“New path” for small and micro enterprises to access capital

	Removing difficulties in public investment disbursement
	Removing legal hurdles in regular spending for capital assets

Banks with high risk appetite often find it difficult to provide credit to micro-enterprises and households. Illustration photo: Internet

30% of micro-enterprises and business households use informal credit

Finance inclusion is when all people and businesses have access to and use financial products and services conveniently, in accordance with their needs at reasonable costs, provided responsibly and sustainably, with a focus on the poor, low-income people, disadvantaged people, small and medium-sized enterprises, and micro-enterprises.

In particular, the United Nations has identified financial inclusion as an important solution to achieve 7/17 sustainable development goals by 2030. To date, more than 80 countries in the world have being implemented national financial inclusion strategies. In Vietnam, on January 22, 2020, the Prime Minister signed Decision No. 149/QD-TTg on promulgating the National Financial Inclusion Strategy to 2025 and orientation to 2030, so Vietnam has also achieved some outstanding results in terms of legal framework, financial infrastructure…

According to research by the Institute for Digital Economic Development Strategy (IDS), thanks to rapid growth in both the number of service delivery channels and the speed of digital transformation, the proportion of adults accessing modern financial services has grown rapidly. However, the gap in access to financial services has widened in a way that is disadvantageous to small enterprises. In particular, the group of micro-enterprises and business households (capital of about VND 5-6 million) also has very limited access to formal credit.

In fact, the demand for loans of small and micro enterprises and households is very high. However, due to limited access to formal capital sources, many enterprises and households often seek capital from family and friends, but some of them have turned to informal financial institutions, even "black credit" with high interest rates.

According to IDS statistics, there are currently nearly 6 million micro enterprises and households, but 30% of them have to use informal credit because the loan success rate from credit institutions is low. The reason is that credit institutions only reserve 20% of their loan portfolio for both small and micro enterprises; microfinance institutions have limited resources when they have only reached more than 200,000 customers, with a loan size of VND 30 million.

According to IDS, another reason for the low loan success rate is that 80% of surveyed enterprises have no credit history, 60% do not meet collateral requirements, and 70% do not have a business plan.

Fintech is the key solution

Therefore, to solve the above difficulties, according to Associate Professor, Dr. Dang Ngoc Duc, Head of the Faculty of Banking and Finance (Dai Nam University), financial technology (fintech) is the key solution. This technology not only helps increase access to credit for small and micro enterprises but also increases convenience and improves management capacity for small enterprises.

Accordingly, fintech possesses great potential for development thanks to advantages in technology, data, operating costs, business opportunities… The IDS report states that to accelerate financial inclusion, international experience is to implement digital transformation policies and apply technology to financial services to realize the goals of the financial inclusion strategy.

For example, India has developed a network of correspondent banks with the aim of extending financial services to rural areas and supporting small and medium-sized enterprises. The number of SMEs using correspondent banking services has increased by 25% in the past five years. Indonesia has also allowed correspondent banking model since 2013, which commercial banks shake hands with non-banking organizations to provide services to the community. To support fintech, the Central Bank of Indonesia has created a regulatory framework to pilot various solutions for micro-enterprises.

However, the biggest barrier currently lies in the legal framework for fintech enterprises when they fail to meet practical requirements. Mr. Mai Danh Hien, General Director of Electricity Finance Joint Stock Company (EVN Finance), said that legal regulations basically created favourable conditions for digital transformation activities in the financial and banking services sector. However, among the 26 financial companies today, there were very few companies lending to the business segment, mainly consumer loans to individuals.

EVN Finance is one of the financial companies with many products aimed at lending to small enterprises and household customers. However, the company's leader shared that financial companies themselves were having a "headache" with the situation of "debt repudiation" as well as fraud and impersonation of financial companies to commit fraud. Debt collection was very difficult because these companies lacked human resources while the market lacked intermediary debt collection units.

The above difficulties have made financial companies hesitant to lend widely, and borrowers have not yet put enough trust in financial companies. Therefore, experts and enterprises recommend that the State could cooperate to develop by intangible resources that build a suitable legal framework for the development of technology application activities in general and fintech in particular. Legal loopholes in fintech activities such as peer-to-peer lending, crowdfunding, digital currency, cashless payments, information sharing and security need to be quickly addressed.