The flourishing fintech sector in Vietnam: A look at the State Bank of Vietnam's dDraft Decree on Peer-to-Peer Lending

Vietnam's booming Fintech sector is driven by tech startups and non-bank institutions. These companies develop innovative solutions for banks and other financial institutions, including Peer-to-Peer Lending, and creating a thriving ecosystem for finance and technology. This article explores the recently released Draft Decree (sought for public opinions since 4th March 2024) by the State Bank of Vietnam ("SBV") proposing a controlled testing mechanism in the banking sector ("Draft Decree"). The Draft Decree places particular emphasis on Peer-to-peer lending ("P2P lending"), a rapidly growing yet potentially risky financial technology.

The Draft Decree stems from Deputy Prime Minister Le Minh Khai's directive (31 August 2021) emphasizing the need for pilot mechanisms in P2P lending activities. It aligns with Vietnam's national digital transformation program, which prioritizes innovation in banking and finance. The program aims to expand financial inclusion by leveraging technological advancements like mobile payments and P2P lending to reach remote areas underserved by traditional banks.

Prior to the Draft Decree, six Fintech solutions were proposed for testing under a pilot program¹. However, the Draft Decree, considering implementation resources and legal reviews, focuses on three solutions: Credit Scoring, Open Application Programming Interface (Open API), and especially, P2P lending. P2P lending is a Vietnamese Dong lending solution on a digital platform designed and implemented based on financial technology applications provided by peer-to-peer lending companies participating in the Testing Mechanism to connect borrowers with lenders. These platforms are offered by Fintech companies and utilize credit scoring to assess risk. Borrowers and lenders, both individuals and organizations, shall have a contractual relationship and directly use the solution.

The Draft Decree outlines distinct criteria for participation in the testing mechanism. Companies seeking to test Credit Scoring or Open API solutions face different requirements compared to those offering P2P lending services. P2P lending companies shall meet the several conditions such as legal and operational standing, management expertise and solution eligibility. The company must be a legally established entity operating in Vietnam, financially sound, and not involved in prohibited activities like pawnshops. The legal representative and General Director should have a clean criminal record, university degrees or above in relevant fields (economics, business administration, law, information technology), and have at least 02 year experience in finance and banking. He/she cannot hold other management positions in the financial sector. Furthermore, the P2P lending solution must meet specific criteria such as bringing benefits and added value to service users in Vietnam, being risk-managed and thoroughly tested².

P2P lending companies interested in participating in the testing mechanism must submit a comprehensive registration dossier to the SBV for review and approval. The dossier includes documents verifying the company's legal status, management team qualifications, and a detailed project description of the P2P lending solution with features like mock-up, test plan, business processes, risk management, and customer verification. The project description of the P2P lending solution also outlines information technology system, monitoring and control system to reflect arising revenue and costs, and account management for a smooth operation³.

With this Draft Decree, Vietnam is taking a cautious yet progressive step towards harnessing the potential of Fintech while mitigating risks, paving the way for a secure and inclusive financial future.

1. (1) Providing credit on technology platforms; (2) Credit scoring; (3) Sharing data via open application programming interface (Open API); (4) Peer-to-peer lending (P2P Lending); (5) Applying Blockchain technology in banking activities and (6) Applying other technologies in supporting banking operations, innovative business cooperation models in accordance with the goals of Testing mechanism.
2. Article 9.1, Draft Decree.
3. Appendix 4, Draft Decree.