Empowering Financial Inclusion in Vietnam

The role of next-gen credit models

In the bustling streets of Hanoi, where vendors hawk their goods and entrepreneurs dream of scaling their businesses, lies a tale of untapped potential. Vietnam, with its vibrant economy and dynamic population, holds promise for growth and prosperity. Yet, for many, accessing financial services remains a challenge, hindered by traditional credit risk models that fail to capture the full spectrum of an individual’s financial potential. For those pursuing financial inclusion in Vietnam, it is evident that embracing next-gen credit risk models, fortified by alternative data such as open banking and behavioural analytics, is more than just a technological advancement. For millions, fair access to capital means access to opportunity.

According to the World Bank, only 56% of Vietnamese adults have a formal bank account, significantly lower than SE Asia average of 81%[i]. This disparity underscores the urgent need to bridge the gap and extend financial services to underserved segments of society. One of the major hurdles lies in conventional credit assessment methods, which rely heavily on historical financial data and often overlook individuals with limited credit histories or unconventional income sources.

Fair access to capital is not just a matter of economic empowerment; it is a catalyst for inclusive growth and societal progress. Small and medium-sized enterprises (SMEs), which form the backbone of Vietnam’s economy, account for 88 to 99% of all enterprises as well as 70% of employment[ii]. However, despite their significant role, many SMEs struggle to secure financing from traditional lenders due to insufficient collateral or inadequate credit profiles. Unlocking the potential of these enterprises through tailored financial solutions is paramount for driving sustainable development and job creation.

This is where next-gen credit risk models emerge as a game-changer. By leveraging alternative data sources such as open banking, and behavioural analytics, which analyse non-traditional indicators like character assessment and device metadata, these models offer a more holistic view of an individual’s creditworthiness. For instance, a small business owner who lacks formal credit history but demonstrates consistent revenue streams through digital transactions can now be accurately assessed for credit.

The implications are profound. By expanding the scope of credit assessment beyond traditional metrics, lenders can tap into a vast pool of creditworthy individuals and businesses that were previously overlooked. This not only reduces the risk for lenders but also empowers borrowers with the financial resources needed to pursue their aspirations. Imagine a young entrepreneur in Ho Chi Minh City, armed with a viable business plan and a track record of online sales, securing the funding needed to expand operations and create employment opportunities in their community.

The Vietnamese Government have stated that digital transformation and boosting fintech investment in the country is a strategic priority for broadening financial services access for consumers and small and medium-sized enterprises (SMEs). In 2023 the Government announced a Technical Assistance programme to foster the development of financial technologies. One of their stated goals is to identify solutions, including alternative credit scoring methods and the introduction of digital lending, to address challenges.

FinTech’s such as Begini, create and collect alternative data to offer modern inclusive credit scores and insights which can assess 100% of applicants, regardless of financial background. By creating and analysing data around behavioural traits associated with credit risk, it is possible make credit decisions fairer, more accessible, and more predictive through opt-in, first-party behavioural data, using no personal data.

For example, using alternative data to facilitate rescue scores can help lenders lend to an additional 5 – 10% of customers that would otherwise be rejected, without increasing risk. As more data is collected, this number can be increased to up to 20% over time with a trained scorecard model.

However, embracing next-gen credit risk models is not without its challenges. Privacy concerns, data security, and regulatory frameworks must be carefully navigated to ensure the ethical and responsible use of alternative data. Moreover, there is a need for continuous innovation and collaboration between financial institutions, fintech providers, and policymakers to build an ecosystem that fosters financial inclusion while safeguarding consumer rights.

In conclusion, the journey towards financial inclusion in Vietnam requires a paradigm shift in credit risk assessment, one that embraces innovation and inclusivity. Next-gen credit risk models offer a transformative opportunity to extend the reach of financial services to those who need it most, unlocking the full potential of Vietnam’s burgeoning economy.

[i] https://www.findevgateway.org/country/financial-inclusion-vietnam

[ii] https://aseanbriefing.com/news/vietnam-bolsters-regional-financial-links-through-connectivity-payment-initiative/

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