Research structure Chapter 1: The theoretical basis of peer-to-peer lending Chapter 2: Overview of literature and research methodology Chapter 3: The current situation of peer-to-peer le
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Research object and SCOD - Gà SH TH TH TH ng nà 10 5 Research 6000 444
> Research object: peer to peer lending platforms.
Spatial scope: conducting research on peer to peer lending activities in some countries: UK, US, China, Canada and other countries and Vietnam.
In 2005, the first official peer-to-peer lending platform was established in the UK, which triggered the rapid expansion of this practice in the UK and other nations globally.
Chapter 1: The theoretical basis of peer-to-peer lending
Chapter 2: Overview of literature and research methodology
Chapter 3: The current situation of peer-to-peer lending in the world and Vietnam
Chapter 4: Solutions for developing peer-to-peer lending activities in Vietnam.
THE THEORETICAL BASIS OF PEER-TO-PEER LENDING
Definition of peer to peer lemding . - Ác S122 gi ng rhg II
Peer-to-peer (P2P) lending, often referred to as social lending or crowdfunding, is an innovative form of alternative finance that links borrowers directly with individual investors via online platforms This approach eliminates the need for traditional financial institutions, such as banks and credit unions, enabling borrowers to secure loans at potentially lower interest rates Simultaneously, investors have the opportunity to achieve higher returns on their investments compared to conventional savings accounts and investment options.
P2P lending allows borrowers to submit loan requests and share their financial details on a lending platform, where they are matched with investors ready to lend at specified interest rates These platforms usually charge a fee or commission for facilitating the connection between borrowers and investors and for overseeing the loan process.
P2P lending platforms employ credit scoring and risk assessment algorithms to assess borrowers' creditworthiness and predict default risks To further safeguard investors from potential losses, some of these platforms provide loan guarantees or insurance options.
P2P lending offers a viable alternative to conventional lending and investment methods, allowing individuals and businesses to secure funding and investment opportunities that are often inaccessible through traditional financial institutions.
Figure 1.1: General model of p2p lending
The history and growth of peer-to-peer lending - 55-5 + ssscssesserss 12
Peer-to-peer (P2P) lending originated in the early days of the internet, emerging alongside online marketplaces as a novel commerce model Gaining traction in the late 1990s, platforms such as Prosper.com and LendingClub.com were established to facilitate direct connections between individual lenders and borrowers seeking small personal loans.
The P2P lending industry gained significant momentum in the early 2000s, particularly with the launch of Zopa in 2005, the UK's first official P2P lending platform Zopa revolutionized the market by connecting individual investors with borrowers and implementing credit scoring and risk assessment algorithms to promote responsible lending practices.
The P2P lending industry experienced rapid growth in the following years, marked by the emergence of new platforms worldwide Notably, LendingClub was launched in the US in 2006, followed by platforms like Funding Circle, Ratesetter, and Kiva The global financial crisis of 2008 further accelerated the growth of P2P lending, as traditional lenders adopted a more cautious and risk-averse approach, leaving many borrowers without access to credit.
As the P2P lending industry grew, it also faced challenges and regulatory scrutiny Some platforms were accused of misleading investors, while others faced lawsuits over their
12 lending practices In response, regulators around the world introduced rules and guidelines to ensure transparency, fair treatment of customers, and adequate risk management.
Despite facing challenges, the P2P lending industry has experienced significant growth and innovation, introducing new models like peer-to-peer property lending, invoice financing, and equity crowdfunding By the end of 2020, the global P2P lending market had surpassed $150 billion in loans, with ongoing platform developments and innovations fueling its expansion.
Characteristics of peer to peer lending .- - 5 c3 1S v39 re re 13
Here are some key characteristics of P2P lending:
Direct connections between borrowers and investors: P2P lending platforms facilitate direct connections between individual borrowers and investors without the need for traditional financial intermediaries such as banks.
Online platforms: P2P lending is primarily conducted through online platforms that use technology to match borrowers with investors based on their preferences, creditworthiness, and investment goals.
P2P lending provides borrowers with the opportunity to secure loans at reduced interest rates, primarily because it eliminates the overhead costs linked to traditional banking intermediaries.
Diversification opportunities for investors: P2P lending provides individual investors with opportunities to diversify their investment portfolios by lending money to multiple borrowers across different credit ratings and risk levels.
Credit risk management: P2P lending platforms often use credit scoring and risk assessment algorithms to evaluate borrowers’ creditworthiness and minimize the risk of default for investors.
P2P lending platforms prioritize transparency and accessibility by providing clear and comprehensible information regarding loan terms, fees, and associated risks This approach enables both borrowers and investors to engage confidently in the lending process.
Potential for high returns: P2P lending offers the potential for investors to earn higher returns on their investments compared to traditional savings accounts or other investment vehicles.
P2P lending offers a viable alternative to conventional lending and investment avenues, allowing individuals and businesses to secure funding and investment opportunities that are often inaccessible through traditional financial institutions.
Types of peer to peer lending .- - - s5 + kg HT TH ngàn nrệt 14 1.5 Advantages and disadvantages of peer to peer lending - -ô++- 15
P2P lending platforms have evolved from primarily serving personal and small business loans to encompassing a broader spectrum of loan markets, including trade credit and mortgages Initially centered on individual lenders and borrowers, the industry now sees many platforms attracting significant investment from institutional investors, reflecting a notable shift in the funding landscape.
"marketplace lending" is now used interchangeably with P2P lending to describe the industry.
Consumer P2P lending: This is the most well-known type of P2P lending, which involves individuals borrowing money for personal use such as debt consolidation, home improvements, or other expenses.
Small business P2P lending: This type of P2P lending involves small businesses seeking funding for a range of purposes such as working capital, inventory purchase, or equipment upgrades.
Real estate P2P lending involves investors providing funds to real estate developers for project financing, allowing them to earn interest on their investments while contributing to property development and investment opportunities.
Invoice financing is a form of peer-to-peer (P2P) lending where businesses sell their outstanding invoices to investors This allows companies to receive immediate cash flow, as investors provide the necessary funds upfront When the invoices reach their due date, the investors collect the payments directly from the business's customers.
Student loan P2P lending enables students to secure funding for their college tuition through peer-to-peer platforms, where investors can earn returns by lending money directly to these students.
Social impact P2P lending focuses on providing financial support to borrowers engaged in social or environmental initiatives This includes offering microfinance to entrepreneurs in developing countries and funding projects that foster sustainability By prioritizing these impactful ventures, social impact P2P lending not only generates financial returns but also contributes to positive change in communities and the environment.
P2P lending encompasses various types, each with distinct features and risks, yet they all fundamentally aim to connect borrowers directly with investors, offering a more efficient alternative to traditional financial intermediaries.
1.5 Advantages and disadvantages of peer-to-peer lending
1.5.1 Advantages of peer-to-peer lending
P2P lending provides a significant benefit by offering lower interest rates compared to traditional lenders This advantage arises from the reduced overhead costs of P2P platforms, enabling them to transfer savings directly to borrowers.
P2P lending platforms simplify the loan process for borrowers, allowing them to apply online and often receive funds within days This rapid access to financing is particularly advantageous for those facing emergencies or unexpected expenses.
P2P lending allows lenders to diversify their investment portfolio by spreading their money across multiple loans This can help reduce risk and increase returns.
P2P lending platforms typically provide transparent information about the loans, borrowers, and the risk involved in investing This can help lenders make informed decisions about where to invest their money.
1.5.2 Disadvantages of peer-to-peer lending
P2P lending entails providing funds to individuals who present a higher risk of default, which poses a potential threat to lenders as they may lose their investment if the borrower fails to repay the loan.
P2P lending, a burgeoning industry, operates with less regulatory oversight compared to traditional lending institutions This lack of regulation poses potential risks for both lenders and borrowers, as it may result in diminished protections against fraud and other financial hazards.
P2P lending investments often lack liquidity, making it difficult for lenders to access their funds in times of need This can pose challenges for those facing unexpected expenses or requiring withdrawals for other purposes.
P2P lending platforms typically impose stringent eligibility requirements for borrowers, which can limit access to funds for some individuals This strict criteria may disadvantage those who do not qualify, making it challenging for certain borrowers to obtain credit through P2P lending.
P2P lending typically features unsecured loans, lacking collateral to secure the borrowed amount This absence of security heightens the risk of borrower default, potentially leading to financial losses for lenders if repayment is not fulfilled.
P2P lending platforms carry inherent platform risks, including the potential for failure or fraudulent activities Such risks can lead to significant financial losses for both borrowers and lenders, who may find it difficult to recover their invested funds.
The process of peer to peer lending - - 5 2s s19 ng HH r rhg 16 1.7 Factors affecting peer to peer lending - 5c St SH grg 19 1.7.1 The Objective factOr ad
Source: Ameet Roy (2015) This is the simplest form of P2P model, where the lenders directly interact with the borrowers and they themselves fix their counter parties.
The process of client-segregated accounts model is briefed below:
Borrowers submit loan requests on the P2P platform.
These requests are posted on the platform for lenders to review and respond to.
After evaluating a potential borrower's creditworthiness and other pertinent factors, a lender disburses funds to the borrower These funds are allocated to an Investor Sub-Account, which is managed by the P2P company, with individual sub-accounts established for each client, encompassing both lenders and borrowers.
The funds are then transferred to the borrower's Investor Sub-Account, from which they can withdraw the money at their convenience.
The P2P company charges an administration fee to both clients once the funds have been transferred to the borrower.
When it's time for repayment (both principal and interest), the borrower deposits the amount into the same Investor Sub-Account.
The funds are then transferred to the lender's account, where they can be withdrawn or used to fund further transactions on the P2P platform.
The P2P model ensures high transparency, allowing both lenders and borrowers to clearly see how funds are allocated and to whom payments are owed for settling debts Lenders are protected from losing their investments in case of the P2P company's bankruptcy due to a direct agreement with borrowers Additionally, the P2P company is shielded from claims by lenders if a borrower defaults, as lenders have the autonomy to decide whether to extend loans to specific borrowers.
3, Loan Promissory Notes 9 Administration Fees
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This is a much more complex form of P2P business, which involves a commercial bank apart from the lender or the borrower The process of the notary model is briefed below:
1 The borrower first put in their loan request on the P2P site.
2 The P2P company then forward the loan request to a commercial bank associated with the company, the bank then sanction the loan and issue a loan promissory note to the company.
3 The company then forward the promissory note to the borrower.
4 The company then charges its admonition fees form the borrower.
5 The borrower then submits the promissory note to the issuing bank.
6 The bank in return pays the promised loan amount to the borrower.
7 Meanwhile the company lists the loan request on its website, for the lenders to view them and advance funds to finance the loan request.
8 Once there is sufficient funds with the company from the lenders, the company immediately buys the loan receivables form the commercial bank And issues pass through certificates (ptc) to lenders in proportion to their fund in a single loan.
9 At this time the company charges its administration fees from the lenders.
10 At time of repayment of the loans, the borrowers pay the company to pay off their debts.
11 Which are passed to the lender’s accounts held with the company for funding further loan transaction or withdrawal by the lenders.
The P2P lending model offers significant advantages for borrowers by eliminating the lengthy approval process typically associated with traditional lenders Instead, companies like Lending Club and Zopa streamline the loan process by swiftly originating loans from banks and transforming them into peer-to-peer loans, enhancing accessibility and efficiency for those seeking financial assistance.
1.7 Factors affecting peer to peer lending
Legal factors significantly impact P2P lending, shaping a sustainable environment for financial technology firms in this sector A robust and modern legal framework that aligns with current peer-to-peer lending trends is essential for fostering an optimal operating environment In contrast, an inadequate legal system that fails to support a country's economic development can lead to stagnation and various detrimental effects.
A robust legal framework is essential for a thriving peer-to-peer lending industry, clearly defining the roles, responsibilities, and advantages for lending companies These companies need skilled personnel, a comprehensive database for customer assessment, and a commitment to delivering accurate, transparent information and advice to both borrowers and lenders Additionally, regulatory agencies should enhance communication and offer guidance regarding loan amounts, lending criteria, and responsible lending practices.
Borrowers should be aware of the potential risks associated with loans, including fees, interest rates, and capital usage challenges By providing education to both borrowers and lenders about these risks and limitations, it becomes possible to effectively mitigate them.
Economic, political and social environment:
The political and social environment significantly influences investment and borrowing activities, shaped by various political, cultural, and social factors Countries with stable political climates, robust security, and developed economies create favorable conditions for economic operations, enabling businesses to attract capital and yield returns This environment fosters increased production activity and expands market opportunities, subsequently boosting the demand for capital and driving the growth of peer-to-peer lending.
The international political and social landscape plays a crucial role in shaping investment and loan activities As global economic integration deepens, countries become more interdependent, influencing one another's economies To capitalize on market expansion opportunities and strengthen international partnerships, nations must stay attuned to economic development trends Consequently, a country's economic openness is significantly affected by global economic fluctuations, which in turn directly impact its domestic economy, production, and business activities, ultimately influencing peer-to-peer lending dynamics.
Customers' individual factors, including income, culture, qualifications, and ethics, significantly influence peer-to-peer lending activities Notably, a borrower's income plays a crucial role in determining their loan necessity, as it directly correlates with their capacity to meet monthly repayment obligations.
Loan requirements differ by region, with urban areas experiencing higher demand for financing due to business and consumer needs Conversely, remote locations with limited economic activity show a lower demand for loans, leading to less developed peer-to-peer lending markets.
Ethical considerations and borrower personality significantly influence a borrower's debt repayment capability, which in turn affects an investor's potential to recover their funds Consequently, it is essential to factor in these elements when evaluating the risks associated with peer-to-peer lending.
Research indicates that demographic factors such as gender, age, and race significantly affect lenders' willingness to provide loans Notably, a study by Pope & Sydnor (2008) reveals that borrowers perceived as 35 years younger have a 40-to-90-point higher likelihood of securing funding compared to those aged 35-60 Additionally, Ding et al (2010) highlight that in China, the income levels of lenders may influence their lending capacity.
Barasinska (2009) investigates how the gender of lenders influences loan profitability and risk The study reveals that female lenders exhibit less risk aversion compared to their male counterparts, with a greater likelihood of financing loans when interest rates are lower and borrower credit ratings are weaker This trend may stem from women's altruistic motivations, leading them to offer loans at reduced interest rates Additionally, research in China by Ding et al (2010) indicates that higher-income lenders are more inclined to provide loans.
Lin's (2009) research on Prosper.com data revealed that borrowing requests with lower credit ratings are less likely to receive funding, have a higher default risk, and incur higher interest rates Furthermore, Lin et al (2012) identified a curvilinear relationship between bank card usage and lending outcomes, where low to medium usage indicates creditworthiness, but excessive usage results in reduced funding likelihood and increased interest rates due to heightened risk Additionally, Iyer et al (2009) found that factors such as a borrower's default rate, debt-to-income ratio, and the number of loan requests made in the past six months significantly negatively influence lenders' decision-making.
To achieve long-term growth, a P2P firm must establish a specific business strategy that keeps up with economic trends.
RESEARCH METHODLOGY G19 1S ng ng iet 23
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The thesis employs a method that involves applying induction, interpretation, and analysis to move from broader concepts to more focused issues.
In order to accomplish the research objectives, this study employs a combination of research methods including: e Document collection method: Secondary data from various sources such as Science
This article examines the concept, scale, services, potential risks, and necessary management mechanisms of peer-to-peer lending in Vietnam through the analysis of direct journals, articles, theses, and dissertations Utilizing an accounting method for data collection, secondary data from reports and surveys on peer-to-peer lending activities both in Vietnam and globally are gathered and assessed to understand the current landscape and derive applicable lessons for Vietnam Additionally, various tools such as tables, graphs, and diagrams are used to process and analyze the collected information, evaluating the scale, nature, and trends of these lending activities.
The author reviewed peer-reviewed studies on online peer-to-peer (P2P) lending, published between 2005 and 2021, utilizing reputable sources such as Science Direct and SSRN This research involved analyzing article summaries containing key phrases like "peer to peer lending" and "P2P lending."
25 on the gathered information, data, and results, the study synthesizes international experiences and proposes regulations for the management of capital mobilization and peer- to-peer lending activity in Vietnam.
The author proposes a research topic examining the international experience of peer-to-peer lending and its applicability in Vietnam, combining theoretical insights with practical considerations This study includes a comprehensive overview of relevant theories and employs suitable research methodologies Secondary data has been gathered from diverse sources, such as journals, organizations, and individuals The findings from this research have been meticulously analyzed and evaluated.
Step 1: Determined the topic, object and research objectives
Step 2: Reviewed literature and conducted comprehensive research
Step 3: The theoretical basis of peer-to-peer lending.
Step 5: Collect and analyzed data
Step 6: Proposed solutions and recommendations
Chapter 2 reviews a range of academic research papers, articles, reports, and dissertations focused on financial technology and peer-to-peer lending, both globally and within Vietnam This comprehensive analysis allows the author to contribute original insights in both theoretical and practical dimensions Furthermore, the chapter outlines the research methodology utilized, along with the data collection and processing techniques implemented.
3.1 Peer to peer lending in Europe
Since the 2008 financial crisis and the ensuing recession in Western economies, alternative financial channels have gained significant traction Mainstream banks have struggled to extend credit, especially to startups and SMEs, which has fueled a wave of financial innovation Consequently, this environment has fostered the rapid growth of peer-to-peer (P2P) lending activities.
Figure 3.1: P2P consumer and business lending transaction value in Europe
Peer-to-peer consumer and business lending transaction value in Europe
(excluding the UK) from 2014 to 2020 (in million U.S dollars)
=@ Peer-to-peer consumer lending =@ Peer-to-peer business lending
The European P2P consumer lending market experienced significant growth, expanding from €346 million in 2014 to €1.5 billion in 2017, which reflects a remarkable compound annual growth rate (CAGR) of 70.1% during this three-year span.
Following 2017, the European P2P consumer lending market experienced a slowdown, with a valuation of €2.3 billion in 2018 and a growth rate of 26.7% In 2019, the market continued to expand, reaching €3.8 billion with a 9.4% year-over-year increase However, the COVID-19 pandemic led to a decline in 2020, resulting in a 13.8% drop in transaction volumes compared to the previous year, as reported by Statista.
The European P2P consumer lending market has witnessed substantial growth since its inception, despite a recent slowdown in growth rates The UK, France, and Germany remain the largest markets by transaction volume, while countries like Spain, Italy, and the Netherlands have also experienced notable growth in recent years.
The P2P business lending market in Europe has seen significant growth in recent years, driven by increasing demand for alternative financing options and advancements in financial technology.
In 2019, the European online alternative finance market, as reported by the Cambridge Centre for Alternative Finance, experienced significant growth of 36%, culminating in a total transaction volume of €21.8 billion Notably, P2P business lending emerged as the second-largest segment, representing 21% of the overall transaction volume within this expanding market.
In 2019, the P2P business lending market in Europe experienced remarkable growth, expanding by 39% and achieving a total transaction volume of €4.6 billion This growth marks a significant rise from the previous year's valuation of €3.3 billion, highlighting the increasing popularity and effectiveness of peer-to-peer lending in the region.
The COVID-19 pandemic has profoundly affected the global economy, leading traditional lenders to tighten their lending standards This shift has opened new opportunities for the P2P lending industry, particularly in Europe, where the P2P business lending market is anticipated to grow in the coming years As a result, businesses can access alternative financing sources, enhancing their financial resilience in challenging times.
It's worth noting that the P2P lending industry is subject to regulatory changes and fluctuations in investor sentiment, which can affect transaction values and overall market growth.
Figure 3.2: European Online Alternative Finance Market Volumes 2013-2020, USD
Source: The global alternative finance benchmarking study report Between 2013 and 2019, the volumes of the online alternative finance market in Europe
The market volume, which includes the UK, rose significantly from $1.5 billion to $23.2 billion, but saw its first decline since 2013, dropping to $22.6 billion in 2020 Despite this decrease, the 2020 volume remained above the $18.1 billion recorded in 2018, showcasing resilience amid challenges posed by the COVID-19 pandemic and Brexit.
Figure 3.3: Total UK Alternative Finance Market Size 2015-2020, USD
Source: The global alternative finance benchmarking study report
Excluding the UK, Europe experienced a notable decline in market volumes from 2019 to 2020, with a decrease of $2.3 billion In contrast, when including the UK, the overall reduction in European market volumes was only $0.6 billion.
The UK has been a pioneer in the P2P lending sector, launching Zopa, the first online platform, in 2005 Known for its history of financial innovation, the UK has introduced various financial products, including overdrafts and credit default swaps The effectiveness of P2P lending in the UK is driven by significant investments in technology, a skilled team of financial and IT experts, and robust risk management practices, attracting numerous participants to this evolving market.
The UK Alternative Finance industry report reveals that global outstanding loans through P2P channels skyrocketed from approximately 1.2 billion USD in 2012 to a remarkable 64 billion USD in 2015, driven by attractive returns exceeding 10% for savers In 2013, regions such as London, South East, South West, and East England saw more investments than borrowings, highlighting a trend in the southern part of England Additionally, loan amounts per person varied across the UK, ranging from £1.40 to £11.80, with overall loans per person between £3.90 and £7.30.