Joint effort between government agencies, banks and enterprises is required to help small and medium enterprises (SMEs) access capital, according Loc.
Overview of the conference. Source: Ngoc Thuy.
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Over the last 30 years, capital has been playing a key role in the development of SMEs, Loc said at a workshop held in Hanoi on August 7.
Vietnam currently ranks 29 out of 190 countries and territories in credit access, according to the World Bank, while SMEs accounted for 21% of total outstanding loans in 2017.
However, 60% of SMEs have not had access to capital, according to Loc. This is especially true for start-ups, as the majority are run by young people and lack of capital. Therefore, supports from banks and credit institutions would be vital for their developments, Loc continued.
Responsibilities, however, lie in the state, banks and enterprises for high percentage of SMEs without access to capital. "First is the state, which includes the State Bank of Vietnam (SBV) and related government agencies, followed by banks, credit institutions and micro, small and medium enterprises (MSMEs)," he continued.
Specifically, there remains legal frameworks that restricts investment. "We have to learn to accept investment risks, while regulations on land use rights are one of the reasons behind SMEs' difficulties in accessing loans," Loc noted.
Moreover, as asset-based lending is commonly used due to the absence of either effective channels of credit information or insurance for loans, banks are in favor of large SOEs instead of SMEs.
"Assets are not essential in a digital and startup economies. There should be lending based on business models and creative ideas, which is the way to encourage innovative startups," Loc stressed.
Vietnam has 670,000 enterprises, of which 97% are SMEs. Taking into account five million business households, MSMEs are nearly six million. However, only two millions have registered, while the majority are in informal economy that lacks transparency.
"Even with those two million, transparency in governance is still a major shortcoming for many," Loc added.
Transparency is key
Nguyen Quoc Hung, director of the SBV's Credit Department, considered the lack of transparency, which leads to low credibility, coupled with insufficient collateral assets and infeasible business plan as main reasons behind low lending rate to SMEs.
The key issue would be how to create mutual benefit between enterprises and banks to replace the current "ask and give" mechanism, which is the means of governing society by orders rather than the rule of law, Hung added.
"Only by then we can eliminate bottlenecks in institutional framework, lending and corporate governance," according to Hung.
From the government side, there should be more policies to encourage start-ups, especially innovative start-ups, Hung stressed.
Meanwhile, banks should pay more attention in new methods of lending on the basis of ideas and business plan, so that start-ups and farmers can now access capital.
Enterprises, including SMEs, are required to focus on transparent corporate governance. "This should be how they can gain trust and get loans from banks," Hung said.
According to a VCCI study of over 60 economies, Vietnam is among the top 20 economies that have leading entrepreneurial spirit. However, in terms of realizing ideas of starting a business, Vietnam is at the bottom 20 economies.
"Transparency is essential for enterprises and banks to reach a common understanding," said banking expert Can Van Luc.
Echoing Luc's view, financial expert Vu Dinh Anh pointed to a miscommunication between SMEs and banks as reason for SME's lack of capital access.
"Banks look at things from financial aspect, while SMEs focus on economic matters. SMEs have to raise their financial administration capabilities to the level of that of corporate governance," Anh concluded.
