SMEs Yearning for Capital

Representing 95 percent of the total numbers of businesses, employing 50 percent of the total workforce, SMEs still have to rely on their own initiatives to survive in the current economic crisis. The main issues that many businesses are facing are the lack of investment capital and difficulties in accessing the borrowed capital. The lack of financial capital as well as unpaid workers’ wages is becoming an increasingly popular scenario these days.

 

While businesses cannot access the needed capital, banks still retains most of the abundant fund in their coffers. Despite efforts of the State Bank of Vietnam (SBV) to instruct commercial banks to employ various measures to attract local and foreign capital in order to satisfy the ever increasing capital demand of businesses and cooperate with businesses to restructure their loans, especially SMEs’, the result is not as satisfying as initial expectation. After being flooded with capital to improve their liquidity, commercial banks still prefers to give businesses a hard time through a multitude of complicated procedures to scrutinise the loan application portfolios.

 

SMEs cannot as easily get access to the borrowed capital as other business groups due to their inherent small scales, inability to meet the mortgage requirements; unprofessional management and operation; unproven practicability of investment projects and operational models; opaque financial statements with unreliable statistics etc. These abovementioned limitations make it difficult to evaluate the financial well-being of SMEs, resulting in banks not willing to lend their money to the group. As a result, the number of SMEs being able to access the borrowed capital is much lower than the real capital demand of this group.

 

In addition, the economic crisis also results in an increase in the bad debt ratio of businesses, therefore the bank’s extra caution in lending their money. According to a recent market research by the Ministry of Planning and Investment, only one third of SMEs has access to bank’s capital, another one third has difficulty in accessing the capital and the remaining one third cannot access the capital at all. Many SMEs claim that the banks set too high the minimum requirements that SMEs cannot access the capital, even with favourable policies that the Government has set forth.

 

Without the needed capital to reinvest, sustain their operation and facing an increase in prices of input materials, huge inventories and decrease in people’s purchasing power etc., SMEs’ operation is becoming less efficient. Without the capital to expand their facilities and improve the production capacity, businesses have to satisfy themselves with outdated and low-productivity machineries, resulting in products of inferior quality. The inevitable result is a decrease in output, causing many businesses to temporarily cease their operation or declare bankruptcy. Lacking capital is becoming a huge barrier for the growth of SMEs.

 

In spite of the 47 percent contribution to GDP and 40 percent contribution to Government’s budget respectively, SMEs are currently in dire state. This reality raises the need for the Vietnamese Government to issue practical policies in a timely manner in order to help revive this group. The focus should be on regulating the interest rate, easing the access to capital in order to help SMEs overcome their “thirst” for capital while the economy still encounters prolonged issues. The Government’s efforts in this challenging time will create a momentum for the SMEs to keep growing and contributing to the economic development of the country as a whole.