As the importance of small- and medium-sized enterprises (SMEs) to the Vietnamese economy grows, experts are calling on the Government to reform the system of credit guarantee funds that are designed to increase SMEs’ access to long-term financing.

Though SMEs account for 97 per cent of the country’s firms and 60 per cent of the total number of jobs throughout the country, they face a range of problems, including limited technology and management expertise and a lack of available financing—70 percent of SMEs report they have been unable to access credit. The Government has been eager to support such firms, but the Ministry of Planning and Investment pointed out that the impact of 80 per cent of SME support programmes and policies have not been evaluated, while others, including credit guarantee funds, have demonstrated clear problems.

According to Dang Duc Anh from the National Centre for Socio-Economic Information and Forecast, the efficiency of these funds in supporting SMEs’ credit access remains disappointing. The funds were established to provide credit for firms unable to meet banks’ stricter lending standards.

Duc Anh pointed out that it has been over 16 years since the last Prime Minister’s decision on issuing SME credit guarantee funds was issued. Since then, only 27 such funds have been established, while many have minimal financial capacity and have not even reached the minimum capital requirement of VND30 billion (US$1.3 million).

The total charter capital of SME credit guarantee funds is estimated at only around VND1.5 trillion, which provides guarantees for just 3.2 per cent of SMEs’ total outstanding loans of VND1.3 quadrillion.

The funds have also not significantly improved SMEs ability to secure financing: nearly three-quarters of SMEs have failed to access credit, according to the Viet Nam Chamber of Commerce and Industry.

Credit guarantee funds have demanded excessively strict requirements for SMEs to receive their guarantees, including requirements on mortgage assets that are little different from the lending policies of banks, according to Duc Anh.

“If SMEs already have mortgage assets, they can borrow money from banks and might not need guarantees from the funds,” he added.

Nguyen Thi Lan from the University of Foreign Trade’s Finance and Banking Faculty told chinhphu.vn that credit guarantee funds should not seek to avoid risks by limiting their operations or setting excessively strict lending requirements. “The funds must provide other options,” she added.

Experts have stressed that a policy of risk sharing between credit guarantee funds and banks should be adopted. Under such a policy, the funds and banks will share the responsibility of paying off the remaining debts of enterprises if they become insolvent. The potential ratio could be 80 per cent for the funds and 20 per cent for the banks, or 70 per cent and 30 per cent, respectively. The funds are currently responsible for paying off 100 per cent.

Tran Thi Thanh Tu from Viet Nam National University, Ha Noi, stressed that credit guarantee funds should co-operate with SME associations in evaluating loan guarantees. – VNS