Vietnam: a market for credit insurance?

There have been many talks about credit insurance in Vietnam over the past 15 years. What are the opportunities for credit insurance in Vietnam, and why hasn’t it taken off?

Over the years, the insurance market in Vietnam has shown an interest in credit insurance as a tool to facilitate international trade and support local exporters. However, despite this interest, credit insurance has not taken off. Today, we look at the reasons behind this failure to launch, and the opportunity for credit insurance to support Vietnam in realising its economic potential.

Why hasn’t credit insurance taken off in Vietnam?

At least twice in the last 15 years, the Vietnamese Government has tried to structure a program that would allow the country’s exporters to benefit from local credit insurance coverage with support from international reinsurance partners. The Government launched its pilot export credit insurance scheme between 2011 and 2013, with the aim of covering 3% of the country's export turnover. However, in the scheme’s three years, less than 50 policies were signed. Vietnam’s Ministry of Industry and Trade's Export and Import Department explained that they had been unable to successfully promote export credit insurance to the country’s exporters, due to a lack of understanding and experience among local insurers.     

Today, local companies in Vietnam face difficulties in accessing credit from banks, and there remains a broad lack of awareness, knowledge and experience of credit insurance. Fundamentally, credit insurance will not work in Vietnam if companies do not know about it, and if insurers can’t explain the benefits. This situation is common across many South East Asian countries.

Another reason credit insurance has not taken off is that although Vietnam is a fast-growing economy, the country faces several ongoing issues, including corruption, which impede economic development.

Further, Vietnam still needs to diversify its economy. Currently, tech products represent at least 30% of the country’s exports.

Vietnam is quickly changing

As explained by the World Bank, ‘Viet Nam's shift from a centrally planned to a market economy has transformed the country from one of the poorest in the world into a lower middle-income country.’ GDP per capita increased sixfold in less than 40 years, from less than USD $600 per person in 1986 to almost USD $3,700 in 2015. Poverty rates have also declined significantly, improving from 14% in 2010 to just 4.2% in 2022. 

Vietnam is now one of the fastest-growing emerging markets in the Asian region. The nation is attracting growing levels of foreign direct investment (USD $36.61 billion in 2023, representing +32.1% year on year), and has captured a portion of the products that were previously produced in China. 

Recent developments increase the need for credit insurance in Vietnam

With growing investment in Vietnam, there is also a growing need for export credit solutions. Vietnam aims to become a high-income country by 2045, but to achieve this, its economy would need to grow at an average rate of about 6% per capita every year for the next 25 years. 

Realising this ambition will require Vietnam to overcome several challenges. The country will need to dramatically improve its performance by implementing policies that can help close the current financing gap. 

Most small and medium sized entreprises (SMEs) in Vietnam currently struggle to access financing due to a lack of transaction history and reliable information from the credit bureau. Banks in Vietnam are not used to taking inventories or receivables as collateral. Credit insurance could offer a solution by providing comfort to banks and securing the loans they grant to SMEs. 

According to some insurers, the role of trade credit insurance is becoming increasingly important in Asia, to enable banks to distribute their exposure – with some insurers reporting an increase in the number of enquiries from companies and banks to support investment and trade in the region.

Overcoming barriers to credit insurance in Vietnam

Vietnam critically needs more structure for export credit, which can serve as an efficient tool to help exporters and support the country's economic expansion. However, Vietnam still faces several critical economic challenges which prevent credit insurance from being perceived as an important tool. The lack of awareness and knowledge of credit insurance is also a significant blocker.

Some international reinsurers have asked Tinubu to explain credit insurance to local insurers and show them how Tinubu Credit Insurance solutions could help them launch this activity. In close partnership with Tinubu, two major international reinsurers invested significantly to promote credit insurance in Vietnam, with one even entering the capital of one of Vietnam’s reinsurance companies.

At Tinubu, we see strong potential for Vietnam to become a credit insurance market. We will continue to partner with international insurers and reinsurers to explain the benefits of credit insurance and propose its credit software and associated professional services to local insurers and other stakeholders in Vietnam and across South East Asia.