose a lending pattern Currently, there are two patterns One pattern is the lender chooses a borrower on the platform, and borrows the money to him/her Another pattern is the lender puts money in a pool of funds The P2P lending company dispatches the money to different borrowers In this pattern, a lender doesn’t know the borrower’s information This model is shown in Figure Figure Two operational patterns of P2P Lending When a borrower’s requirement is fully funded, the related transactions are sent to the lending intermediary for further review before becoming a loan In this stage, some additional documents may be asked for to demonstrate their credibility Once a listing is materialized into a loan, money will be transferred from the accounts of listing lenders to the accounts of listing borrowers The environment of the P2P lending system is shown in Figure h Fi gure P2P Lending Procedure To detail investigate each stage of the procedure, we divide the whole process into several steps The steps below describe the general P2P lending process: Figure Basic P2P Lending Process First step, potential borrower interested in obtaining a loan completes an online application on the peer-to-peer lending platform Second step, the platform assesses the application and determines the risk and credit rating of the applicant Thirdly, the applicant is assigned with the appropriate interest rate When the application is approved, the applicant receives the available options from the investors based on his credit rating and assigned interest rates The applicant can evaluate the suggested options and choose one of them The applicant is responsible for paying periodic (usually monthly) interest payments and repaying the principal amount at maturity h III Advantages and disadvantages of peer-to-peer lending Peer-to-peer (P2P) lending is a well-liked alternative financing method that links investors and borrowers without the need of conventional financial institutions While P2P lending has many advantages for both borrowers and lenders, there are certain concerns as well Advantages There are some benefits of P2P lending for both borrowers and lenders First of all, P2P lending offers borrowers who might not be able to get a loan through these channels an alternative to conventional banks and financial organizations P2P lending services frequently have more flexible credit lending requirements and may take into account elements other than merely credit scores For example, Estateguru takes pride in bridging the financing gap left by banks unwilling to support smaller projects and partnering with some of Europe's largest real-estate developers According to Hidayat et al (2020), the second benefit is higher returns for investors, when compared to traditional investment options such as savings accounts or bonds, P2P lending allows investors to earn higher returns Because of the lower overhead costs associated with operating an online platform, P2P lending platforms frequently offer higher interest rates to investors For instance, Estateguru provides users with a yearly return of slightly over 10 percent on average Havrychyk and Verdier (2018) showed that P2P lending allows investors to diversify their investment portfolio by investing in a variety of loans from various borrowers and businesses Moreover, P2P lending systems provide a quick and easy option for investors to invest in loans as well as borrowers to get loans Online completion of the procedure eliminates the need for in-person meetings or extensive documentation Estateguru, for instance, offers finance without needless paperwork, red tape, or waiting periods In comparison to conventional banking institutions, Estateguru can help people obtain a property loan up to five times faster Disadvantages In addition to the benefits that peer-to-peer lending provides, there are several potential hazards for both borrowers and lenders One of the issues with online P2P lending is the asymmetry of information between the borrower and the lender Yum et al (2012) claimed that because the information asymmetry between lenders and borrowers in P2P lending is h more pronounced than in other financial markets, lenders may misjudge borrowers' creditworthiness Due to dishonest borrowers' fraudulent activity, lenders are more susceptible to being victims of fraud Moreover, by selecting borrowers based on unsuitable criteria, lenders run the danger of doing so (Verstein, 2011) This risk is larger in P2P lending than in traditional lending because borrowers may not have gone through the same stringent credit checks and underwriting processes that banks demand Moreover, the mismatch of maturity terms and underlying assets is a major risk for P2P lending platforms, as claim transfers often involve multiple creditors and debtors If an appropriate borrower is not available, the platform may face liquidity pressures, leading to a bank run (Li et al., 2016) Another disadvantage is operational risk, prioritization is a problem for regulators since they cannot immediately handle all regulatory issues with P2P lending Operational hazards and client protection are given the appropriate urgent priority under regulatory monitoring For instance, the UK's Financial Conduct Authority (FCA) has paid careful attention to the segregation of customer funds Yet, there are several more operational problems We have already covered the handling of arrears and default as well as the orderly platform shutdown (UK authorities now require all P2P platforms to have strategies for orderly resolution) Another is adequate disclosure of hazards to regular investors (Milne & Parboteeah, 2016) Finally, P2P lending is vulnerable to regulatory hazards because the industry's laws are continually changing Regulation changes or new rules may have an influence on the profitability of P2P lending platforms and the rewards for investors P2P lending has several advantages for both investors and borrowers, including easier access to loans, greater returns, portfolio diversification, and speed and convenience Yet, it also entails dangers including regulatory risk, operational risk, liquidity risk, and default risk Hence, before making an investment or taking out a loan through these platforms, investors and borrowers should carefully weigh the advantages and disadvantages of P2P lending To reduce their risks, investors should carefully consider the loans they invest in and diversify their investment portfolio IV Evaluation of peer-to-peer lending with other types of loan In this part, the report takes into consideration the advantages and disadvantages of P2P lending over credit cards and personal loans from traditional banks h Peer-to-peer lending has emerged as an alternative form of lending, which provides borrowers with access to financing from individual investors without the need for a traditional financial institution In contrast to traditional bank loans and credit cards, peer-topeer lending platforms use technology to match borrowers with investors, providing a fast and easy way to obtain loans One advantage of P2P lending is its ease and convenience (Allen, McAndrews, & Strahan, 2012) Borrowers can submit loan applications electronically, and the process is often faster and simpler than applying for a traditional bank loan P2P lending platforms also allow borrowers to apply for smaller loans than traditional banks might offer, which can be helpful for those who need only a small amount of money In addition, P2P lending may offer lower interest rates than credit cards, particularly for borrowers with good credit scores Unlike traditional bank loans, peer-to-peer loans can be used for different purposes, including debt consolidation, home improvements, and business financing Moreover, peer-to-peer loans may offer longer repayment terms, providing borrowers with the opportunity to repay their loans over a more extended period and manage their finances effectively However, peer-to-peer lending charges higher interest rates to borrowers who have poor credit scores Unlike traditional banks, peer-to-peer lending platforms not have the same level of access to credit information, making it harder for them to assess the creditworthiness of borrowers accurately Consequently, borrowers with poor credit scores may end up paying higher interest rates or may not qualify for a loan at all (Yeh & Huang, 2018) Another disadvantage of peer-to-peer lending is the lack of regulatory oversight Unlike traditional banks and credit card issuers, peer-to-peer lending platforms are not subject to the same regulatory requirements, which can increase the risk of fraud or default Furthermore, peer-to-peer loans are not insured by the FDIC, making them a riskier option for borrowers V Advantages and Disadvantages of Traditional Bank Loans and Credit Cards: Traditional bank loans and credit cards offer several advantages to borrowers Firstly, traditional banks have access to a wide range of credit information, making it easier for them to assess the creditworthiness of borrowers accurately Secondly, traditional banks and credit card issuers are subject to stringent regulatory requirements, which can provide borrowers with greater protection against fraud or default h However, the borrowing process can be time-consuming and cumbersome, with banks requiring extensive documentation and credit checks According to Smith (2017), traditional bank loans and credit cards may offer lower interest rates, depending on the borrower's credit score They may have strict eligibility criteria, which can make it difficult for borrowers with poor credit scores to qualify for loans or credit cards Finally, traditional bank loans and credit cards may have shorter repayment terms, which can make it harder for borrowers to manage their finances effectively For these above reasons, P2P lending is a viable option for borrowers who need a small loan quickly and easily P2P lending may offer lower interest rates than credit cards, and it may be more accessible to borrowers with poor credit scores than traditional bank loans However, P2P lending is less regulated than traditional banks, which can increase the risk of fraud or other problems Traditional bank loans and credit cards may offer lower interest rates, more structured repayment plans, and more security for borrowers Ultimately, borrowers should evaluate their options carefully and choose the type of loan that best fits their financial situation and needs CHAPTER 2: OVERVIEW OF PEER-TO-PEER LENDING IN SEVERAL COUNTRIES AND VIETNAM I Peer-to-Peer lending in several countries The market for peer-to-peer (P2P) lending is divided into North America, Europe, AsiaPacific, Latin America, the Middle East, and Africa Because of the rising usage of P2P platforms, North America is predicted to account for the biggest market share in the worldwide Peer to Peer (P2P) Lending Market The United Kingdom is third behind America, with Asia Pacific (China) having the most established P2P markets in the world American (US) Up to now, the P2P lending market in the US ranks second after China in terms of total loan value It is worth noting that the P2P lending market in the US only serves businesses with a very small percentage, mostly serving individual consumers Regulations on P2P lending in the US are currently considered to be very fragmented, without uniformity The Securities and Exchange Commission (SEC) is the governing body of lenders The Financial Consumer Protection Bureau and the Federal Trade Commission make regulations for borrowers h Although the SEC regulates lenders, the SEC prohibits P2P platforms from crediting transactions, and requires participating parties to make loan transfers through banks, so P2P lending in The US is not seen as the real matchmaking platform Regarding the regulatory framework, new lending platforms that want to enter the market must obtain permits from state governments with a rigorous, expensive and laborious process Once licensed, platforms must continue to register with the SEC Although the registration process is rigorous and time-consuming, the effectiveness of these processes has not been confirmed However, lending platforms that have been recognized by the SEC have legal status, so they provide better protection for lenders United Kingdom (UK) The UK P2P lending industry, which ranks third after the lending market in China and the US, has been relatively successful in serving SMEs, many of which have gained access to P2P loans P2P platforms in the UK are individually assessed by the Financial Conduct Authority (FCA) and must be licensed to operate FCA emphasizes interaction with P2P companies through a consultative role Currently, P2P platforms in the UK are assessed as a financial system that is not of high importance to the economy Therefore, the regulations for this array are also gentle However, the UK attaches great importance to the establishment of reserve funds to compensate for losses of investors if risks occur The legal framework in the UK is established based on the operating principles of the lending model as described above The management mechanism is considered to be suitable for the current situation of the P2P lending market in this country Regulations on investor protection in particular and the market in general have been focused However, the legal framework that needs to be proposed to be adjusted is the provision on reserve funds, many investors have said that these regulations need to be stricter China The P2P lending market in China is considered to have grown faster than any other country In previous years, this market was unregulated, many believed that the Chinese government intentionally limited participation in this sector to allow the sector to develop rapidly, in order to meet the demand of those who cannot access bank loans SMEs often find it difficult to secure loans from the dominant state-owned banks in China, so the need for P2P lending is h greater than in most other countries Because it is not strictly controlled, the market has arisen problems that are difficult to solve and there are many unstable problems In terms of regulation, the People's Bank of China (PBOC) released the "Guide to Promote the Healthy Development of Internet Finance" in 2015 This handbook does not provide a formal regulatory framework, but it does serve as a basis for future legislation as well as a guide for industrial operations The Chinese Banking Regulatory Commission (CBRC) was in charge of supervision The China Banking and Insurance Regulatory Commission was formed after it combined with the insurance regulator This agency has released several papers in order to combat fraud and secure lenders' profits The CBRC released its first complete set of guidelines, titled "Interim Measures for Governing the Business of Online Loan Information Intermediaries," in August 2016 And then, China began evaluating and screening all ineligible P2P systems in December 2017, as well as developing market regulatory laws Figure The comparison of P2P lending platforms between countries Terms Platforms Characteristics United Kingdom CapitalStackers, Loanpad, AxiaFunder, Invest & Fund, Nature: Adaptation United States PayPal, Venmo, Cash App, Zelle, … China CreditEase, Dianrong ,Lufax, Nature: Extended and strict There is the participation of many different loan platforms to serve many different fields Mainly towards small personal loans Nature: Easing, recently has gradually been tightened The market is concentrated, there are two main platforms Investors can approach loans easily Some large platforms dominate the market State management agency The Financial Conduct Authority (FCA) P2P platforms grow very fast The Securities and Exchange Commission (SEC) The Consumer Financial h The market is divided, with the participation of many loan platforms The China Banking and Insurance Regulatory Commission (CBIRC) Terms Method of prescribed The role of P2P platforms The subject initiates loans United Kingdom Consulting method United States Protection Bureau (CFPB) the Federal Trade Commission (FTC) Request that investors deposit funds into the account Support loans Support bank loans to between investors and customers borrowers Buy loans using money from investors P2P Platforms Banks China Make specific regulations Allows to adjust the minimum amount of money in the bank account Support bank loans for customers Banks Vietnam is in the early stages of its P2P development In 2018, China's P2P market swiftly disrepaired One of the causes for the collapse is a lack of rules and monitoring procedures for peer-to-peer lending, which has resulted in the appearance of bogus forms and a loss of confidence among investors According to Asia Nikkei (2019), the number of firms lending peers at the time dropped by 25%, to more than 1000 In Vietnam, according to information from the State Bank (2018), 40 P2P lending companies such as Tima, Trustcircle, We Cash, Interloan, Lendbiz, operated with 10 units with originated from China and some companies from Indonesia, Malaysia, Singapore Meanwhile, Mr Nguyen Hoa Binh, President of Nexttech Group announced in July 2018 that there are about 60-70 businesses providing services China's P2P lending case spilled into Vietnam after this model broke down in the world's second largest economy II Peer-to-Peer lending in Vietnam General context According to a study by the World Bank (2020), in Vietnam, nearly 79% of people not have access to formal financial services Most of them cannot or not have access to h banking services, but there is a great need for loans Therefore, it is understandable that peerto-peer lending has had tremendous growth However, it wasn't until 2015 that peer-to-peer lending first appeared in Vietnam It has only been for more than six years, making it relatively new compared to the global P2P lending sector With the expansion of Fintech businesses, in 2020, the Ministry of Planning and Investment said that Vietnam currently has about 100 P2P lending companies, including P2P lending companies officially operating and some companies still in the testing phase The majority of these businesses were founded in foreign countries such as Russia, Singapore, and Indonesia; nonetheless, China remains the most important source country (Vietnamese State Bank, 2019) Among the companies operating in the market, there are pretty effective operating models, especially P2P lending companies targeting the SME segment Characteristics of P2P financial lending in Vietnam Major P2P lending companies in Vietnam include Fiin,Tima, Eloan, Lenbiz or Vnvon.com In terms of models, it can be seen that the majority of P2P platforms operate according to the traditional P2P method The main customers of these platforms are consumer loans (personal and households) and MSMEs (Micro, small and medium enterprises) The force behind is that they need urgent disbursement but are not eligible for bank loans or failed to prove many documents as required by the Bank That leads to the rising demand of P2P lending platforms, which is considered to have more advantages than borrowing from a bank These peer-to-peer platforms allow individuals to look up information and make loan transactions through many channels such as websites, mobile applications, facebook, zalo or hotlines without signing any paper or documents Loans are mainly unsecured loans concentrated in big cities with small capital sources For personal loans, P2P lending companies offer unsecured loans according to salary, household registration book, motorbike loans, installment loans, electricity and water bills… For businesses (mainly small and medium enterprises - SMEs), P2P lending companies also offer many products and services such as loans to account receivables, buyers financing, working capital financing, ecommerce financing… Fiin Credit is widely known as a P2P Lending company for personal loans In the terms of process, loan applications will be approved responsively very quickly within a day or up to a week The loan conditions as well as the loan application requirements that these platforms offer are also very simple and much easier than the Bank's requirements In h turn, the interest rates offered by the platforms are quite high compared to the general level of the banking system According to the Monetary Policy Department (2020), the loan interest rate is usually not more than 20%/year, however, peer-to-peer companies it collects many types of fees such as consulting fees, early repayment fees… which makes the total fees and interest that customers have to pay even up to 30% - 50%/month Figure Some peer-to-peer lending in Vietnam No P2P lending platform Type of operation Type of Customers Interest rate Invested money Location Fiin Traditional Consumer loans 18-20%/year 700 thousand Hanoi Eloan Traditional Household business, SMEs 15 - 20%/year million HCM Vaymuon Traditional Consumer loans, Household business, SMEs 18%/year million Hanoi VNVON Traditional Consumer loans, Household business, SMEs 15 – 20%/year 10 million Hanoi Tima Traditional Consumer loans 18%/year million Hanoi Huydong Traditional Firms with maximum capital of two billion 12 – 20%/year 500 thousand HCM Lendbiz Traditional Household business, SME enterprise 15 – 20%/year million Hanoi Dragonle nd Connect to bank Consumer loans, Household business, SMEs 14%/year Binance Cryptocurrency HCM Vietnam Besides platforms operating under the traditional platform, there are many platforms operating under other models However, these models are similar to banking operations, so they are considered unofficial h CHAPTER 3: CHALLENGES AND OPPORTUNITIES OF P2P LENDING’S DEVELOPMENT IN VIETNAM I Challenges P2P lending is not negative, however there is a distortion in the method of operation Many companies hide in the shadow of P2P to legalize black credit in Vietnam, creating scams with high interest rates These companies earn their income by the difference between lending and deposit rates, and also charge extra fees from borrowers Specifically, they use an interest rate below 20%, in accordance with the provisions of the Civil Law (2015), however, the interest is attached to the fees for application, appraisal, management, pushing the interest rate to increase dramatically by 200-300%/year Tima provides an interest rate of 18% per year, excluding consultancy services, but Vaymuon.vn charges roughly times the interest rate When borrowers default, some companies use gangster debt collection methods or illegal tricks There have been many cases where borrowers were disadvantaged because of very high interest rates Moreover, when they could not pay their debts, they would be mentally terrorized These also cause P2P Lending to develop in a state of black-and-white confusion and risk assessment The first is the legal issues (no regulation of laws); the second is risk management (not being able to monitor and capture the financial situation and operation) II Opportunities So far, among the 40 peer-to-peer lending companies in Vietnam, some have emerged as a result of user choice because of lower interest rates Large-scale P2P Lending companies such as Tima, VNVon are focusing on developing human resources and technology for indepth research and analysis to ensure simplicity, transparency, risk reduction and customer trust VNVon is noted for its unique operating model that is geared only towards loan customers who are businesses with full legality This model is expected to partially solve the "bottleneck" of capital for SMEs while minimizing risks for investors In general outlook, P2P is still being evaluated as a lending model suitable for the 4.0 technology development trend Transparency Market Research's P2P Lending market size and development trend report forecasts that this market could reach $897.9 billion by 2024 Besides, there is no doubt that P2P Lending can bring many benefits if this model is widely deployed Especially in the context of Covid-19 causing many countries to social distance, P2P Lending can solve the problem of loan disbursement to people affected by the epidemic h without face-to-face contact Additionally, the Government is also very active in completing policies to support SMEs; develop technology, especially Fintech; national entrepreneurial spirit is also being promoted According to The World Bank (2020), the driving force behind peer-to-peer lending in Vietnam comes from the rising internet and smartphone usage rates along with strong demand for loans, which has strongly fueled the development of peer-topeer lending in Vietnam In addition, 70% of small businesses struggle with accessing bank loans and have to seek loans from non-traditional sources Positive development of P2P Lending will create more capital channels for businesses, thereby reducing dependence on bank credit capital, reducing the burden of capital for the banking system These are all factors that can help the P2P Lending model grow more widely III Some recommendations for future development of P2P lending in Vietnam Only credit institutions are permitted to mobilize and lend funds under existing legislation As a result, because peer-to-peer lending organizations have not been authorized to operate, enterprises in this industry are typically registered as investment consulting firms Concurrently, Vietnam lacks a legal framework for peer-to-peer lending and the companies providing this service In the midst of increasing needs of the financial market and lessons learned from other countries, in order to establish the order of P2P lending in Vietnam, firm steps are needed Firstly, the government needs to define P2P Lending as a conditional business; and must be licensed by a competent authority; make regulations on licensing the operation of existing platforms, and legalize P2P lending activities in Vietnam Secondly, it is necessary to soon issue a legal corridor to regulate peer-to-peer lending and peer-to-peer companies At the same time, set strict and strict regulations for the implementation and operation of the P2P Lending model in practice; including: (i) regulations on operation registration; (ii) regulations on risk management; (iii) regulations on monitoring activities It is known that until now, after a series of peer-to-peer lending companies were denounced in early 2020, the State Bank of Vietnam has been coordinating with relevant ministries and sectors to research to have proposals to build appropriate management measures for new forms of payment based on technology in general and P2P Lending activities in particular in Vietnam In April 2022, the State Bank of Vietnam submitted to the Government a Regulatory sandbox for Fintech h