SMEs need to get their act together to access capital

Duong Dang Hung, owner of a mechanical engineering company called Dang Hung in northern Hai Phong City, wanted a bank loan to expand. But his efforts were in vain. He received the same answer from many banks: "not eligible."

"The bank asked for financial reports and business plans, which we could not provide," he said.

He then had to improve management of his production activities and hire more people for accounting and finance to meet the requirements of the banks.

Only then was he able to borrow.

"Some banks even offered me credit on preferential terms," he said.

Last year pork prices dropped to their lowest levels in many years.

Cao Van Hung, deputy general director of RTD, a company in Hung Yen province, said his company struggled for working capital at that time.

"Banks hesitated to give us a loan though our collateral was worth a trillion. The company had to prove its production capacity and product quality, and show its farms to get a loan."

Viet Nam RTD Corporation.

According to a World Bank report, Vietnam ranks 29th out of 90 countries studied in terms of access to credit.

Sixty percent of small and medium-sized enterprises in the country cannot get bank loans, mostly because of their own shortcomings. Their financial capacity is limited, their management capability is poor and they often lack long-term business strategies and plans.

According to statistics from the Vietnam Chamber of Commerce and Industry (VCCI), there are some 670,000 companies operating in the country. SMEs account for around 97 percent, contribute about 45 percent of GDP and 31 percent of the government’s revenues and employ more than five million workers.

SMEs are also main enterprises to face difficulties in finding capital.

Vu Tien Loc, chairman of the VCCI, said most of them still use their own resources for production and doing business and are unable to approach banks.

He emphasizes businesses’ need for greater transparency in management.

"Without transparency, trust will be difficult to establish. And that is why the banks say no to a lot of SMEs in Vietnam. The essence of the problem is that all three parties – banks, funds (what does it mean?) and enterprises -- need to sit together and improve relations, making it symbiotic and not just about asking – giving."

Vu Tien Loc, Chairman of VCCI.

He also said it is necessary to loosen lending policies and the legal framework, adding banks need to adopt new lending methods and be more flexible, even support start-ups.