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SMEs need to improve transparency for easier access to capital

Thuy Dung
Saturday,  Oct 7,2017,23:29 (GMT+7)
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SMEs need to improve transparency for easier access to capital

Thuy Dung

HANOI – Information transparency is one of the key factors that help small and medium enterprises (SMEs) get funding from credit institutions, said experts at a conference on financial solutions for SMEs held by the State Bank of Vietnam in Hanoi on October 5.

Can Van Luc, an expert in finance and banking, said SMEs are classified as those with an average number of employees covered by social insurance in the preceding year of no more than 200 each. Besides, their total capital in the preceding year should not exceed VND100 billion (US$4.4 million) and turnover in the preceding year not higher than VND300 billion.

There were about 590,000 operational SMEs in Vietnam as of late 2016, with 68% of them micro enterprises.

SMEs mainly get funding from the State budget, foreign investment, stocks and bonds, business partners, credit, and their own capital. 

Luc said many SMEs lack access to finance, which hinders their growth. The reason is that SMEs are not attractive to credit institutions because they have poor credit and high operating costs.

Credit institutions have not had specific products and services for SMEs, and complicated procedures have caused slow capital disbursement.

According to Luc, most SMEs have poor business governance and lack transparency, use obsolete technologies and unskilled laborers, and are unable to meet the banks’ lending criteria. Besides, they lack business strategies, strong brand, competitive products, assets as mortgage, risk insurance, and deep understanding of financial policies.

Hoang Thi Hong, chairwoman of the Small and Medium Enterprise Development Fund (SMEDF) under the Ministry of Planning and Investment, said SMEs need to make their information transparent if they want to get access to financial support. The most important information that credit institutions need before they make lending decisions include the SMEs’ total assets, owner’s equity, annual revenue and profit, and business performance.

Hong suggested SMEs actively work with credit institutions, create effective business plans, enhance their understanding of the Government’s financial and supporting policies, cooperate with each other, and improve management skills.

For credit institutions, they should launch products and services aligned to SMEs’ specific characteristic, with simple lending procedures and favorable interest rates.

According to Doan Duy Khuong, vice chairman of the Vietnam Chamber of Commerce and Industry (VCCI), SMEs account for 97% of Vietnam’s total number of enterprises and 45% of the country’s gross domestic product (GDP). They contribute 31% to the State budget, and employ over five million workers.

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