Vietnam: Tackling credit shortage for SMEs

"State authorities, financial institutions and enterprises must sit together to tackle credit shortages for small- and medium-sized enterprises."

Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) Vu Tien Loc made the statement at the forum titled ‘Solutions to improve capital access for SMEs’ held on Tuesday in Hanoi.

Vietnam’s business climate has improved substantially over 30 years of renovation and development, but capital shortage remains the biggest obstacle hindering the growth of SMEs, Loc said.

Loans provided to SMEs account for only 21 per cent of total outstanding loans. Although the State authorities and banks have been more open to lending to SMEs, up to 60 per cent of these businesses are still unable to access or use bank capital.

At the same time, not all enterprises have the capacity to raise capital from other channels such as issuing shares or bonds. Meanwhile, SME development funds do not work effectively, Loc said.

The SME Development Fund, set up in 2014 with total capital of VND2 trillion (US$87 million), has so far lent VND145 billion to 19 businesses, the forum heard.

According to Loc, the credit crunch for SMEs is blamed on three parties.

“The first is the State whose representatives are the State Bank of Viet Nam and other relevant ministries and agencies. The second is banks and financial institutions, and the third is the micro, small and medium-sized enterprises,” Loc emphasised.

On the State side, there are still many legal regulations that do not encourage investment and creative businesses, according to Loc. He said State management has yet to accept risks while regulations on land-use rights do not create favourable conditions for businesses to access bank capital.

Meanwhile, banks and other financial institutions are still in favour of State-owned enterprises and enterprises having asset collateral.

However, Loc said the digital economy and startup and agricultural businesses do not have a lot of assets. Thus, he suggested that banks consider accepting mortgages in the form of ideas, business and production plans which will stimulate startups and creativity.

On the business side, about 670,000 enterprises are doing business in Viet Nam, of these SMEs make up 98 per cent. If including over five million household businesses, the number of micro, small and medium-sized enterprises is about six million units. Many of them have low transparency and weak governance that make it hard to build trust among banks.

“Three parties need to sit together. The parties need to improve relations, not just the ask-give mechanism but the symbiotic relationship between banks and enterprises, and funds and enterprises,” the VCCI’s chairman said.

Tailor-made credit

According to VCCI, banks should introduce new lending methods including investment-oriented lending packages for startup and agricultural businesses based on ideas and business plans.

“The current mode of bank lending should be tailor-made, not ready-made, and encourage value-chain lending,” Loc said.

Nguyen Quoc Hung, head of the central bank’s Credit Department, admitted that SMEs still faced difficulties in accessing bank loans, not only because they lack collateral but also many do not attach much importance to updating their business activities and preparing financial statements. Their financial data is often slowly updated, inaccurate and not reviewed by independent audit.

According to Hung, enterprises must prove their business plan to be able to pay debts. As the risk is huge if providing loans without collateral, Hung suggested building a mechanism to tackle risks associated with loans for SMEs.

According to financial expert Can Van Luc, the State authority needs to quickly implement an effective legal framework for supporting SMEs, at the same time strengthening the role of business associations and co-operation among financial institutions and credit guarantee funds.

Meanwhile, small businesses should also improve transparency, disclosure and willingness to work with credit institutions to prove their corporate governance and strategic and financial capacity.


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