Vietnam: Is the regulation of P2P lending coming?

Author: | Published: 11 Dec 2018
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Peer-to-peer (P2P) lending, one of the methods by which individuals and business entities (including startups) can raise funds, typically through an internet-based platform, was introduced in Vietnam in 2015 and has become invreasingly popular among borrowers since then. It is reported that around 10 financial technology (fintech) companies have set up P2P lending platforms targeting customers throughout the country. It is expected that many new players will join the industry in the near future.

P2P lending platforms provided by fintech companies in Vietnam function as a direct matchmaker between lenders and borrowers. A so-called bilateral loan agreement between a lender and borrower would be deemed to have been concluded upon successful matchmaking. In this set-up, fintech companies are not lenders but rather service providers which operate P2P lending platforms and collect service fees from the lenders and borrowers subscribing to the platform.

At the moment, there is no specific legal framework for P2P lending in Vietnam, so this business does not clearly fall under the purview of any single authority. Fintech companies operating P2P platforms are not classified as credit institutions, thus, their business is not clearly subject to a banking licence under the Law on Credit Institutions. Their matchmaking function is similar to a monetary brokerage service which is within the purview of the State Bank of Vietnam (SBV), the central authority of the banking sector. However, under the law, monetary brokerage services can be carried out only by credit institutions and other financial institutions.

In the absence of a specific legal framework for the operation of P2P lending platforms, in practice the business appears to be conducted in accordance with the Law on Enterprises as regards the establishment and operation of enterprises, and with the regulations of the Civil Code on lending activities. Specifically, domestic fintech companies seem to have registered their businesses as financial management consultancy services or auxiliary financial services, which are not subject to restrictions or prohibitions under the Law on Enterprises and the Civil Code, thus, they may start providing services upon establishment.

Similar to the existing situation in Vietnam, China, which has a giant P2P lending industry, did not use to regulate this business area. The lack of regulatory guidance resulted in the failure of more than 100 P2P lending platforms. However, Chinese authorities have recently tightened the rules pertaining to P2P lending platforms and it was reported that new rules came into force in June 2018, with the expected completion of a licensing approval process for P2P lenders.

With the collapse of many P2P lending platforms in China, it is highly unlikely that the SBV, which is the most relevant authority in this business, would leave P2P lending platforms unregulated for much longer. According to the deputy governor of the SBV, the SBV's relevant departments are putting a lot of effort into studying several models of P2P lending around the world, including the management experience and operational supervision aspects. Through this research, the SBV plans to formulate a legal framework that takes advantage of the positive aspects of this type of service, while preventing and minimising the risks and the negative effects involved. In this way, it can ensure safety for individuals and enterprises using the services, thereby enhancing financial inclusion in Vietnam.

Vu Le Bang Nguyen Van