A proper legal framework is needed to promote the development of fintech in rural areas. — Photo moit.gov.vn

HÀ NỘI — Rural areas are a huge potential market for financial technology (fintech) start-ups, but there are significant risks, requiring firms to have sound ideas together with a proper legal framework.

Trần Duy Khanh, Director of APEC Entrepreneurs Training and Research Institute, said that accounting for more than 70 per cent of the country’s population, rural areas provided significant room for fintech start-ups to grow.

“Potential, however, always goes hand in hand with a challenge,” Khanh said. Doing business as a start-up is difficult and even more so in the field of fintech. Being in a rural area adds more difficulty still, he stressed.

It requires not only knowledge of technology, finance, credit and banking but also experience and passion, critical to the birth and pursuit of start-up ideas, he added.

Three decisive elements for the success of doing fintech business in rural areas were convenience, meeting local demands, and the ability to combine with credit institutions, he said, adding that fintech startups should be looking to bridge the gap between users and credit institutions.

Analysing the difficulties of fintech development in rural areas, Khanh said that people in rural areas had a habit of using cash and still had confusion over tech apps. On the other hand, security problems still exist.

Capital is also an important issue because it takes years for a start-up business to make a profit, he said.

Start-ups are often faced with a lack of capital for growth and credit institutions don't often dare to lend money because there is no guarantee of return.

Khanh said that this is a major bottleneck that requires support from the Government for incubation. “Without the Government’s support in incubation, it will be difficult for start-ups to succeed - even with good ideas.”

According to Vũ Sỹ Cường from the Academy of Finance, fintech companies are now mostly focused on exploiting markets in cities and few have eyed rural areas.

Rural areas are a potential market for fintech if the ideas can create a difference. To expand in rural areas, Cường said that fintech start-ups need to carry out market assessments carefully.

Cường said that the policies for fintech should be more detailed and practical, especially those related to information security to consolidate the confidence of the people on technology apps.

Need a clear legal framework

A report about Việt Nam fintech market in 2021 showed that the number of fintech companies increased four times, from 39 in 2015 to more than 154 by the end of 2021, 70 per cent of which were start-ups.

However, the lack of a proper legal framework was hindering the development of the fintech market in Việt Nam, especially in peer-to-peer lending.

Credit growth was low in the first half of this year, at just 4.73 per cent, statistics of the State Bank of Việt Nam (SBV) showed, not only because of the drop in credit demand as firms fell into difficulty but also because many people could not meet requirements for loans.

To promote economic growth it is necessary to promote the development of other channels which eye sub-prime customers, such as peer-to-peer lending and fintech lending.

Many countries around the world have developed a legal framework to regulate fintech, including fintech lending.

For example, in the UK, the ceiling rate for daily interest rates on loans is set at 0.8 per cent, or 292 per cent per year and the interest and fee borrowers must pay can not exceed the original loan amount.

The policy framework is still long-awaited in Việt Nam, causing confusion between licensed lending fintech companies and black credit lending apps. A sandbox for fintech has been drafted by the SBV.

A recent report by Insider Intelligence about smartphones in Southeast Asia showed that the number of smartphone users in Việt Nam was forecast to reach 63.8 million by the end of this year, up 1.6 per cent over 2022 and accounting for 96.1 per cent of the country’s total number of Internet users.

Việt Nam ranked second in the region in terms of the number of smartphone users, after Indonesia.