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Oct 21, 2021 / 21:40

JICA, Sumitomo Mitsui offer US$75 million to Vietnam SMEs

Funding is empowering SMEs amid difficult access to bank loans.

The Japan International Cooperation Agency (JICA) on October 20 signed a US$75 million loan agreement with Vietnam Prosperity Joint Stock Commercial Bank (VP Bank) to fund micro, small and medium-sized enterprises (MSMEs). 

Toyama Tatsuya, General Director of Sumitomo Mitsui Banking Corporation (SMBC) Vietnam (1st left), Chief Representative of the JICA Vietnam Office Shimizu Akira, and Vo Hang Phuong, Head of Financial Institutions and Transaction Banking, VP Bank, at the signing ceremony on Oct 20.  

Through the Private Sector Investment and Finance (PSIF), the loan is in line with the “Initiative on Overseas Loan and Investment for ASEAN” announced by the Government of Japan in 2019 and is implemented by utilizing the “Facility for Accelerating Financial Inclusion in Asia: FAIA.”

The loan is co-financed with the Sumitomo Mitsui Banking Corporation (SMBC) and is JICA’s first PSIF project in Vietnam co-financed by a Japanese private financial institution after PSIF was relaunched in 2012.

In accordance with the “2X Challenge: Financing for Women” – an initiative adopted by various multilateral and bilateral development financial institutions, including JICA, in June 2018 to mobilize $15 billion for 2021-2022, JICA provides more than 30% of the total loan amount for enterprises in which women play an active and management role through VP Bank.

Likewise, the loan from JICA will help VP Bank expand lending to MSMEs including WMSMEs, and will contribute to Vietnam’s sustainable economic growth. This project contributes to Goals 5, 8, 9, and 17 of the Sustainable Development Goals (SDGs).

In September 2021, JICA issued a gender bond that contribute to gender equality and women’s empowerment in the wake of the Covid-19 crisis to promote gender-related activities. The funds raised by gender bonds will be used for projects and disbursed through VP Bank that contributes to gender equality and women’s empowerment.  

The JICA-VP Bank agreement is the first project of the SMBC-JICA Sustainable Finance Framework (launched on March 30, 2021) which aims at improving borrowers’ sustainable businesses.

The framework will utilize JICA’s experience as a development finance institution to identify development challenges, project monitoring, and project impact evaluation. It will adopt the common impact evaluation and monitoring majors for the co-financed project, and share and manage the results mutually.

Funding SMEs – JICA’s effective tool in Vietnam for three decades 

The JICA-VP Bank agreement is the latest deal of Japan’s funding of small- and medium-sized enterprises (SMEs) – an effective tool fueling the financial autonomy of the economic contributors.

It is part of efforts to empower the private sector in Vietnam that JICA has contributed to the process since 1990.

The funding has helped solve challenges facing SMEs as they are given fewer opportunities to access medium- and long-term loans despite their significant role in the economy, Chief Representative of the JICA Vietnam Office Shimizu Akira said at the mid-term press conference of the Fiscal Year 2021 held virtually on Oct 21.

The funding, which is an official development loan (ODA) by the Government of Japan, has been provided through the State Bank of Vietnam and commercial banks.

MSMEs play a crucial role in Vietnam’s economy, accounting for 98.7% of the total number of enterprises, 45% of the gross domestic product (GDP), and 63% of employment.

However, their access to finance is limited; especially, very few women-led micro, small and medium-sized enterprises (WMSMEs) are able to finance their businesses.

VP Bank, a commercial bank in Vietnam established in 1993, has been engaged for many years in improving financial access for small enterprises as one of the intermediary financial institutions in the Japanese ODA loan Small and Medium-Sized Enterprises Finance Project (III) (approved in 2009). These focus on financing to MSMEs, consumers, and the retail sector as their main business segments, with more than 100,000 MSME customers in Vietnam.

In recent years, the bank has been highly evaluated for actively developing products and financial services to reach out to women-owned micro, small and medium-sized enterprise (WMSME) clients.

In addition, JICA has been supporting the enhancement of women’s financial access in Vietnam through the technical cooperation Project for Promoting Gender-Responsive Financial Inclusion through Vietnam Women’s Union since 2019, and VP Bank has been providing management diagnostic tools for female enterprises and WMSMEs as a partner organization in the project.