The global situation in 2020 has pulled everyone out of their comfort zone and predictions about economic growth have become more difficult to make. Risks need to be evaluated with a different mindset because despite uncertainty, there will always be opportunities no matter the situation.
This article will evaluate the case of Vietnam as prospective market for consumer lenders. We will look at the economic picture, consumer behavior, and political forces that aim to support and shape the consumer lending industry as a viable investment consideration.
Looking at the Vietnamese Economy
Economic Growth in Vietnam
The World Bank has given a detailed overview of Vietnam as a country and investment destination. Here they explain that the economic reforms that were initiated in the 1980s have led to a material turnaround of the economy.
Over forty-five million people have since been lifted out of poverty and have essentially transformed the country from a underdeveloped economy towards a low to middle-income country. This has all been driven by a stable government, pro-business policies, and deep integration to the world economy.
Growth Domestic Product (GDP) per capital has increased 2,7 times between 2002 and 2018. This alone gives a clear indication that there is now a viable consumer market as a result of this continued rapid economic growth that is driven by both domestic demand and excellent export growth.
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.
Vietnam Is Courting Global Investors
In the aftermath of the Covid-19 pandemic that impacted the whole world, there is according to Modern Diplomacy a desire for companies to shift away from China. Vietnam and India are the two front runners to capture most of these investors wanting to make this move.
Many companies and even countries want to diversify and move away from a sole dependence on China and Vietnam wants to be that alternative. According to the Financial Times, Vietnam does seem to offer a more competitive offering with initiatives like the EU-Vietnam Free Trade Agreement.
Impact of Covid-19 on the Economy in Vietnam
It is impressive to note that the World Bank and DW News seem to suggest that Vietnam is far better geared to either bounce back or resist the impact of the global economic slowdown that was brought about by the response to the global Covid-19 pandemic.
It is believed that economic growth will drop from an initially projected 6-7 percent annual growth to an adjusted 3-4 percent annual economic expansion. This is in stark contrast to the severe contraction of much the world’s economies.
The Vietnamese Population Is Young
Vietnam has experienced rapid population growth since 1986 according to the World Bank. The population reached 97 million in 2018 and could potentially reach 120 million by 2050. Over 70 percent of the population is under 35 years old.
This young population is a catalyst for any consumer lender as young people tend to invest in education, housing, and purchasing other large items like cars and/or furniture. These purchases often require credit, as upfront liquidity is not always possible.
Population Growth in Vietnam Seems to Have Sustainable Economic Growth in Mind
According to Mercatornet, Vietnam has implemented a less draconian family planning approach compared to China. Reforms have started in the 1990s to stave off a demographic gap and ageing population problem faced by much of the West.
The retirement age was also raised from sixty to sixty-two. From a Consumer Lending Provider point of view, this should be seen as a positive move as there is long-term stability in government planning strategies. This not only gives immediate economic opportunity but more long-term sustainability.
Forces Impacting Consumer Lending in Vietnam
Corporate Income Taxes
According to the Vietnam Briefing, the Vietnamese government has been very responsive to the stresses experienced by businesses in 2020 and has moved to drop Corporate Income Taxes by 30 percent.
This is aimed at supporting a large tax-paying component of the economy that also forms the backbone of the Vietnamese economy that provides so much employment. This pro-business approach has been one in several tax breaks and incentives that have already been given.
This is a key indicator that consumer lenders will experience not only a resilient economy, but also a stable and favorable policy environment. This commitment to responsible economic policy implementation will greatly support medium to long-term growth certainty as compared to other countries.
There Is Opportunity in Many Vietnamese Sectors That Are Under-Banked
The one thing that Vietnam offers that is not often found elsewhere includes a rapidly growing economy with stable economic policies, yet where a very large portion of the population is still “unbanked.” 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. This means there is a serious opportunity for fintech to step in.
According to Pymnts.com, 97,6 percent of all businesses in Vietnam are small and have less than one hundred employees. These businesses also have little-to-no access to any credit. This also trickles down to the actual employee, which limits the ability of the economy to further expand meaningfully.
Consumer lenders must enter this lucrative market not merely as a source of credit but also as a vehicle that empowers both business and employees from a financial literacy point of view. This is simply because most small businesses and consumers in Vietnam are not very financially literate.
A partnership between businesses and their employees can result in a trickle-down approach whereby prospective lenders are able to increase liquidity and educate their new customers, which can lead to responsible lending and the creation of a longer-term relationship that will promote a more sustainable business.
The Vietnam Consumer Lending Market Attracting Serious Players
In 2019, the Hyundai Card (credit card subsidiary of the Hyundai Motor Group) bought a 50 percent stake in the South Korean company and the Finance Company Limited for Community (FCCOM). This according to VN Express, is because FCCOM is a subsidiary of the Vietnam Maritime Commercial Joint Stock Bank (MSB), a mid-sized private lender focused on personal loans.
This transaction could suggest that if large players are starting to recognize future growth potential in Vietnam, it should give smaller players some food for thought. Larger companies do extensive research into viabilities, and as such, we recommend this detailed due diligence should be considered by individual investors.
Vietnam consumer lending sector has also proved to be a perspective industry with significant market players as Finstar Financial Group (brand Doctordong.vn), Robocash (brands Robocash.vn), Sun Finance Group (Tamo.vn) and Aventus and Gofingo (brand Senmo.vn) successfully operating in particular country.