In the last webinar of the series, Dr Nicolas Lainez, Mr Trinh Phan Khanh and Ms Bui Thi Thu Doai discuss how consumer finance draws on family and social networks to reduce the uncertainty inherent to credit transactions in Vietnam, a country where 60 per cent of the population is un(der)banked and lacks credit history.
REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Webinar Series 2020-2021: Financial Transformation, Credit Markets and Household Debt in Southeast Asia
Wednesday, 28 June 2021 – ISEAS – Yusof Ishak Institute hosted a webinar on “Consumer Finance and Credit Risk in Vietnam: Shifting Uncertainty to Family and Social Networks” which was delivered by Dr. Nicolas Lainez, Visiting Fellow at ISEAS – Yusof Ishak Institute, together with Mr. Trinh Phan Khanh, recent political science graduate, Leiden University in the Netherlands, and Ms. Bui Thi Thu Doai, Bachelor student in Development & Economics, London School of Economics. Both of them are Research Assistants in a project on Consumer Finance at ISEAS – Yusof Ishak Institute. They were joined by discussants, Dr. Hao Quach, Associate Professor, Banking and Finance, Business School, University of Lincoln, and Dr. Tom McDonald, Anthropologist, Department of Sociology, The University of Hong Kong.
Dr. Nicolas began his presentation by giving an overview of the research question and the state of Consumer Finance in Vietnam. In Vietnam, until today, 60% of the population are unbanked or underbanked, but informal lending between family members and relatives is very common. Consumer Finance only developed in the last 10 years, and with this backdrop, there is a lack of information to compute credit scores of individuals, due to the lack of consistent personal identification and financial documentation methods. As a result, through machine learning methods and alternative data, multiple methods to predict the creditworthiness of individuals are being developed. However, one issue is that in machine learning models of creditworthiness, the score of an individual can be negatively affected if another family member is in sticky debt. Dr Nicolas also explained that credit scoring deals with risk, in which the outcome is unknown, but can be calculated, instead of uncertainty, in which there is no knowledge of possible outcomes, but that uncertainty is very important for lenders to manage. Mr. Trinh and Ms. Bui then presented the methodology of the research, which involves semi-structured interviews, between January and April 2021, over the phone with 12 public bankers and 19 borrowers, who were reached by various recruitment methods such as fieldwork at credit offices, emails, participation in Facebook groups, social media campaigns and through personal contacts of previous survey participants. They acknowledged that due to the low response rate, the data is not representative, but are glimpses into consumer finance practices and trends.
Dr. Nicholas then went on to explain the involvement of family and social networks in the consumer finance sector in Vietnam. The lenders usually require the contacts of 2-3 referees, which can be any person the borrower knows, and usually put it across that it is meant to determine the borrower’s creditworthiness. However, in the debt collection process, the referees tend to be harassed if the debt is not yet returned, turning them into co-debtors. In the early part of 2021, the issue with debt collection has gained widespread national attention, and people have come together to help or give advice to those who are in debt or are hounded by debt collectors. Dr. Nicolas concluded by asking how customer’s credit data can be protected from risks from knowledge of their social networks, and how debt collection can be regulated.
The webinar was then handed over to Dr. Hao. He began by mentioning that the paper contains in-depth knowledge of the consumer finance sector in Vietnam, including the lack of credit scoring, how collection tactics have developed from black-market credit. In terms of methodology, Dr. Hao gave praise to the wide variety of data collection techniques were used in this research, and acknowledged that data can be hard to collect, as people who have credit problems tend to hide it. He asked if it should be compared against quantitative data, such as from other institutions and finance companies. Additionally, while he acknowledged that the findings reflected the situation in the sector accurately, he would like to highlight that there are differences between how in-house debt collectors and third-party debt collection services work. Lastly, he highlighted 2 areas to consider: Should borrowers ask for the purposes of the loan, and not make the loan when the loan is a bad financial decision on the part of the borrower? Should there be an institution, which might work in a similar way to the western court system, to arbitrate the debt collection process?
The webinar was then handed over to Dr. Tom, who acknowledged that the paper gave a very comprehensive picture of the rapid development on the procedure of getting credit and collecting debts in Vietnam. It also explained how, despite the promises of financial technologies, that due to policy issues and population of unbanked people, that information to determine creditworthiness is incomplete, and information has to be drawn from family and social networks. He raised 4 main questions: Do lenders see the world in terms of risk nowadays, and find ways to minimize it as much as possible? Are the forms of consumer finance similar to China’s? What are the profiles of these debt collectors, and how do they come up with such creative ideas to collect debt? Are there generational differences in aspects of consumer finance, such as who borrowers list as referees?
The webinar concluded with Dr. Nicolas answering the questions posed by Dr. Tom and the audience. The questions included what new forms alternative data will take in the future, whether data on P2P platforms are available, as well as how regulation of debt collection might develop.