Further interest rate cut proposed to support SMEs

Workers at an SME specialising in cashew export in the southern province of Binh Phuoc

The Ministry of Planning and Investment (MPI) has proposed the government provide further support for Vietnamese small- and medium-sized enterprises (SMEs), including an interest rate reduction of another 2 percentage points per year.

The rate cut is to facilitate SMEs’ integration into domestic and global value chains, according to the proposal, which is part of a draft decree on the organisation and activities of Vietnam’s Small and Medium-sized Enterprise Development Fund.

While pending the government's review, the proposal has been well noted and received by the business community, especially by Vietnamese SMEs.

"It would be a tremendous help to us if we could borrow from the fund at further discounted rates, which would reduce our financial pressure and allow us to focus on production," said Vu Xuan Anh, CEO of a packaging company in the northern province of Hai Duong.

He added his company's core products, which are wrapping paper and plastic film, thanks to the development fund's financial support, could be priced about 15% lower than imported products while remaining competitive in quality. By his estimation, the company saved up to 700 million VND on interest rates alone last year.

The development fund, according to MPI, has disbursed nearly 600 billion VND since 2016 to nearly 40 startup SMEs. It has played a vital role in supporting said SMEs to focus on the innovation of products, and participate in the country's supply and value chains.

While the figure may seem modest for SMEs' demand for lower-cost financing there have been upticks in recent months. During the first six months of 2023 alone, the fund has granted 260 billion VND to eight SMEs, or 87% of its annual target.

According to a representative from the fund's management board, there is a plan to further cut interest rates for SMEs in the future, which is in line with the Vietnamese Government's initiative to increase support for SMEs.

"We normally based our interest rates on the lowest among Vietnam’s largest commercial banks. From there, we could further reduce rates by another 20%," said Pham Xuan Kien, chairman of the fund's council.

For now, the fund's registered capital has reached 837 billion VND. However, depending on demand and business qualifications it could be increased to over 2 trillion VND in the future.

Nguyen Dinh Cung, former director of the Central Institute for Economic Management (CIEM) said the fund should seek out potential contributors among investors and banks.

In addition, it should prioritise establishing its own set of criteria and protocols to work directly with SMEs instead of lending through commercial banks as of now.

Last year’s data showed that Vietnam was home to nearly 800,000 SMEs. Vietnamese SMEs accounted for 98% of all registered businesses, created 70% of all employment and generated about 50% of the country's GDP.

Besides raw numbers, the country's SMEs often play an important role in innovation, regional development, export and economic persification./.