Economic Sector

Last updated: Monday, March 18, 2019


Hard Credit Access for SMEs

Posted: Tuesday, April 10, 2018

Having access to credit is still seen as one of the biggest difficulties for small and medium-sized enterprises (SMEs) although there are a lot of positive policies and solutions to improve this reality.

Obstacles in interaction

Data shared by the Ministry of Planning and Investment of Vietnam at the workshop on “Holistic empowerment of SMEs: How public and private sectors can join hands to develop SME landscape”, jointly held by the ministry and Thailand-based KasikornBank in Hanoi, showed that SMEs’ outstanding loans account for an average of 22 - 25 per cent of total outstanding loans for the whole economy during 2012 - 2017. In fact, only about 30 per cent of SMEs have access to bank credit, while nearly 70 per cent of SMEs must continue using their own funds or borrow from other sources of funds with higher costs and risks. This reality has affected plans and opportunities to expand production and business of this sector.

Dr Can Van Luc, Chief Economist at the Bank for Investment and Development of Vietnam (BIDV) and Director of BIDV Training School, said both sides are to blame for this reality. Credit institutions are not really keen on SMEs partly because their customers’ borrowing scale and credit performance are not high amid high risks and operating costs. They do not have specific products and services for SMEs, which also lack diversity and flexibility. Credit procedures are, meanwhile, cumbersome and complicated. Furthermore, when credit institutions are restructuring or changing their strategies, it also restricts lending credits to SMEs.

For their part, SMEs are to blame for poor governance and outdated technology; low labour productivity and qualifications; non-transparent information and lack of qualified conditions for loans; lack of feasible business strategies and business plans; main use of cash in payment, making credit institutions find it hard to control their cash flows; lack of collateral; absence of risk insurance; insufficient knowledge of policies, products and services and packages of credit institutions, guarantee and support programmes from the government/associations.

It is obvious that persistent bottlenecks still lie in the interactivity between banks and businesses. According to Deputy Minister of Planning and Investment Nguyen Van Hieu, clearing these bottlenecks will open the door to bank credits for SMEs and increase the opportunity of accessing formal credits for development for SMEs.

Active banks
Some banks are making an effort to introduce proactive approaches to SME clients, launch many priority financing support programmes and products for them, and unlock the credit channel for potential start-ups seeking reasonable loans.

Mr Bui Xuan Huong, Deputy Director of HD Bank Credit Centre, said that his bank is lending to exporters at interest rates ranging from 6.5 per cent to 7 per cent. It is, besides, is considering coordination with the SME Development Fund to provide loans for enterprises investing in building farms for lease with the aim of separating loan packages for investment in farms and machinery to reduce average interest rates for borrowers.

Ms Hoang Thi Hong, a representative of the SME Development Fund, the Agency for Enterprise Development under the Ministry of Planning and Investment, said, to promote transparency in SME support, the fund is working with banks to apply information technology to receive and process borrowing applications from SMEs online.

Discussing solutions to existing problems to increase the opportunity for SMEs to access credit capital, many experts said that the State Bank of Vietnam (SBV) should study to reduce procedures for secured transactions and drop mandatory procedures and public notary certifications applied now. Asset and land certification used to secure loans should be decentralised to local authorities. In addition, the central bank should continue to actively empower and decentralise power more strongly and define the ultimate responsibility in credit relations with SMEs in commercial banks.

At the same time, it should adjust the degree of priority given to assess highly feasible projects to lay the groundwork for lending, instead of using collaterals as the highest condition to secure loan as now. Last but not least, credit support policies should be clear and easy to understand.

Deputy Minister Nguyen Van Hieu said, “It is necessary to develop a mechanism for sharing information among stakeholders, including tax authorities, business registration agencies and bank credit information bodies, to help banks and SMEs to share and clarify information used to evaluate rand rate creditability and better serve SMEs.

Nguyen Thanh

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