In 2012, Vietnam’s prime minister Nguyễn Tấn Dũng implemented a three-year structural reform plan to revamp the country’s banking system. The goal of this plan was to strengthen Vietnam’s banks to make them better able to serve the country’s financial needs. There have been setbacks and stumbles in this journey to stronger economic stability, but overall, the programs are regarded favourably.
However, Vietnam as a developing nation faces some critical challenges in the banking sector. The primary difficulty is that only 20% of its citizens have bank accounts and only a shocking 3% have credit cards. Today we will explore why Vietnam has such an underserved banking population and discuss viable solutions to this problem.
Many Low-Income Workers in Vietnam Don’t Use Banks
The Asia Foundation recently conducted a survey of service industry workers to find out why there is such a lack of bank usage in Vietnam. This group, mainly composed of restaurant workers, taxi drivers, and salon service staff, belongs to the lower-income bracket. 44% of them expressed that they did not feel their income was high enough to merit banking. Another factor to consider is that the majority of Vietnamese live in rural areas but the many banks are in metropolitan areas. Banks in Vietnam also have a long way to go in terms of reaching a vastly untapped client base, some institutions even lacking customer care services. Ultimately, banks end up serving mainly wealthier citizens, neglecting the low-income and middle-class.
A Cash-Based Culture with an Independent Spirit
The same survey from the Asia Foundation revealed that many of these low-income workers simply keep their savings at home in the form of cash. It is a cultural preference to use cash in daily transactions because of its expediency and tangibility. Also, when the Vietnamese happen to be in a financial pinch, they usually borrow from friends or family until their next pay check. Consequently, bank lending is not in as high of demand in comparison to the rest of the world because families usually pool in money for large purchases.
The Winds of Change: Financial Literacy
Good news is on the horizon, however. The Bank of Social Policy (BSP) and Bank for Agriculture and Rural Development (VBARD) are offering financial training with their loans to Vietnam’s citizens. Businesses like Prudential are also developing financial literacy programs to help the Vietnamese understand the importance of good money management. Their needs analysis tool is just one of the many educational resources they offer online to their Vietnamese clientele to help them calculate what they need to set aside for a savings account.
As Vietnam continues to develop and improve its infrastructure, more banks will be available to the public and make it easier for citizens to get on board. Financial education is also paving the way by informing people that whether they earn a little or a lot, their participation in banking is valuable for their nation’s financial future and their own as well.