Credit guarantee policies are considered "a lifebuoy" for many SMEs. Why?

Cao Sy Kiem

SMEs are weak in management capacity and lack mortgages, so many of them can't meet the lending requirements of banks. The government has been aware of the situation and established credit guarantee funds in some localities nationwide. It assigned the Viet Nam Development Bank as a guarantor for SMEs to borrow capital from commercial banks. With such assistance, enterprises have been able to manage funds for their projects and many have been given strength to overcome obstacles.

In developed countries in the region and the world, credit underwriting is very popular as a good supporting channel for business operations, especially operations of small companies with limited production facilities and capabilities.

Why are credit guarantee funds still generally assessed as inefficient?

This is true. Many factors make it hard for credit guarantee funds to operate efficiently in direct and indirect ways. The legal framework for operations of the funds is insufficient, with regulations remaining inconsistent and even conflicting. This causes difficulties for borrowers, lenders as well as guarantors.

Credit guarantee funds are formed from three sources: local state budgets, contributions from enterprises, and finances from domestic and foreign organisations. The overseas source is almost insignificant, so the size of current funds are very small, amounting to only some tens of billions of dong. There are also high risks for operations of the funds, which manage incomes and expenses themselves without any refinancing sources. Poor capacity of fund-operating staff in assessing enterprises' performance and the feasibility of their projects resulted in many bad debts.

Representing SMEs, what does your association hear from firms accessing bank loans with credit guarantees?

The majority of the enterprises hesitate to use credit underwriting to borrow bank loans, blaming complicated procedures in accessing the guarantee service. The assessment process repeats and fees double when the companies deal with both guarantee funds and commercial banks. This shows that guarantors and banks lack close co-ordination and mutual confidence, and their enterprises will be put at a disadvantage. In many cases, funds and banks are also worried about irrecoverable debts and unwilling to lend. Thus, relation of the involved parties is even more slackened, meaning chances are less and less for SMEs to receive support.

What measures are needed to solve this problem?

There must be a complete legal framework that resolves the inconsistency in policies, and capital sources for credit guarantee funds need to be diversified. Don't count on financial contribution of enterprises because they are struggling themselves, let alone assisting others. Fund managing staff must improve their abilities to ensure credit security and uninterrupted fund operations, and the government should help guarantors increase capital by introducing efficient models of fund to attract foreign investments. — VNS