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Capital problems persist for SMEs

Released at: 14:43, 08/08/2018

Capital problems persist for SMEs

Photo: Hai Van

VCCI forum hears of ongoing issues for SMEs in accessing capital.

by My Van

About 60 per cent of small and medium-sized enterprises (SMEs) still do not use bank capital, mostly because of a lack of access, or other sources of funding, according to a report from the Vietnam Chamber of Commerce and Industry (VCCI) presented at a forum on promoting capital for SMEs held on August 7 in Hanoi.

The business environment has improved significantly over the last several years and credit for SMEs now account for 21 per cent of total outstanding loans.

The greatest difficulty for SMEs and micro-enterprises remains capital, with most startups having no capital or collateral, only ideas and business plans.

Mr. Nguyen Hung, Director of the Hung Hai Agricultural Products Company, said it is very difficult to take out loans because very few financial institutions accept raw materials in a company’s stock as collateral.

According to Dr. Vu Tien Loc, Chairman of VCCI, the responsibility for the situation is held by three bodies: the State (as represented by the State Bank of Vietnam (SBV) and relevant ministries), banks and financial institutions, and SMEs.

Banks only lend with collateral, but startups and agricultural investment projects do not have many assets. Projects and ideas are important resources that are rarely considered as collateral.

“Most of the nearly 700,000 SMEs in Vietnam do not have collateral,” Dr. Loc said. “They also lack transparency in business and corporate governance and their business options are less feasible, and for this reason financial and credit institutions do not approve loans.”

According to Mr. Nguyen Quoc Hung, Head of the Credit Department for Economic Affairs at the SBV, receiving information and offering credit to SMEs still faces difficulties.

Most do not attach much importance to the updating of operational information or conduct accounting under regulations. They often submit financial statements to banks with inaccurate data and there is no independent audit, which affects the capital review process and loan appraisals.

They also lack collateral for secured loans or possess low-value collateral, with any property rights held not being transparent.

Assistance from ministries and local guarantee funds has not been effective. Credit would improve if these funds were to operate effectively and cooperated with local authorities, Mr. Hung said.

Dr. Loc said that the government needs more reform in policy and law and must promote SMEs and startups.

Banks need to make greater efforts to introduce new lending methods for startups and high-tech agriculture based on business plans, and finance, credit, and insurance organizations need more interaction in supporting SMEs.

According to Mr. Can Van Luc, an economic expert at BIDV, SMEs should not only consider regular forms of access to capital such as loans or issuing shares or bonds.

It is necessary to quickly introduce effective legal documents guiding the implementation of the Law on Support to SMEs and at the same time strengthen the role of business associations and cooperation among financial institutions.

Small businesses should also improve their transparency, disclosure, and willingness to work with credit institutions, as well as their corporate governance and strategic and financial management.

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