Increasing efficiency of priming capital to support small and medium enterprises


The operation of the SME Development Fund still faces many obstacles because of legal regulations. Photo: ST
The operation of the SME Development Fund still faces many obstacles because of legal regulations. Photo: ST

Promote startups, join chains

From July 1, 2019, the Government’s Decree No. 39/2019/ND-CP on the organization and operation of the Small and Medium Enterprise (SME) Development Fund guiding Article 20 of the Law on SME Support took effect. To implement the Decree, the Member Council of the SME Development Fund issued Decision No. 08/QD-HDTV announcing the fund’s lending interest rates with three interest rates corresponding to the loan term, including short-term lending interest rate is 4.16%/year, medium-term lending interest rate is 6%/year, and long-term lending interest rate is 6%/year. This interest rate is kept fixed (or reduced) during the loan period of SMEs. This is an interest rate that is 3% to 4% lower than the commercial lending rate in the market.

However, by 2020, due to the impact of the Covid-19 pandemic, the Member Council has issued a decision to announce an additional 2% reduction in the fund’s lending interest rate, specifically, reducing short-term lending interest rates to 2.16%; medium and long term to 4%.

According to experts and businesses, the operation of the SME development fund plays an important role in supporting SMEs to access capital in the context of credit capital from commercial banks facing difficulties and high interest costs. The minimum charter capital of VND2,000 billion of the fund is allocated from the budget and is considered “prime capital” to mobilize private financial sources to support SMEs.

Moreover, the fund’s lending to SMEs through commercial banks has encouraged banks to arrange their own resources to participate in financial support for SMEs.

Additionally, the fund focuses on supporting innovative start-up SMEs, SMEs participating in industry clusters and value chains that are considered appropriate because these are the fundamental areas for economic development, promoting start-ups, developing, and increasing the quantity and quality of industry clusters and value chains with competitive advantages of Vietnam.

According to the report of the Ministry of Planning and Investment, by the end of September 2022, the total amount of capital approved by the fund for loans was VND233.53 billion, the total capital disbursed to SMEs according to the project’s progress was about VND177.68 billion. All SMEs that get loans from the fund have implemented business expansion activities for the right purposes.

The principal amount recovered from the fund’s loan reached VND97.47 billion, the amount of interest collected reached VND18.7 billion, the outstanding balance was VND80.21 billion. Currently, the fund is reviewing and evaluating the dossiers of SMEs with a total loan amount of VND429.24 billion.

Disclosure of information to avoid “favors”

Although many positive results have been obtained after nearly three years of implementation, according to the Ministry of Planning and Investment, there is still no legal framework regulating the management of non-budget state financial funds. Each fund has its own adjustment document, leading to many problems in the management and operation of the fund.

Moreover, the regulation that the fund operates under the “model of a one-member limited liability company in which 100% of charter capital is held by the State” easily confuses enterprises. Some units and individuals responsible for implementation believe that all provisions of the Enterprise Law must be applied to the fund’s operations. This has led to many problems in the organization and operation of the Fund in recent years, affecting the effectiveness of supporting SMEs.

In addition, the Law on management and use of State capital for investment in production and business at enterprises stipulates that State capital must be preserved and developed. This regulation makes it difficult for the fund when converting the organizational model to a one-member limited liability company with 100% charter capital held by the State. Because the SME Development Fund lends or sponsors capital, there is still a risk of losing capital, especially lending to innovative start-up SMEs.

Moreover, the criteria to identify innovative start-up SMEs, SMEs participating in industry clusters and value chains have not yet been specified, causing problems for the Fund and banks and taking a long time to appraise when implementing.

Therefore, the Ministry of Planning and Investment is collecting opinions to develop a Draft Decree amending and supplementing a number of articles of Decree 39/2019/ND-CP on the organization and operation of the SME Development Fund.

In which, the revised draft will stipulate the roadmap for direct lending activities, loan conditions, loan rates agreed based on the capacity of enterprises, direct lending methods; limit the level of indirect lending fees; specific regulations on capital financing conditions, order and procedures; additional regulations on capital funding limit and business selection process. It is expected that the provisions in the draft would affect all businesses that need to borrow capital and receive funding from the Fund.

Commenting on the draft, the Vietnam Confederation of Commerce and Industry (VCCI) said that the draft contained provisions for the fund on the announcement of the capital funding program for innovative start-up SMEs. Enterprises then base themselves on this new program to apply for funding.

However, according to VCCI, the draft does not have regulations on publicizing this funding program. This may lead to the risk that businesses do not know the program to be able to apply for funding; it may even lead to a situation where only a few “favored” businesses are notified about this program, causing inequality with other businesses. Therefore, VCCI proposed the drafting agency provide more detailed regulations on the disclosure of the Funding program, including contents on the form and the time of disclosure.

In particular, VCCI proposed the drafting agency add more content on evaluating the effectiveness of a loan and the entire operation of the fund. For example, it is possible to compare the revenue size, labor size, export value, customer network, or other development factors of the business before and after being funded. These indicators are used not only as soft criteria when deciding on funding, but also to report and explain the fund’s performance.


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