New Credit Policy for Agriculture

In recent years, Vietnam's agriculture has developed rapidly, leading growing demand for credit and gradual changes in business operation towards modernization. The credit policy for agricultural development has drawn greater attention. Resolution 26 for agriculture, farmers and rural areas and Decree 41/2010/ND-CP on credit policy for agriculture, farmers and rural areas are two typical policies. Especially, since 2013, the State Bank of Vietnam has identified the agricultural sector and rural areas and exports as main pillars of the credit policy so there have been breakthroughs.

 

According to the Credit Department of the State Bank of Vietnam (SBV), by end of April 2014, outstanding loans to the agricultural sector and rural areas (excluding the loans of Social Policy Bank) were estimated at VND685,426 billion, up 2 percent compared with the end of 2013 and much higher than the overall growth rate of 0.62 percent; while bad debt accounts for only 2.83 percent.

 

The average growth rate of credit of agriculture and the rural sector in 3 years (2010-2012) was 24.5 percent. By the end of 2013, the credit to agriculture and rural areas increased by 17 percent. Lending rates have fallen sharply, from over 20 percent per year in 2011 to 15 percent per year in 2012 and current lending rates for agricultural sector is much lower than normal lending rates.

 

Some leading financial institutions like Vietnam Bank for Agriculture and Rural Development (Agribank); Joint Stock Commercial Bank Industry and Trade of Vietnam (VietinBank); Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank); and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) have high proportion of lending for agricultural sector.

 

However, credit for agriculture is still facing difficulties, such as higher loan rates and strict loan approaches. In fact, credit unions have raised only 60-70 percent of capital from the agricultural sector and the rest are raised from different resources.

 

Due to requirements of improving credit policy for agricultural and rural development and restructuring projects in agriculture, the State Bank of Vietnam has proposed initiatives to coordinate with the relevant ministries to issue and implement a new credit policy for development of agriculture and rural development (Decree 41/2010/ND-CP replaced by Decree 55/2015/NĐ-CP). This is considered a breakthrough, contributing to a restructuring of agriculture in particular, and the economy in general.

 

Regarding loans, the Decree has identified 7 fields of developing loans for agriculture and rural development, which include production and processing of agricultural products and processing and consumption; loans for industrial production, trade and supply of services in rural areas; credits for the production of seeds in crop, livestock, fisheries, forests and supplying of products and services for agricultural production; lending for trade development in rural areas; loans for the national programme on new rural construction; living of residents in rural areas; lending under the economic program related to agriculture and rural areas of the Government.

 

In addition, the new decree would also raise the level of lending without security assets by a factor of 1.5 to 2 times higher than before. Specifically, individuals and households can borrow up to VND100 million and businesses could make loans of VND300 million; VND1 billion for cooperatives and farm owners. Other targeted groups with large capital needs in agriculture, such as farm owners, offshore fishers, logistics providers and fishing unions could make loans of VND200 million to VND3 billion without security assets.

 

In addition, Decree 55 will encourage the development of agricultural production model and high-tech applications. These models account for 70-80 percent of value of production projects without collateral.

The decree also specifies principles of making loans which face risk from natural disasters and epidemics on a large scale, or objective reasons or force majeure, to customers in the field of agriculture and rural areas.

 

With the highlights above, Decree 55/2015/ ND-CP will not only encourage credit institutions investing capital to develop agriculture and rural areas, but also facilitate citizens and businesses to access bank credit.

Besides, the new regulations supports the development of new models of partnership and application of high technology in agricultural production; such models will boost innovative solutions to accelerate the agricultural restructuring process, increasing competitiveness to contribute to sustainable development of Vietnam's agricultural sector, thereby improving and enhancing the living conditions of rural residents and contributing to implementation of the national target program of new rural areas.