The important role of consumer credit

Consumer credit has always played a crucial role in the socio-economic development of the country. Promoting consumer lending is considered an important solution to limit access to capital from informal channels, particularly "loan sharking," helping to reduce negative consequences and contribute to ensuring social security and order.

Statistics from the State Bank of Vietnam show that consumer credit activities in Vietnam have developed strongly in recent years in terms of outstanding loan balances, the number of participating credit institutions, and the diversity of products and services. To date, the total outstanding loans for living expenses and consumption in Vietnam have reached approximately 2.8 trillion VND, equivalent to 20% of the total outstanding credit of the entire economy, becoming an important part of the credit structure of the credit institution system.

The economy is projected to continue its positive growth, and Vietnam's consumer finance market is also expected to flourish. These expectations stem primarily from policy changes and improvements, particularly the recent issuance of Circular No. 12/2024/TT-NHNN by the State Bank of Vietnam, amending and supplementing several provisions of Circular No. 39/2016/TT-NHNN regulating lending activities by credit institutions and branches of foreign banks to customers.

The new policy points will contribute to promoting stronger participation from commercial banks in consumer lending activities, thereby promptly and fully meeting the legitimate borrowing needs of the people. Notably, a new point in the circular is the regulation allowing credit institutions to lend amounts under 100 million VND without requiring customers to provide a feasible plan for using the funds.

Instead, customers only need to provide minimal information regarding the legal use of funds and financial capacity before credit institutions grant loans. These changes are expected to help customers access small loans more easily and conveniently, especially people in remote areas and those with low incomes.

Furthermore, a report from Fiin Group indicates that the consumer finance market is entering a new growth cycle. The market recovery will become more pronounced from the second half of 2024. In the short term, this recovery will be supported by positive signs from the macroeconomic environment, including the expected recovery of manufacturing and export industries, improved credit quality and credit demand from workers and low- to middle-income earners – the main customer base for consumer lending – and the digitalization of the customer journey, improved customer experience, and increased customer retention rates.

However, despite many signs of recovery, the consumer finance market is also facing many challenges, especially in the context of a general trend of increasing bad debts in credit institutions. The situation... bad debt The consumer lending sector remains quite concerning. Recently, groups have emerged on social media encouraging and teaching each other how to default on loans or delay repayment. Despite measures taken by lenders and intervention from authorities, debt recovery from this group of customers remains very difficult and challenging. Therefore, for the consumer finance market to truly recover and grow sustainably, significant changes are needed, particularly improvements to the legal environment, especially regulations guiding debt recovery.

Consumer lending institutions, in addition to transparency in debt collection and lending costs, also need to implement measures to monitor and supervise the proper use of borrowed funds and repayment by customers. This will help credit institutions limit bad debts and ensure the full and timely recovery of principal and interest as agreed. Furthermore, borrowers themselves must also be aware of responsible consumption and timely repayment.

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