Finding Ways to Promote Capital Flows for SMEs

 

According to VCCI General Secretary Pham Thi Thu Hang, the conference is to help businesses gradually solve financing problems and improve their capital management in the current period, especially under the circumstance that the government and business community are in attempt to implement the Resolution 2/ NQ-CP dated July 1, 2013 to remove difficulties for business production, marketing assistance, and mitigation of non-performing loans.

 

According to statistics, now over 90 percent of SMEs have size of less than 300 employees and less than VND100 billion of capital. Therefore, it is not random that the government has enacted separate policies to support SMEs on training, tax, and credit guarantee and most recently, the Decision 601/ QD-TTg of the Prime Minister dated April 17, 2013 to support the development of SMEs. However, SMEs are fiercely competing on both domestic and international markets that are in a state of saturation, so promoting the capital flows is a very important issue in helping businesses overcome difficulties and make profit, and continue to grow.

 

According to Ms Nguyen Thi Hong, Head of the Monetary Policy Department of the State Bank of Vietnam (SBV), the government has adopted a number of policies and measures to unfreeze capital flows, but it is not enough to base only on those monetary policies but many other policies as well. In fact, previously, the monetary policy helped to lower the base interest rates, leading to lending interest rate cuts by between 2 percent and 4 percent, which helped boost credits for production but still not accessing the capital flows. This shows that the enterprises need stronger reforms to enhance abilities of demonstrating their project feasibilities and proving the operating cash flow in their business to convince credit institutions to approve loans.

 

The Vietnam Prosperity Joint Stock Bank (VP Bank) showed that only about 30 percent of the businesses applying for bank loans are qualified. In addition, the remaining 70 percent of SMEs are dealing with their business downturn and a bulk of inventories and they are either ineligible or do not have much demand for loans. According to Nguyen Duc Vinh, CEO of the VP Bank, the bank desires to support businesses but the bank is a business as well, so it cannot make this out of its business due to the responsibility of preserving the capital. Thus, banks and businesses need cooperation and mutual sharing to unfreeze the capital flows. In particular, the government is proposed to set up the credit guarantee mechanism to guarantee the businesses with good projects, development strategies, and investment in promising sectors to make loans and in case of risks, the government will "bear" the risks together with the bank. This will be an effective solution to unfreeze capital.

 

According to Dr Nguyen Trong Hieu, Vice Director of the Agency for Enterprises Development, Ministry of Planning and Investment, the Prime Minister has approved the "Development Fund for SMEs" project, dated April 17, 2013. In particular, the capital of VND2 trillion of the national budget is to support SMEs. The fund focuses on key areas such as business environment, capacity empowerment for SMEs, corporate governance, knowledge enhancement and financing access for SMEs.

 

The loan for each project or business production plan is regulated at the maximum of 70 percent of the total investment capital of each project and less than VND30 billion. The loan term is not exceeding 7 years and the loan interest rate is less than 90 percent of the average interest rate of five state-owned commercial banks in the area of Hanoi.

 

The banks will be consigned by the fund to give loans and focus on the businesses with feasible projects. The banks will be responsible for bearing the risks of loans and taking consideration into the lending conditions based on project feasibility, capital, and the ability to pay of the businesses.

 

According to Mr Truong Tuan Nghia, Senior Financial Analyst and Deputy CEO of AsiaInvest, the business management is still limited due to lacks of business strategies in medium and long terms, information of market and opponents, business plans in details, corporate governance, regulations on financial management as well as monitoring and evaluation mechanism on risk control. Besides, the registered and operating capitals are still different; and plans of investment and capital utilisation are not feasible to determine the investment risks. Those causes make the businesses hard to grow and create uncontrolled bad debts.

 

According to Mr Nghia, it is necessary to build up a detailed cash flow plan. Accordingly, the business owners need to analyse the cash flow plan by designing the financial modelling, analysing inputs and outputs, adjusting the input assumption, analysing the sensitivity and risk and ultimately, reviewing and completing the plan. To build up an effective cash flow plan, the businesses need to regularly follow and review the analysis results, listen to the opinions of departments and complete the own business plans.