Mutual Funding as a New Tool for Risk Diversification

This chapter explores ‘mutual help’ as a community-based strategy for diversifying risk. Drawing on sociocultural practices in Vietnam, it introduces mutual help as a socially embedded mechanism of support among individuals facing shared life challenges. The chapter categorizes mutual help into three main types—reciprocity help, redistribution, and unidirectional help—and focuses on redistribution as a viable model for financial risk sharing. It further analyzes the adaptation of mutual help into an online mutual funding scheme, emphasizing its potential to help P2P lenders mitigate the risks to which they are exposed. The chapter finally evaluates a mutual funding scheme as a risk diversification technique, assessing both its advantages—such as peer monitoring and enhanced loan oversight—and its limitations, including lack of professional management, absence of collateral, and the declining strength of personal ties in urbanized, Internet-based lending contexts. It argues that while mutual funding holds promise in enhancing risk resilience for P2P lenders, its success in Vietnam hinges on formal legal frameworks and strategic institutional oversight to support scalable and trustworthy implementation.