Facilitating SMEs to Access Capital

2:23:34 PM | 11/7/2019

Decree 39/2019/ND-CP (Decree 39) of the Government on the organization and operation of the SME Development Fund effective from July 1, 2019, has created an "open way" for enterprises to access credit capital. The fund is a non-budget, non-profit financial fund established by the Prime Minister.

Accordingly, the fund operates as one-member limited liability company with 100% charter capital owned by the State, the minimum capital is VND2,000 billion. The fund offers lending in two forms: Direct lending (directly lending to creative start-ups, SMEs participating in industry-linked clusters, value chains) and Indirect lending (providing loans to SMEs through capital allocation to commercial banks).

In order to get loans, creative start-ups or SMEs participating in industry-linked clusters, value chains must have feasible production and business plans; ensure minimum equity capital of 20% of the total investment capital of the project; meet the requirements of loan security in accordance with the law.

Notably, the direct lending interest rate of the fund is 80% of the lowest commercial lending interest rate. The lowest level of commercial lending interest rates is determined on the basis of comparing the lending interest rates of four commercial banks with State capital and owing the largest total assets at the time of determining the lending interest rates of the fund.

Loan term is determined in accordance with the ability to recover capital, the ability of debt repayment of enterprises and the specific conditions of each project, production and business plan, but not exceeding seven years.

In particular, to support SMEs to use capital effectively, the fund carries out activities to support capacity building for SMEs, including: Training, consulting, investment promotion, trade, information provision and database.

Besides, based on the operating capital and annual operation plan, the fund sets up projects to support research and development; investment projects, establishment of incubation facilities, technical facilities, joint working areas to support SMEs.

Although accounting for about 97% of the total number of active businesses, contributing about 45% to GDP, 31% to total budget revenue, SMEs still have to struggle to find financial resources to production and business activities.

For many years, capital for SMEs has always been a difficult problem as very few enterprises can get access to official sources from banks. Only about 30% of SMEs have access to formal capital from banks; the rest can only access informal capital, much of which comes from black credit with very high interest rates.

Along with procedural issues, another difficulty faced by SMEs is that when granting credit, banks require security assets like high-value real estate and fixed assets. However, assets are priced at a low level compared to the market value (from 20 to 25%) and lending at a rate of 70% leaves businesses without enough accumulated assets to mortgage.

The problem of lack of capital and difficulty in accessing capital of enterprises have lasted for many years, and so far has not really been solved. According to Dr. Vu Tien Loc, President of Vietnam Chamber of Commerce and Industry (VCCI), that SMEs cannot access capital is attributed to the State bank, financial institutions and the enterprises.

In particular, on the State side, there are still many legal frameworks that are not really triggering investment. The banks and financial institutions are indifferent. As for the enterprise, the biggest weakness is poor transparency in governance, which undercuts credit institution's confidence in businesses. Therefore, the solution is all these three stakeholders need to work closely together.

To solve this problem, in addition to the SME Development Fund, it is necessary to create a fair business environment for all types of business, while encouraging national entrepreneurship. There must be policies to support these enterprises in accordance with market principles and international practices, without discrimination, said Mr. Dau Anh Tuan, Director of VCCI Legal Department.

At the same time, it is necessary to strengthen trade promotion and market management; develop cooperative relations between SMEs and large enterprises, between domestic and FDI enterprises; encourage the development of industrial clusters and business development services. In addition, it is necessary to promote cooperation with international organizations, especially international investment funds in order to find sources of financial investment for potential SMEs.

Quynh Chi