Tiểu luận môn lý thuyết tài chính tiền tệ peer to peer lending in the world and vietnam

ĐẠI HỌC QUỐC GIA THÀNH PHỐ HỒ CHÍ MINH TRƯỜNG ĐẠI HỌC KINH TẾ LUẬT KHOA QUẢN TRỊ KINH DOANH BÀI TIỂU LUẬN MÔN LÝ THUYẾT TÀI CHÍNH TIỀN TỆ PEER TO PEER LENDING IN THE WORLD AND VIETNAM Lớp học phần 222[.]

ĐẠI HỌC QUỐC GIA THÀNH PHỐ HỒ CHÍ MINH TRƯỜNG ĐẠI HỌC KINH

TẾ - LUẬT KHOA QUẢN TRỊ KINH DOANH

BÀI TIỂU LUẬN MÔN

LÝ THUYẾT TÀI CHÍNH TIỀN TỆ

PEER-TO-PEER LENDING IN THE

WORLD AND VIETNAM

TABLE OF CONTENTS

Introduction 3

CHAPTER 1: OVERVIEW OF THE RESEARCH SITUATION AND THEORETICAL BASIS OF PEER-TO-PEER LENDING 3

I Overview of research situation 3

II Theoretical basis of Peer-to-peer lending 3

1 Definition 3

2 Characteristics and Functions 4

3 Models 5

4 Process 7

III Advantages and disadvantages of peer-to-peer lending 9

1 Advantages 9

2 Disadvantages 10

IV Evaluation of peer-to-peer lending with other types of loan 11

V Advantages and Disadvantages of Traditional Bank Loans and Credit Cards: 12

CHAPTER 2: OVERVIEW OF PEER-TO-PEER LENDING IN SEVERAL COUNTRIES AND VIETNAM 13

I Peer-to-Peer lending in several countries 13

1 American (US) 13

2 United Kingdom (UK) 13

3 China 14

4 Vietnam is in the early stages of its P2P development 16

II Peer-to-Peer lending in Vietnam 16

1 General context 16

2 Characteristics of P2P financial lending in Vietnam 17

CHAPTER 3: CHALLENGES AND OPPORTUNITIES OF P2P LENDING’S DEVELOPMENT IN VIETNAM 18

I Challenges 18

II Opportunities 19

III Some recommendations for future development of P2P lending in Vietnam 20

Conclusion 21

Peer-to-peer (P2P) lending is a rapidly growing sector in the financial industry, which allowspeople to lend and borrow money directly from each other without the involvement oftraditional financial institutions such as banks or credit unions This form of lending hasdisrupted the traditional lending industry by providing borrowers with a faster and moreconvenient alternative to traditional banks and credit card companies P2P lending platformsare based on a technology-driven approach that allows borrowers and investors to connectdirectly with each other, cutting out the middlemen and lowering the cost of borrowing forconsumers This report examines the evolution and current state of P2P lending in differentcountries, as well as its advantages and disadvantages compared to traditional lending optionssuch as bank loans and credit cards The report also highlights the characteristics of P2Plending and provides a detailed analysis of the risks and benefits associated with investing inP2P loans By providing an in-depth analysis of P2P lending, this report aims to helpconsumers make informed decisions about their borrowing and investment options in thechanging landscape of the financial industry

CHAPTER 1: OVERVIEW OF THE RESEARCH SITUATION AND THEORETICAL BASIS OF PEER-TO-PEER LENDING

I Overview of research situation

A wide variety of potential borrowers can now choose from a variety of alternative funding options that have recently emerged on the financial market P2P lending is one type of this new stream (P2P) P2P lending is a brand-new platform for financial exchanges that

connects lenders and borrowers without the use of traditional middlemen This new digital intermediary, which was developed using the concepts of microcredit (Yum, Lee, and Chae, 2012), has expanded quickly in recent years Despite the fact that this business model is still quite new, numerous platforms have popped up all over the world and the market has

experienced rapid growth

II Theoretical basis of Peer-to-peer lending

1 Definition

Peer-to-peer (P2P) lending, according to Jukia Kagan (2023), is a type of financialtechnology that enables individuals to lend or borrow money from one another without goingthrough a bank P2P lending platforms link investors and borrowers directly The websitedetermines the fees and conditions and permits the transactions

P2P lending eliminates a lot of the paperwork, credit score evaluation, and general troublecompared to traditional loans conducted through banks or credit unions In exchange for thatease, borrowers frequently pay greater fees

2 Characteristics and Functions Characteristics

Since its introduction in the UK in 2005, P2P lending has expanded in several nations to-peer lending has typical characteristics that set it apart from conventional financialinvestment channels at this moment

Peer-It can occasionally be done to make money Some factors contribute to this First of all, more andmore people are using the internet The International Telecommunication Union (ITU) estimatesthat 5.3 billion people, or over 66% of the world's population, are currently utilizing the internet

As a result, the P2P lending platform can reach more clients and companies

Second, excellent return on investment For example, in 2016 roughly 10% of online lendingrates offered higher returns than the 1.5% of the basic savings deposit rate for a year Third,compared to other forms of investing, investors can invest in loans with a modest amount ofcapital, diversify their portfolios, and get larger returns Due to this, P2P lending isoccasionally carried out only for financial gain, despite the risks it may pose to bothborrowers and lenders.

There is no required prior connection or mutual bond between the lender and the borrower.Lending and disbursement procedures and processes are kept to a minimum in peer-to-peerlending Avoid going through a difficult review process and stringent specifications whilesigning administrative procedures

Thirdly, transactions happen online based on a direct relationship between lenders andborrowers, without the need of financial intermediaries The online transaction platform useselectronic and digital tables to record and maintain all borrowing and repayment actions(principal and interest) between borrowers and lenders

Fourthly, unless the P2P platform allows it, lenders can frequently pick and choose whichborrowers to fund On some P2P lending platforms, investors have the freedom to pick andchoose which partners they want to lend money to Information about borrowers may be used

by direct lenders (including before lending) Lenders have the ability to keep an eye onborrowers' plans for using loans

Furthermore, government insurance is typically not provided for loans, which can either beunsecured or secured The government does not offer the lender insurance or any other form

of protection in the event of the borrower's bankruptcy or insolvency As a result, beforeusing P2P lending platforms, you should check out various websites that offer information ondefault rates, like Financial Times and Market Watch

Last but not least, loans are securities that can be transferred to another party for profit ordebt recovery

Functions

The first function of P2P lending is providing access to credit Access to credit is madepossible via P2P lending, which gives customers a source of credit they might not have beenable to access through conventional financial institutions For those who might struggle to getcredit owing to a lack of credit history or low credit scores, this can be very helpful

Secondly, P2P lending increases the variety of available investment opportunities: P2Plending gives investors access to a new asset class that might yield higher returns thanconventional investments By purchasing a variety of loans, investors can spread their riskand perhaps even increase their returns while diversifying their portfolios.

Lowering costs is another function of P2P lending P2P lending platforms frequently havelower overhead expenses than traditional banks, allowing them to provide borrowers withcheaper interest rates and investors with larger returns

Streamlining the lending process is also a crucial function The lending process is oftenstreamlined on P2P lending platforms using technology, making it quicker and more effectivefor investors and borrowers

3 Models

There are two primary categories of P2P lending models: direct lending models and indirectlending models

Direct lending models

First off, direct lending models like ZOPA (UK) and Funding Circle (UK) arestraightforward forms of financing, much like regular internet buying and selling Theborrower submits a loan request using the appropriate form on the P2P Lending platform, andthe lender chooses the loan that they believe is possible to finance (Figure 1)

Figure 1 Direct lending model

The benefit of this model is that P2P Lending firms do not have to assume the risk of a loanbecause the lender makes the lending decision, even though it may censor and examine theloan application Before it is made public on the general portal, the loan should bedetermined Direct capital transfers will take place between stakeholders, and a P2P lending

company will take part in the loan process to facilitate connections, assist with riskassessment, and earn service fees.

Indirect lending models

Secondly, commercial banks like Prosper (USA) and Peerform indirectly promote the P2PLending concept (USA) As a result, lending takes place on the P2P Lending platform, andcommercial banks will clear, possibly even advance cash, and purchase loan insurance.Customers may have insurance or use a P2P company's reserve fund in some situations whenthey don't make timely payments Lending This concept states that P2P Lending businesseswill send a borrower's loan request to a partner commercial bank If the loan proposal isauthorized, the bank will provide a debt receipt to the P2P Lending company so thatconsumers can get their disbursement at the commercial bank with this debt receipt Afterthat, the P2P Lending company will use the lender's funds to pay the bank for this obligationand issue the lender with a loan certificate (Figure 2)

Figure 2 Indirect lending model

The borrower gains indirect benefits from the P2P Lending model because it is more liquid,allows for extra guarantees like insurance and reserve fund loans, and eliminates the need towait for the lender to approve As a result, when it comes to practical implementation, theindirect model is frequently preferred over the direct approach

4 Process

The main process of lending mechanisms are almost the same across different online peer lending platforms Potential users, including borrowers and lenders, first have to registerwith personal information, such as ID card number, bank account, personal information in athird-party credit institution, etc Based on this information, credit rating of users arecalculated The lending procedure is initiated by borrowers Borrowers indicate the amountthey want to borrow and the maximum rate they are willing to offer, and to provide someother optional information, such as loan purpose, repayment period, listing auction format,etc Lenders provide a certain amount of money and choose a lending pattern Currently,there are two patterns One pattern is the lender chooses a borrower on the platform, andborrows the money to him/her Another pattern is the lender puts money in a pool of funds.The P2P lending company dispatches the money to different borrowers In this pattern, alender doesn’t know the borrower’s information This model is shown in Figure 3

peer-to-Figure 3 Two operational patterns of P2P Lending

When a borrower’s requirement is fully funded, the related transactions are sent to thelending intermediary for further review before becoming a loan In this stage, some additionaldocuments may be asked for to demonstrate their credibility Once a listing is materializedinto a loan, money will be transferred from the accounts of listing lenders to the accounts oflisting borrowers The environment of the P2P lending system is shown in Figure 4

Fi gure 4 P2P Lending Procedure

To detail investigate each stage of the procedure, we divide the whole process into severalsteps The steps below describe the general P2P lending process:

Figure 5 Basic P2P Lending Process

First step, potential borrower interested in obtaining a loan completes an online application

on the peer-to-peer lending platform Second step, the platform assesses the application anddetermines the risk and credit rating of the applicant Thirdly, the applicant is assigned withthe appropriate interest rate When the application is approved, the applicant receives theavailable options from the investors based on his credit rating and assigned interest rates Theapplicant can evaluate the suggested options and choose one of them The applicant isresponsible for paying periodic (usually monthly) interest payments and repaying theprincipal amount at maturity

III Advantages and disadvantages of peer-to-peer lending

Peer-to-peer (P2P) lending is a well-liked alternative financing method that links investorsand borrowers without the need of conventional financial institutions While P2P lending hasmany advantages for both borrowers and lenders, there are certain concerns as well

1 Advantages

There are some benefits of P2P lending for both borrowers and lenders First of all, P2Plending offers borrowers who might not be able to get a loan through these channels analternative to conventional banks and financial organizations P2P lending services frequentlyhave more flexible credit lending requirements and may take into account elements other thanmerely credit scores For example, Estateguru takes pride in bridging the financing gap left

by banks unwilling to support smaller projects and partnering with some of Europe's largestreal-estate developers

According to Hidayat et al (2020), the second benefit is higher returns for investors, whencompared to traditional investment options such as savings accounts or bonds, P2P lendingallows investors to earn higher returns Because of the lower overhead costs associated withoperating an online platform, P2P lending platforms frequently offer higher interest rates toinvestors For instance, Estateguru provides users with a yearly return of slightly over 10percent on average

Havrychyk and Verdier (2018) showed that P2P lending allows investors to diversify theirinvestment portfolio by investing in a variety of loans from various borrowers andbusinesses Moreover, P2P lending systems provide a quick and easy option for investors toinvest in loans as well as borrowers to get loans Online completion of the procedureeliminates the need for in-person meetings or extensive documentation Estateguru, forinstance, offers finance without needless paperwork, red tape, or waiting periods Incomparison to conventional banking institutions, Estateguru can help people obtain aproperty loan up to five times faster

2 Disadvantages

In addition to the benefits that peer-to-peer lending provides, there are several potentialhazards for both borrowers and lenders One of the issues with online P2P lending is theasymmetry of information between the borrower and the lender Yum et al (2012) claimedthat because the information asymmetry between lenders and borrowers in P2P lending is

more pronounced than in other financial markets, lenders may misjudge borrowers'creditworthiness Due to dishonest borrowers' fraudulent activity, lenders are moresusceptible to being victims of fraud Moreover, by selecting borrowers based on unsuitablecriteria, lenders run the danger of doing so (Verstein, 2011) This risk is larger in P2P lendingthan in traditional lending because borrowers may not have gone through the same stringentcredit checks and underwriting processes that banks demand.

Moreover, the mismatch of maturity terms and underlying assets is a major risk for P2Plending platforms, as claim transfers often involve multiple creditors and debtors If anappropriate borrower is not available, the platform may face liquidity pressures, leading to abank run (Li et al., 2016)

Another disadvantage is operational risk, prioritization is a problem for regulators since theycannot immediately handle all regulatory issues with P2P lending Operational hazards andclient protection are given the appropriate urgent priority under regulatory monitoring Forinstance, the UK's Financial Conduct Authority (FCA) has paid careful attention to thesegregation of customer funds Yet, there are several more operational problems We havealready covered the handling of arrears and default as well as the orderly platform shutdown(UK authorities now require all P2P platforms to have strategies for orderly resolution).Another is adequate disclosure of hazards to regular investors (Milne & Parboteeah, 2016).Finally, P2P lending is vulnerable to regulatory hazards because the industry's laws arecontinually changing Regulation changes or new rules may have an influence on theprofitability of P2P lending platforms and the rewards for investors

P2P lending has several advantages for both investors and borrowers, including easier access

to loans, greater returns, portfolio diversification, and speed and convenience Yet, it alsoentails dangers including regulatory risk, operational risk, liquidity risk, and default risk.Hence, before making an investment or taking out a loan through these platforms, investorsand borrowers should carefully weigh the advantages and disadvantages of P2P lending Toreduce their risks, investors should carefully consider the loans they invest in and diversifytheir investment portfolio

IV Evaluation of peer-to-peer lending with other types of loan

In this part, the report takes into consideration the advantages and disadvantages of P2Plending over credit cards and personal loans from traditional banks