Loan-sharking, a clear and present threat in Vietnam

At an online conference organized by the State Bank of Vietnam (SBV) Wednesday, Pham Huyen Anh, deputy chief inspector of the bank’s Inspection and Supervision Agency, said 170 of them involved frauds or scams.

It is estimated that around VND2.5 trillion ($107.3 million) is involved in the black-market lending. 

Other officials from the agency said in Vietnam there is no official concept of loan-sharking or legal provisions against it though many engage in illegal lending often at usurious interest rates.

By providing cash quickly and without asking for collateral, loan sharks thrive in rural areas, industrial parks and other places where people are in need of quick cash for a short term, they said.

Vu Manh Tiem, deputy head of the Vietnam General Confederation of Labour’s propaganda department, said usury was widespread in industrial parks across the country but especially in the provinces of Thanh Hoa and Ha Tinh in the central region and Dong Nai and Binh Duong in the south.

"Loan-sharking is usually done with verbal agreements; there is almost no evidence. Victims do not report it and so it is very difficult for the authorities to act."

Tiem believed the main cause for the rise of loan-sharking at industrial zones was low wages of just VND5-6 million ($214-257) a month.

When workers’ families face unexpected difficulties such as children’s sickness or school fees or rent, they often have no choice but to borrow at high interest rates.

Many young workers are guilty of not spending carefully, while some fall into bad habits like gambling.

Anh said though the loans could be small the failure to repay often has serious consequences.

Enforcement practices often cause public disruption, breach of social security and harm to the lives of borrowers, he added.

Besides loan-sharking, the explosion in peer to peer (P2P) lending is also a matter of concern for regulatory authorities.

Pham Chi Quang, deputy head of monetary policy at the central bank, said P2P lending emerged in the last decade and is now widespread in Vietnam and available through intermediaries.

But there is a lack of transparency on profits, lack of or inaccurate information about risks and unrealistically high interest rates to entice lenders, he said.

"In this system, lenders face a great risk of losing money if the borrower does not comply with the agreement or defrauds or the intermediary does not properly comply with the identification and anti-money laundering processes."

Banking industry officials also warned of other risks to participants such as information theft and people using P2P platforms to evade taxes, launder money, raise capital for pyramid schemes, and practice usury.

The SBV is expected to inject a VND5 trillion ($214.57 million) credit package for Agribank to help meet urgent funding needs in compliance with relevant regulations, especially for people in rural areas.