Sir, the consumer finance industry once experienced a period of rapid growth. However, in recent years, the growth rate has slowed down significantly. Why is this happening?
The consumer finance market has been developing in Vietnam for over 15 years, starting from 2007-2008. In the first 4-5 years, the market was mainly participated by banks, however, the access of people to loans was quite complicated, in terms of conditions, as well as paperwork and procedures. From 2012 onwards, especially from 2015, when financial companies participated, the consumer finance market boomed. In the period of 2010-2020, the average growth rate of this market reached more than 30% per year.
The market only slowed down from 2019 when the State Bank began to have new mechanisms and policies such as applying a credit growth ceiling, in addition to a number of new Circulars regulating lending in general and consumer lending in particular, to make the market move towards sustainability and health. more. Then the economy was affected by Covid, the slow growth has caused the market to witness a decrease in the scale of consumer credit for the first time in 2023.
Difficulties began to emerge in 2019, but why did it take until 2023 to witness an unprecedented phenomenon that consumer credit declined so much?
In fact, the credit ceiling policy of the SBV only affected the scale of consumer credit of financial companies in 2019. Then, the financial companies were established a new growth mode, and usually this growth rate is still higher than that of the whole credit institution system due to the small scale of consumer finance, accounting for a very small part compared to the total outstanding credit of the whole economy.
At the end of 2023, the total outstanding debt of the whole economy reached about 1450 trillion VND. Meanwhile, consumer credit debt was only over 300,000 billion VND, and the outstanding debt of financial companies was also only about 150,000 billion VND, accounting for just over 1% of the whole credit institution system. Accordingly, the SBV also has a separate mechanism for financial companies in terms of growth, which is allowed to grow higher than the industry average. Thus, there is no longer a barrier from the credit room.
The problem of declining consumer credit in 2023 lies in consumer demand.
People will only be confident in consuming and borrowing for consumption when? That’s when they have faith in income growth. If you believe that next month’s salary will be higher than this month’s, your consumption demand will increase. But if you predict that your income will go down, you will definitely cut back on spending.
It can be seen that important consumer goods such as motorcycles and electronics are in a downward trend. Motorcycle sales have been continuously decreasing from 2023 to the present. The same goes for electronics, which can be seen most clearly from the revenue of leading retail chains.
More deeply, the customer segment of the consumer finance industry, which is workers and freelancers, is the most vulnerable when the macro economy has adverse changes. When enterprises do not have orders, the first thing they think of is to reduce labor costs, delay work. This situation has been going on since 2022 and lasted until recently. It wasn’t until the second quarter of 2024 that we saw some factories and industries recruiting workers again, but it was not significant compared to the number of jobs lost before.
Thus, they are the first to be affected when the economy is in difficulty, but when the economy picks up, they are the last to benefit. Because when there are positive signals, after going through the restructuring process, they have optimized the production and operation process, so the recruitment of workers will be very slow.
Low demand for new loans and customers’ ability to repay are also affected. When customers are affected by income, it will have a two-way impact on financial companies. Financial companies will be reluctant to lend due to concerns about customers’ repayment capacity. In addition, the increase in bad debts due to weakened repayment ability makes financial companies turn to focus on reorganizing and restructuring their operations.
It seems that consumer credit demand depends a lot on income expectations, so even if interest rates are low, it cannot stimulate them to borrow more for consumption?
That’s right! Interest rates are just a part of creating demand. What’s important when borrowing is the source of repayment, the ability to repay, and the monthly cash flow to repay. First of all, customers must have a need to borrow, and then they will consider the cost of borrowing, which is the amount of money to be repaid including principal and interest. When they are not sure about future income and cash flow, even if the interest rate is low, they will not have a need to borrow for consumption. In the past time, the Government and the State Bank have had many measures to stimulate demand, strongly reduce lending interest rates but the capital absorption capacity of the economy is still low, so credit growth is not as expected.
In the story of bad debt of financial companies, the phenomenon of “debt evasion” has become more serious in recent years. Why is this, sir?
You can see very clearly that during the difficult period, many people lost their jobs and had more free time, plus social media was very popular, this is the reason why there was a “boom” in groups that invited each other to “evade debt”, “debt evasion” on the network, with tens of thousands of participants. If they have a busy job, they won’t have time to participate in those groups.
Second, because their income decreases, they have no source to repay the debt, so they are easily led astray. Just search Google, Facebook with keywords related to “how to evade debt from financial companies” will show a series of results and it is very easy to participate in those groups.
Another part of the reason comes from the rectification of competent agencies against debt collection activities. At the end of 2022 and early 2023, the police conducted a crackdown on the evil of debt collection in violation of the law. Most of these illegal acts came from informal lending organizations such as Peer-to-Peer lending apps and financial companies disguised as financial companies, or some individuals who did not perform the correct procedures of financial companies and banks.
Mcredit supports the actions of the authorities to rectify debt collection activities. But many people who are in debt look at it and think that “I am in difficulty so I have the right not to repay the debt”. Many other subjects have the ability to repay but take advantage of the situation to “evade debt”.
Many of our debt collection staff went to meet customers in the locality but were beaten even though they followed the correct procedure. This has caused great confusion for legitimate debt collectors who follow the law. Meanwhile, Mcredit’s debt collection principle is humane debt collection, which means that when contacting customers, first of all, we need to see if the customer is having any difficulties, and if so, we will build a support plan.
Another phenomenon that has perhaps never been as prominent as it is today is the problem of fraud. How does this affect financial companies?
This is indeed a problem. Recently, we have received many cases of customers being scammed to borrow over the phone. They come here, bringing with them loan notifications, but in fact those are fake notifications, fake from the seal to the signature. To be able to borrow a hundred million or fifty million, people have to pay in advance 5-7 million, and in the end they lose everything. There are really miserable cases, they are in difficulty so they have to borrow, but in the end they are also cheated out of their money.
Therefore, it is necessary to communicate to the people. Because if they come to the right address, they will not be cheated. Currently, if there is a borrowing need, people can easily access official financial channels, including financial companies.
Not only Mcredit but also most financial companies have Multi Channel (Multi-channel marketing), from digital channels to employees to hotlines that can be easily accessed. Good customers, with real needs, no bad debts will be approved very quickly. At Mcredit, it only takes 5 minutes for customers to be able to disburse loans without having to go anywhere, without having to beg anyone and without any cost.
The nature of consumer finance products is humane. With Mcredit in particular, our strategy is from lending to debt collection with a humane nature.
With so many challenges, does the market still have a chance to recover and return to the “golden age” as before?
If customers are having difficulty, we – the financial companies will also be difficult. Therefore, the policy of supporting existing customers becomes a very important task, even the number one task, more important than new lending, focusing on supporting customers to have a repayment plan that suits their financial situation.
As a member of MB Group, Mcredit carries the strong and resolute spirit of the army and determines that “there is always opportunity in danger”. A difficult market is also an opportunity for Mcredit to accompany customers and develop better services.
In 2021, when Covid happened strongly, people’s access to financial services was limited. Mcredit quickly created products that could serve the legitimate needs of customers, with new processes to serve non-contact customers. We are the first unit to deploy signing contracts with customers in the form of electronic transactions.
Second, we also take the lead in applying new approval processes, using data to predict customer needs, and assessing customers through data interaction of customers at Mcredit and MB to serve in a timely manner. These have brought about great changes for Mcredit in the period of 2021-2022.
With the current difficulties, Mcredit’s new phase strategy still chooses to “put customers at the center”. Accordingly, Mcredit always orients itself towards customers, looking for debt restructuring solutions, and exempting part of the interest for customers who are really difficult. This is also completely in line with the direction of the State Bank.
In addition, this is an opportunity for us to look inside to see what else Mcredit can optimize. The only formula is to continue digital transformation and optimize internal processes to help operations run faster and cheaper. From there, we can stand firm in this context, gradually get out of the common difficult period.
If you expect to return to the period of strong growth and high profits as before, it is really difficult. This is a period that needs stable growth, consolidating the system, and serving the legitimate needs of customers.
What percentage of digitization has Mcredit achieved so far?
Currently, 100% of Mcredit’s customers can use the digital platform, but with each sales channel, the digital journey will be at a different level. For example, for installment purchase customers, currently 100% are paperless and the provision of information and data to Mcredit has been greatly simplified. Mcredit is one of the first active participants in Project 06 of the Ministry of Public Security on population data. Customers only need a chip-attached CCCD for the Mcredit system to read customer information, instead of having to fill in complicated information on paper as before.
For customers who still want to have direct contact with Mcredit employees at the point of sale, we still have SIP points to serve customers’ needs.
Digitization has brought about great changes to the financial industry. The process of providing a loan at Mcredit used to take about half a day or 4-5 hours, which was considered very fast, but now this process only takes less than 5 minutes, and customers can be disbursed with a loan.
You emphasize the need to stand firm in this difficult period. So has Mcredit prepared a strategy for a future when the market recovers?
Standardizing all activities is an important step in preparation, and as long as there are positive signals from the macro economy, we will not only recover but also be able to contribute to creating a consumption trend.
For any country, domestic consumption is always an important lever for economic development. If an economy has a strong consumption activity, with domestic production and consumption, it will be more self-sufficient. For example, Japan, or in the region, Thailand, has a large volume of domestically produced and domestically consumed goods, which helps them have a certain foundation for the economy, less affected by the world. Vietnam has also had a strong economic growth process, however, the openness of the economy is quite large. Therefore, in the long term, domestic consumption is important for sustainable development.
Mcredit is just a small part of that picture, but we also cooperate with units that have a great influence to contribute to stimulating the consumption demand of customers.
Compared with the market, what are Mcredit’s strengths and differences?
It can be affirmed that we always lend and collect debts in a humane way. The quality of service comes from Mcredit’s vision of being the most convenient digital financial service for customers. The nature of this consumer finance product is also a fast-consuming product. To be chosen by customers, we must bring the most convenient experience.
Talking about loans, people often talk about interest rates but in this industry, convenience plays a more important role.
For large loans, a 10% interest rate difference is a large difference and is considered a lot. But for a consumer loan of only 10 million VND and repaid in 20 months, with a monthly principal payment of 500,000 VND, a 10% interest rate difference is equivalent to an interest difference of only about 85,000 VND/month. Many customers are willing to accept this difference if they have a better borrowing experience, they are professionally taken care of, quickly disbursed, and do not have to do a lot of paperwork and procedures. Of course, we also have measures to compete in terms of interest rates.
The next advantage is a system with a fast and cheap operating process. We are focusing on doing that and have had positive results.
Third is about personnel. Mcredit considers this a period of creating opportunities for personnel to learn and develop, and attracting more talents, especially personnel with a mindset about digital transformation.
In addition, there is a small exclusive advantage of Mcredit, which is located in the ecosystem of MB – the bank with the largest number of customers in Vietnam. MB currently has more than 28 million customers and this year is aiming for 30 million. In MB’s strategy to serve diverse customer segments, there is the consumer lending segment. Mcredit has the advantage of being able to access this large
