Despite an increase in overall credit growth, micro and small businesses continue to encounter challenges in securing loans.
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| || --- || Small businesses in Vietnam struggle to procure bank loans, finding themselves at a disadvantage compared to large corporations and real estate projects. Picture courtesy of vnbusiness.vn |
HÀ NỘI - Despite an impressive jump in bank credit by over VNĐ1 quadrillion in the first five months of the year, the flow of money has not been equitably distributed among various types of enterprises and industries. As a result, many small businesses are wrestling to get their hands on the much-needed capital.
According to data from the State Bank, bank credit increased by 6.52% in the first five months of 2023, hitting VNĐ16.6 quadrillion, marking a significant increase in credit during this period.
However, industry experts suggest that the surge in credit has not been evenly distributed. Rather, most of the funds have been channeled into large enterprises, reputable corporations, and real estate projects, leaving small businesses high and dry.
Banks typically prioritize lending to customers with valuable assets as collateral and a solid credit record, leaving small businesses, particularly those lacking tangible assets, at a significant disadvantage.
Nguyễn Văn Mạnh, General Director of the Hà Nội Housing Construction and Trading Joint Stock Company, boldly asserted that despite possessing collateral, the company has not secured bank capital for over a decade.
To maintain operational cash flow, the company relies on its capital and forms joint ventures with other partners to share profits.
Hà Nội's Hà Thành Investment and Trade Joint Stock Company shared similar sentiments, stating that while banks have shown enthusiasm in supporting the company by opening accounts to borrow, securing actual loans remains challenging due to a lack of collateral.
The company was awarded contracts to supply medical equipment worth about VNĐ50 billion, but was unable to borrow from the bank due to a lack of collateral. The bank proposed an alternative solution by asking the company to prove that it had won the bid, but given the ambiguous nature of this proposal, the company was left in a difficult position, forced to seek help from larger enterprises to access bank loans, effectively missing out on the opportunity for development.
Some micro-enterprises reported that they were, somehow, able to procure loans from banks, but complained about indifferent bank staff who failed to support or guide them effectively after disbursing the loans.
Large enterprises often trace their roots back to small businesses. Vietnam hosts a vast number of small and medium-sized enterprises. It is, therefore, crucial for banks to closely collaborate and support small and medium enterprises, as many of these could potentially grow into significant players in the market.
Small and medium-sized enterprises pointed out that interest rates, despite being adjusted downward, remain elevated compared to their financial health. Given their low profit margins, they hope that banks would devise strategies to further reduce interest rates.
Although interest rates have been readjusted, only specific sectors are eligible for these concessions. Moreover, bank lending conditions remain stringent, requiring enterprises to demonstrate financial capacity, maintain a clear business plan, and enjoy stable profits, among other requirements[1].
However, small and micro enterprises often struggle to meet these stringent criteria[2]. This reality explains why, although credit is expanding, not all enterprises qualify for the much-needed financial assistance.
Experts advise banks to develop specialized financial products tailored for small businesses, including unsecured loans based on business cash flow, loans based on output contracts, or loans based on assets generated from borrowed capital. Additionally, expanding the credit assessment model to include actual transaction data from enterprises, rather than solely focusing on collateral, could help in addressing these challenges[3][4].
In short, small and medium enterprises in Vietnam find it difficult to secure bank loans compared to large enterprises and real estate projects due to challenges related to collateral, documentation, financial literacy, bank risk classification, and imbalanced capital allocation in the banking sector. Initiatives like social loan packages, simplified loan procedures, and technology-driven solutions are being implemented to ease access to finance for small businesses[5].
Most credit capital has poured to large enterprises, reputable corporations or real estate projects, while micro, small and medium enterprises, which account for a large proportion of the economy, have little access to bank loans. Photo vnbusiness.vn
[1] ADB launches social loan packages to boost women-owned SMEs in Vietnam: https://www.adb.org/news/adb-launches-social-loan-packages-boost-women-owned-sme-vietnam[2] Challenges faced by MSMEs in Vietnam: https://www.vcci.com.vn/english/research/challenges-faced-by-smes-in-vietnam/[3] Technology-based solutions for expanding MSME access to finance in Vietnam: https://www.abei.org/nasovietnam-promotes-technology-based-solutions-expand-msme-access-finance-vietnam/[4] Digital credit assessment for MSMEs in Vietnam: https://www.financial-innovation.asia/digital-credit-assessment-msmes-vietnam/[5] Efforts to boost MSME access to finance in Vietnam: https://www.devicemag.vn/en/news/umps-vfv-to-provide-vnd3-5-trillion-in-loans-to-msmes-in-2023/
- Small businesses in Vietnam, despite an increase in bank credit, continue to face challenges in securing loans, as most funds are directed towards large enterprises, reputable corporations, and real estate projects.
- Nguyen Van Manh, General Director of the Ha Noi Housing Construction and Trading Joint Stock Company, stated that they have not secured bank capital for over a decade, despite possessing collateral.
- The Ha Noi Ha Thanh Investment and Trade Joint Stock Company faced similar difficulties, unable to borrow from the bank due to a lack of collateral, despite winning contracts worth VND50 billion.
- The high interest rates, while adjusted downward, are still higher than the financial health of many small businesses, making it difficult for them to qualify for bank loans.
- To address these challenges, experts advocate for banks to develop specialized financial products for small businesses, such as unsecured loans based on business cash flow, and expand the credit assessment model to include actual transaction data from enterprises, rather than solely focusing on collateral.
