Consumer lending business development in Vietnam

Borrower description

Latvian fintech companies VIA SMS Group and TWINO (JSC VIA SMS group and TWINO Ltd.) have entered into a joint venture on equal terms sharing 50% of business each with an aim to target the Asia-Pacific consumer lending market by launching their first joint consumer lending brand VAMO in Vietnam. Since consumer lending has been the core business for both partners for over 10 years, companies were able to find a common ground on sharing the know-how and resources to enter less-explored Asia-Pacific market, while aiming to diversify consumer lending portfolio and expanding their global reach.

Both VIA SMS Group and TWINO are well-known consumer lenders operating across Europe, Russia and Kazakhstan, and have also acquired a significant market share in Latvia. Besides, both companies also operate peer-to-peer lending platforms VIAINVEST and TWINO, respectively.

VAMO.vn, operating in Vietnam under the brand name VAMO, was launched in December 2019 and closed the year of 2019 with the first loan issued shortly after the public launch.

The business in Vietnam is currently funded by the equity, but the loan issuing is provided by the VIA SMS Group and TWINO. In the first quarter of 2020, a funding requirement of EUR 235 400 was ensured by the VIA SMS Group and TWINO. According to the financial model, the total funding need from the VIA SMS Group in the 2nd quarter of the year 2020 will be EUR 357 500, in the 3rd quarter – EUR 835 000 and in the 4th quarter – EUR 1 537 000.

Taking into account the growing interest from investors in financing promising projects carried out in the emerging markets, VIA SMS Group plans to attract its part of the funding through VIAINVEST, offering it with an annual interest rate up to 14%, while ensuring at least 20% of “skin in the game”. Once a quarter, a funding request in the amount of financing that’s necessary for the particular quarter will be published on the platform and will then become available for investments. Until the end of the current quarter investors are given the opportunity to invest in the current funding request on the basis of the Business Loan Agreement with the VIA SMS Group.

The term of the Business Loan Agreement is set to 24 months, however an early exit option is available within this particular loan.

Project description

The consumer lending business in Vietnam is conducted within the P2P business model based on a legal structure consisting of two legal entities – VIACONTO, registration No. 0315687749, address: Lầu 1, Tòa nhà Petroland, số 12 đường Tân Trào, Phường Tân Phú, Quận 7, Thành phố Hồ Chí Minh, Việt Nam and HOÀNG KIM NHẬT, registration No. 0315733498, address: 549/66 Xô Viết Nghệ Tĩnh, Phường 26, Quận Bình Thạnh, Thành phố Hồ Chí Minh, Việt Nam. Both legal entities are either owned or controlled by VIA SMS Group and TWINO. VIACONTO as a consultancy service provider connects borrowers and the lender via the online lending website VAMO.vn. VIACONTO ensures this process by carrying out licensed business services such as financial management and consulting, as well as IT services. HOÀNG KIM NHẬT, on the other hand, acts as a lender providing relevant licensed business services. The applied legal structure has ensured an opportunity to secure a business launch in a short time period with reasonable licensing costs and subsequent improvements of asset protection and regulatory risk mitigation. The majority of companies operating in the Vietnamese non-bank micro-lending services are operating on the basis of the same business model.

Product overview

VAMO.vn offers their customers short-term loans with duration from 7 to 30 days and the loan amount from 50 0000 VND to 10 000 000 VND. The lending services and transactions between the lender and the borrower are cash-only, available online; and it is possible for customers to request payment deferral services.

In order to build high-quality customer portfolio, the company applies complex and innovative credit scoring procedure that has been developed based on application statistics, customer behavior trends and information received from external local credit data providers.

To prevent fraudulent activities, reduce the risk of threats and gain new clients while fostering sustainable portfolio growth, registration and customer verification process include multiple validations, including verification of the validity of personal identification documents, bank account verification, device risk assessment, etc.

Description of Vietnam economy

Over the last 10 years the Vietnamese economy has experienced the fastest growth since gaining its independence and has become one of the fastest growing economies in the world. Even though the manufacturing sector still outperforms other industries, Vietnamese economy is not dependent on one single industry; domestic demand for goods and services, growing exports, incoming foreign investment and services, dominating travel and transportation industries, helps the country on its way to rapid growth and development. The country is gradually becoming a key manufacturing hub in the region, and this direction of development is supported by economic liberalization efforts and integration into the global supply chain through trade agreements and membership to regional and international trade partnerships. While structural factors tend to underpin Vietnam's potential for long-term growth (including favorable demographics, geographic location in regards to the Mainland China, and relatively low cost of labor in comparison to the other countries in the region) they remain largely unchanged, however, there are several developments that reinforce the country's bright outlook. In addition to an open trade and policies supporting favorable investment environment, there has been a decisive shift in the government's focus towards policies aimed at maintaining price stability, and ongoing efforts to further address macroeconomic imbalances and fiscal deficits.

The country also holds a number of strategic advantages including a relatively stable political environment, in addition to large-scale transport and utilities infrastructure development projects underway, which are expected to boost Vietnam's regional and global connectivity. A large population size and rising income create attractive opportunities for consumer-oriented businesses. The fast-growing Vietnamese market with technology and artificial intelligence gradually taking over the traditional banking and finance market, a country with a 70% internet penetration rate offers a number of factors that make investing in business development in Vietnam attractive to fintech investors:

• Fast-growing economy. As one of Asia’s and world’s fastest growing economies, Vietnam’s GDP was at a 10-year high of 7.1% in 2018.
• Strategic location. With a population of 96 million, relatively low labor costs, Vietnam remains one of the most attractive locations for foreign investors. The region of Asia (including Indonesia, Philippines) provides access to an affluent market of over 465 million people.
• Integration into the global economy. Vietnam’s participation in numerous FTAs has attracted large amounts of foreign investments in the recent years.

Description of Vietnamese consumer lending market

Banking consumer lending sector in Vietnam has been growing strongly since 2013 on the back of rising affluence amid strong economic growth. According to Fitch Rating estimation, the top 11 Vietnamese banks, whose combined loans make up roughly 70% of system loans, have expanded their consumer portfolios by 28% CAGR over 2014 to 2018.

Expansion into Vietnam’s non-banking micro-consumer lending sector has also been very aggressive as market players have been drawn by the segment’s highly lucrative business potential, with nominal interest rates that could exceed 700% per year, and the country’s favorable demographics, driven by rising consumerism and a large underserved and unbanked population. Only 30% of Vietnam’s population had bank accounts compared with East Asia and the Pacific’s average of 73% and Indonesia’s 48% at end-2017, according to the World Bank’s Global Findex.

In particular, in recent years non-banking consumer lending has made its presence known, with more than 20 companies, both domestic and foreign-owned, claiming to provide micro-lending services to local citizens. Most companies provide short-term loans with duration up to 30 days, several companies provide installment loans up to 90 days with nominal interest rates varying from 350% to 700% per year. Most companies offering non-bank micro-lending services in the market operate under the P2P lending model. The main competitors are the following ones: