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Vietnam seeks to address grey areas in growing pawn market

HANOI, May 9 (Xinhua) -- Vietnamese regulators seeks to develop a legal framework on lending interest rates, borrowing fees and debt collection activities amid the increasing licensed pawnshops for quick cash, Vietnam News reported on Tuesday.

There were an estimated of 27,000 pawnshops in Vietnam by the end of last year, according to the Ministry of Public Security.

The largest pawn lender F88, which is running a chain of 830 pawnshops across the country, is reported to have an outstanding loan amount of 1.7 trillion dong (72 million U.S. dollars), said the authorities.

Both non-banking financial businesses and consumer lending companies owned by commercial banks offered loans worth 300 trillion dong (13 billion dollars) by the end of June 2022, equivalent to about 11.7 percent of the country's total outstanding consumer loans, according to the BIDV Research and Development Institute.

Total outstanding loans by consumer lending companies in Vietnam as of last September rose 20 percent from the end of the previous year to 145 trillion Vietnamese dong (6.1 billion dollars), equivalent to about 6 percent of consumer loans by the local system of credit institutions and 1.3 percent of total outstanding loans of the economy, local media VnEconomy reported.

Vietnam's pawnshop loan market is similar to that in Thailand, and has large potential for growth, said Vo Tri Thanh, senior economist at the Central Institute for Economic Management and a member of the National Financial and Monetary Policy Advisory.

He cited statistics showing that up to 69 percent of Vietnamese do not have a bank account or have access to banking services. Besides, more than 33.4 million people working in informal jobs are target customers of pawnshops and microfinance service firms.

According to data provider FiinGroup, Vietnam's ratio of consumer loans to gross domestic product (GDP) at 27.2 percent remains lower than that of other markets in the region, such as South Korea, Japan and Singapore where the ratio is over 50 percent.

Amid a fast-growing demand for consumer loans, Vietnam has yet developed a legal framework for the market, experts said.

Under the 2015 Civil Code, the maximum lending rate is set at 20 percent per year, but there are no rules on service fees charged by consumer financial companies such as appraisal fees or mortgage management fees.

Truong Thanh Duc, head of ANVI law firm, said it is advisable to introduce measures to plug loopholes that could allow legal pawnshops to offer loans at interest rates 1.5 times to three times higher than commercial banks.

Le Xuan Dong, managing director of market research and consulting services at FiinGroup, also suggested a need to develop a legal framework for debt collection activities to protect borrowers from illegal debt collection practices.

Experts advised the government promote micro-finance, especially for vulnerable populations, to help them avoid traps by shark loans.