Commercial banks fail to “conquer” traditional markets

Commercial banks have been trying to provide loans to small merchants at traditional markets for the last 15 years. However, though offering loans with lower interest rates, they still cannot dislodge individual lenders from their prominent positions.

Tran Thi Kim, the owner of the ready-made clothes shop at Tan Binh Market, admitted the loan interest rates she must pay to individual lenders is now higher by 1-4 percent than the same period of 2009. As for six month and longer term loans, individual lenders charge three percent per month. Loyal clients can borrow at five percent per month for shorter term loans, but new borrowers must pay seven percent.

Kim explained that the total capital needed for a consignment of goods is about 500 million dong. It takes at least three months to sell goods and earn back the money. Therefore, she must borrow money for three months and pay 15 percent in interest, or 75 million dong.

At An Dong Market, one lender offers cash at two percent per month, but only to loyal clients. New clients may pay up to five percent per month.

Thang, the owner of a footwear shop at An Dong Market, commented that, while interest rates have increased, it is not easy to borrow. A single kiosk needs several tens of millions of dong or even 100 million dong, while double kiosks need even more. Only big owners with 5-7 kiosks can borrow billions of dong.

A small merchant at Tan Binh Market revealed that she is following procedures to mortgage her kiosk at a bank so that she can borrow 200 million dong at 1.6 percent per month. However, she has not received a reply over the last week.

Commercial banks have been trying to “penetrate” these markets since 1995 after they realized the high demand for capital from small merchants. Sacombank, Dong A Bank and many others have tried to offer money to these businesses at low rates, about 1.5 percent per month.

However, over the last 15 years, commercial banks have not been able to increase loans to small merchants considerably.

According to Nguyen Hoang Anh Vu, Head of the Personal Banking Division of Eximbank, procedures prevent small merchants from accessing bank loans. While small merchants can borrow money from individual lenders with very simple procedures, at banks they must follow many complicated steps.

Vu admitted that procedures to borrow from individual lenders are quite straightforward. Borrowers just need to sign an “IOU” document in which they agree to the loans’ terms.

“Small merchants always need money immediately. They do not want to spend time to wait money from banks and follow complicated procedures,” Vu maintained.

According to Saigon Tiep Thi newspaper, over the last 15 years, banks have been providing only one banking product to these markets: loans (200-500 million dong) with kiosks as collateral. If small merchants want to borrow more, they must mortgage more valuable assets.

According to Ngoc, one of the individual lenders, all the individual lenders at markets are people who have been doing business there for many years and they well understand other small merchants. “It’s my money, therefore, I can have the right to decide whether to lend it. As the risks are high, the interest must be high. This is acceptable,” she asserted.

Recently, in an effort to expand credit at markets, some commercial banks have classified markets into several types. Credit limits depend on the classification: markets with more clients can borrow more money. However, once barriers are erected, commercial banks still find it hard to improve the situation.

Source: Saigon tiep thi