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Capital accessing is the most important issue for SMEs. Photo: Danh Lam

High interest rate weakens the competition base

The survey results on SMEs situation of the Working Group on SME Support under the Vietnam-Japan Joint Initiative show that there are three main disadvantages faced by SMEs: lack of capital; Government policies do not have effect on SMEs development; and the business capacity (administration capacity, production management, quality management, business culture, business ethics, law compliment, etc.) of enterprises’ leaders are low. Standing as the top concern capital. Not only lacking capital, the process of accessing finance at the banks of these enterprises is quite arduous, not to mention if the interest rates are not uncomfortable.

According to Mr. Nguyen Truong Giang, member of the Working Group on SME Support, JETRO Ho Chi Minh City, lack of collateral assets is the main reason that makes SMEs unable to get loans from banks. In addition, Mr. Giang said that accessing capital is the most important issue for SMEs, however, due to lack of knowledge in making financial reports and business plans makes these SMEs problematic to get a loan from banks. Not to mention, so far, banks have always given priority to SOEs, so the resources reserved for SMEs are limited, and interest rates are very high.

"Recently, interest rates have fallen more than in previous years when interest rates at State-owned banks were about 9%/year and at commercial banks 12-14%. High interest rates weaken the competitive platform of domestic enterprises. Especially, as tariffs decrease as a result of the ASEAN Economic Community (AEC) forming, SMEs in Vietnam are weaker, unable to compete with other regional countries such as Thai enterprises when they enjoy interest rates of around 7%", said Mr. Giang.

Sharing on this issue, the Director of a gas production and transport business in Hanoi said that his company currently has to secure bank loans for doing business, but small business loans interest rates are still as high as consumer loans. With a loan of 200-400 million vnd, businesses pay an interest rate of 11-13%, even over 13% per year, depends on the banks. The representative of this company also said that in order to obtain larger loans with lower interest rates, enterprises are required to develop strategies and business plans and to complete loan applications, therefore they’d rather accept the high interest rates.

Also, according to a survey conducted by the Working Group on SME Support, the fact that banks require enterprises to have collateral assets partly comes from the fact that there are enterprises that could not pay their debts fully, banks often have to focus on collateral assets to reduce risk.

Enterprises need to overcome limitations

Recently, at the Workshop on SME Support – Japan’s Experiences, experts said that the management capacity of SME leaders is also one of the major constraints when most micro enterprises are formed from family businesses and then developed into SMEs. However, as businesses grow in size, they have weaknesses exposed in the management capacity of some business leaders which leads to higher a risk of bankruptcy. Directors of some enterprises operate without delegating power to subordinates, which reduce the sense of functional improvement and learning of the whole organization, and does not foster talent. In addition, related to administrative issues, lots of the SMEs said that they have met many difficulties due to unclear policies, troublesome procedures, corruption, and lack of information.

Mr. Koji Takimoto, Representative Chief of Jetro HCM City said that the localization rate of Vietnam is low, Japanese enterprises find only 34% of domestic supply from Vietnamese SMEs, the remaining 60% has to be found from imported sources from other countries, which leads to overhead costs. Meanwhile, the localization rate of Thailand is 60%, China is 70%. This expert also said that if Vietnam SMEs' capacity is not improved, instead of selecting Vietnam, foreign investors will choose other countries in the region.

Sharing experiences on supporting SMEs in Japan, Mr. Hikaru Fukanuma, economist expert of the General Policy Research Institute (Japan Finance Corporation), said that SMEs play a very important role in the Japanese economy. Determining the importance of the SME sector, Japan has introduced SME support policies. Specifically, in 1948, the Department of SMEs was established, in 1963 Japan issued the Basic Law on SMEs, the Law on encouraging SMEs modernization and many other laws related to this sector. At present, Japanese SMEs are supported by capital inflows through policy credit and credit guarantee by Japan's Finance Policy Corporation with 12 trillion yen, Central Credit Fund of Industrial and Trade Cooperative of 9 trillion yen and Credit guarantee associations (51 associations) with 26,000 billion yen. It is worth mentioning that loans through financial companies are normally medium, long-term loans with fixed interest rates, not requiring much on collateral assets and credit without collateral assets accounted for 81%. Japan's multi-layered support has helped SMEs become the backbone of the economy. Many large Japanese enterprises came from SMEs, such as Honda, founded in 1948 with only 34 employees; and SONY, founded in 1945 with an initial starting point of only 20 employees. And, for example many Japanese SMEs have been supplying spare parts for Boeing production.

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In Vietnam, the Law on SME Promotion, the first law on SMEs, is being finalized by the Ministry of Planning and Investment. According to Japanese experts, the promulgation of the Law on SME Promotion is necessary and this is a big step towards the SME sector in Vietnam. But Japanese experts also said that it is necessary to divide the SME into several groups, such as small enterprises, medium enterprises and small businesses, which will help the authorities to have the most appropriate policy designs for each type of business, and for the support to achieve the desired results.

According to experts, to support enterprises, the Government of Vietnam firstly needs to organize methodical training courses for SMEs on the knowledge that is necessary to operate enterprises such as factory management, production management, enterprise control and business strategy. "SMEs themselves need to overcome some shortcomings to take advantage of many opportunities and support to develop. Enterprises need to publicise fully and promptly information on their activities, take the initiative in cooperating or asking for assistance from functional agencies when in need, try to arrange collateral assets when they want to borrow capital from banks, and enhance getting information and consultancy from organizations and experts", Mr. Hikaru Fukanuma recommended.