The Vietnamese consumer finance market presents tremendous growth opportunities.
Market potential
Vietnam has a population of 92.7 million with income per capita of $2185.7 in 2016. In 2016, according to World Bank’s statistics, the country’s working age population (those aged between 15 and 64) account for 70 per cent of total population.[1]
Mobile internet use is a bit higher than the world average. The total number of active mobile internet users account for 48% of the population compared to 46.8% globally. Web traffic from mobile device still accounts for a smaller percentage than from personal computer (34% compared to 60%) but is growing fast (a 40% growth on year) compared to 50% (up 30%) global average.
Chart 1: Key statistics on the digital landscape of Vietnam (source: Wearesocial, January 2017)
| Vietnam | World | |
| Smartphone ownership (% of population) | 72% | |
| Total number of active mobile internet users | 47.19 million (49.4%) | 3.448 billion (46.8%) |
| Average daily use of the internet via mobile phone | 2h33m | |
| Share of web traffic by mobile device | 34% (+40% on year) | 50% (+30% on year) |
| Percentage of mobile connections that are broadband (3G and 4G) | 30% |
The appetite for consumption is high. Household final consumption expenditure over GDP in 2016 is 64.4%, and has consistently hovered above 63% over the past 8 years, according to World Bank statistics[2]. It has also been consistently higher than the world average and a lot higher compared to the average for middle-income countries.
Chart 2: Household final consumption as percentage of GDP
State of the sector and competition landscape
According to a report by market research company Stoxplus in May 2017[3], both the total value of consumer finance loans as well as consumer finance loans as percentage of the loan book of banks and consumer finance companies are on a trend of increase.
Chart 3: Vietnam consumer finance outstanding loan balance (unit: US$ billion). Source: Stoxplus
Commercial banks and consumer finance companies are the two main types of providers of consumer finance loans. According to the Stoxplus report, housing/home improvement loan (without collaterals) accounts for the largest portion of consumer finance loan and is mainly provided by commercial banks.
Consumer finance companies are currently only allowed by law to lend for the following purposes: purchase of vehicles, household appliances, education, healthcare, travel, culture, sports, and home improvement. But in all these categories, according to the Stoxplus report, consumer finance companies have competitive advantage compared to banks. Customers tend to reach out to consumer finance companies when they need smaller and more urgent loans such as wedding loan, travelling or buying home appliances.
Chart 4: Breakdown of total consumer finance loans provided by consumer finance companies in 2016 by purpose (source: vietnambiz.vn, numbers added by Momentum Works for easier visualisation)
Loans for other purposes account for the highest proportion. In terms of growth, housing/home improvement loans and vehicles loans grew the fastest at 42% on year each.
Chart 5: Total loans (US$billion) by company of the top seven consumer finance companies (source: vietnambiz.vn)
FE Credit held the biggest market share at 48.4%. Home Credit, HD Saison and Prudential followed at 15.7%, 12.2% and 8.1% respectively. All the top 7 players saw double digit growth on-year in their total lending.
Chart 6: Overview of the three largest consumer finance companies in Vietnam, with self-reported figures as of the end of 2016.
| FE Credit (100 % owned by Vietnamese bank VPBank) | Home Credit (a subsidiary of the Czech company Home Credit) | HD Saison (49 % owned by Japanese company Credit Saison, 51% owned by Vietnamese bank HDBank) | |
| Years in Vietnam | 6 | 8 | 10 |
| Total number of service points | 5,800 | 6,900 | 9,000 |
| Total number of customers (cumulative) | 3 million | 5 million | 3 million |
The third type of providers is P2P loan platforms. We observe that they are not very popular yet.
On the Google Play and the iOS stores, with the exception of the Home Credit and FE Credit apps, all the other consumer finance apps average at only a few thousand downloads and a few hundred ratings. These numbers dwarve when compared to the millions of customers served by consumer finance companies.
Chart 7: Consumer finance loan apps in top 100 in Finance category in Vietnam (except apps of banks, ranking by App Annie as of December 05, 2017
*Tietkiemnhom provides a borrowing method called “hụi” based on a traditional Vietnamese borrowing method of the same name. How it works: A group of four people play together for four months. Highest contribution is US$10. In month 1, all four people bids an amount smaller than US$10. Lowest bidder wins an amount that is equal to the bid multiply by 3. (the other three players pay that amount each)
From month 2 on, the winner in month 1 cannot receive money anymore. They must pay US$10 for all three months. In month 2, the other three bid. The lowest bidder wins. They will receive US$10+bid amount*2
In month 3, the remaining 2 bid. The lower bidder wins. They will receive US$10*2+bid amount
In month 4, the remaining person wins. They receive US$10*3
Effectively, winner in month 1 borrows then pays, while winner in month 4 only lends.
Size of group (4) and length of term (1 month) are adjustable.
The fourth type of players is pawn shops. Currently there is only one pawn shop chain named F88, which recently received an undisclosed amount of investment from private equity firm Mekong Capital. F88 currently has 44 shops in Hanoi and 5 shops in 5 other northern cities and provinces. The remaining are small fragmented businesses, but they amount to thousands. According to an article dated May 2017 on Vietnamese newspaper An ninh thu do, just in Hanoi there are about 2,000 pawn shops.[4]
The fifth is loan sharks, with total loan value estimated by a member of the committee that advises the prime minister on financial-monetary policies as of July 2017 at tens of millions of US$[5]. Loan sharks, which provide loans at very high rate and use illegal methods of retrieval, are illegal.
Regulations
Banks and consumer finance companies are classified as financial institutions. Key regulations concerning banks and consumer finance are the 2010 Law on Financial Institutions and Circular 39/2016/TT-NHNN on lending activities by financial institutions and foreign banks’ branches.
Consumer finance companies are additionally regulated by Circular 43/2016/TT-NHNN issued by the State Bank of Vietnam, which details requirements for consumer finance companies in establishing, opening branches, and when and how to remind borrowers to pay, and regular and irregular information report to the government. There is also a loan size limit of VND100 million (US$4,400), a lot lower than banks.[6]
Pawn shops are regulated by Decree 96/2016/ND-CP on conditions on security for some business lines, which stipulates requirements for residential address and criminal record of owners and procedures for lending. Their rate is regulated by the Civil Code.[7]
Under the 2010 Law on Financial Institutions, banks and consumer finance companies have to meet the requirement for risk provision (have to set aside a part of their revenue as allowance for bad debts, with amount as high as 100% value of loans for customers deemed in the “high risk” group).[8] Pawn shops are not subject to this requirement.
But while there’s no limit in terms of rate for banks and consumer finance companies, pawn shops are limited at 20%/year according to the 2015 Civil Code[9]. According to the An ninh thu do article, they all violate the rate cap, either explicitly or implicitly by charging all sorts of additional fees.[4]
P2P lending platforms are currently not regulated by any special law.
Where opportunities lie
Consumer finance companies are providing cash loans at a rate that can go up to 48%/year. To put in perspective, annual saving rate at Vietnamese banks for individuals hovers around 7.5% a year (or 7.2% a year for companies). Saving rate in Singaporean banks, as retrieved from imoney.sg as of December 8, 2017, is 3.88% a year at the highest.
Judging by the high annual growth rate in total loans, and the high rate of the loans, we believe the demand is still underserved.
Consumer finance companies have presence in all consumer electronics and household appliance shops. However, judging by the location of their service points, which they use to introduce their services, disburse money, or accept payment for loans, consumer finance companies are currently more active in urban areas.
The rural area, where 68 % of the population live, is also growing fast in demand for consumer goods[10]. Moreover, due to working either in agriculture or factories or doing odd jobs, their income is not stable, making them undesirable for banks. This thus presents a vast untapped opportunity.
As the Vietnamese population is young and tech savvy, the fact that the current P2P platforms have only acquired tens of thousands of users and none has really emerged as dominant also presents an opportunity.
Aside from providing loans, we feel there are good opportunities for data and KYC providers, as consumer finance companies say on newspapers that the reason for their high rate is the high cost of paying for an army to call or visit slow payers.[11]
It seems that consumer finance companies have to compete to approve loans as fast as possible, but don’t have a reliable system that can provide them with the data they need in a fast and accurate manner.
Conclusion
The market for consumer finance is very much in its infancy in Vietnam. We think that with such big potential, the market is going to attract more players.
Reference:
[1] https://data.worldbank.org/indicator/SP.POP.1564.TO.ZS
[2] https://data.worldbank.org/indicator/NE.CON.PETC.ZS
[3] http://stoxplus.com/News/Detail/266620
[4] http://anninhthudo.vn/kinh-doanh/100-co-so-cam-do-vi-pham-quy-dinh-lai-suat/727066.antd
[5] http://vneconomy.vn/tai-chinh/dua-tin-dung-den-vao-khung-kho-quan-ly-20170727085731157.htm
[6] https://thuvienphapluat.vn/van-ban/Tien-te-Ngan-hang/Thong-tu-43-2016-TT-NHNN-cho-vay-tieu-dung-cua-cong-ty-tai-chinh-326281.aspx
[7] https://thuvienphapluat.vn/van-ban/Thuong-mai/Nghi-dinh-96-2016-ND-CP-hoat-dong-kinh-doanh-nganh-nghe-dau-tu-kinh-doanh-dieu-kien-an-ninh-trat-tu-315469.aspx
[8] https://www.sbv.gov.vn/webcenter/portal/vi/menu/trangchu/ttsk/ttsk_chitiet?leftWidth=20%25&showFooter=false&showHeader=false&dDocName=CNTHWEBAP01162395883&rightWidth=0%25¢erWidth=80%25&_afrLoop=161405335448000#%40%3F_afrLoop%3D161405335448000%26centerWidth%3D80%2525%26dDocName%3DCNTHWEBAP01162395883%26leftWidth%3D20%2525%26rightWidth%3D0%2525%26showFooter%3Dfalse%26showHeader%3Dfalse%26_adf.ctrl-state%3Dceyr3dtzw_4
[9] https://thuvienphapluat.vn/van-ban/Quyen-dan-su/Bo-luat-dan-su-2015-296215.aspx
[10] http://www.nielsen.com/content/dam/nielsenglobal/vn/docs/Reports/2017/Insight%20Article_Rural%20In%20Vietnam_EN_Final.pdf
[11] http://www.thesaigontimes.vn/162479/Tai-chinh-tieu-dung-tiem-nang-lon-rui-ro-cao.html