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Credit guarantee funds need restructuring
Credit guarantee funds have been around for many years but have not been of much help to small- and medium-size enterprises (SMEs). There has been a call for them to be restructured.
Seven years ago, credit guarantee funds were set up in localities after experts found out that the model of credit guarantee funds had been very successful in Taiwan, where robust economic growth was fueled by SMEs.
Nevertheless, this kind of fund has not succeeded in Vietnam, which explains why nine funds were established, but only three are operational, while the benefits businesses receive from the funds remain modest.
The credit guarantee fund in Vietnam was designed to be an institution which runs on capital contributed by the local budget, banks and businesses. However, in fact, banks and businesses are not interested in contributing capital to the funds because they don't get anything out of it.
The HCM City credit guarantee fund, which was established in 2004, just gets capital from Vietcombank and Asia Commercial Bank. Meanwhile, not many businesses are approved for loans by the fund.
In order to get a credit guarantee from the fund, businesses have to have feasible business plans and assets to be mortgaged for the loans, the value of which must be equal to 30% of the loans’ values. The fund will only provide a credit guarantee valued at 80% of the gap between a loans’ value and the mortgaged assets’ value.
One businessman said that if he could meet those conditions, he would not need money from a credit guarantee fund.
Restructuring?
Explaining why businesses have not been interested in credit guarantee funds, Duong Thu Huong, Secretary General of the Vietnam Banking Association, said that the capital structure of the funds is unreasonable.
Under the funds’ operation regulations, the capital for the funds comes from the local budget and commercial banks. However, local budgets are always tight, which means no money for credit guarantee funds.
Huong said that credit guarantee funds need to be restructured so money has to come from the budget and from donors.
A project on the establishment of a central credit guarantee fund has been compiled by the Vietnam Development Bank (VDB). It is expected that the fund will come out early next year.
According to Cao Sy Kiem, former Governor of the State Bank of Vietnam, the project would fix the shortcomings of the current credit guarantee funds. The capital of the fund would mainly come from the budget and international aid, while only a small capital proportion would be mobilised from businesses, and none from banks.
Chairman of the Bank of Development and Investment of Vietnam (BIDV) Tran Bac Ha emphasised that credit guarantee funds for SMEs would be very useful in Vietnam, where SMEs account for 95% of total businesses.
DTCK, VIETNAMNET
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