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It is not easy for small firms to access credit
Viet Nam News has discussed improved credit access for small to medium enterprises with World Bank's International Finance Corporation Vice President Rachel Robbins immediately after IFC and the Justice Ministry, launched an online registration system for secure transactions.
What challenges do you think Viet Nam's SMEs face?
One of their biggest challenges is gaining access to finance. Lenders need security or collateral to lend to small enterprises.
The on-line registration system will make it much easier for medium-sized enterprises to access financing because they can use their assets as collateral to buy equipment as well as run businesses.
SMEs also do not have enough capacity or skilled employees. But we focus on the major challenge - to help them access financing.
With financing, you can build businesses; plan for the future; deal with problems and save for development. This helps them to grow, employ more people and then can contribute to the overall economy.
What does the IFC do to improve credit access for Viet Nam's SMEs?
We have a special programme to encourage more and more banks to lend to SMEs but those banks require collateral and this process will make it easier for enterprises to obtain finance.
We will be working with the Viet Nam Government to establish a framework for the development of micro-finance.
We will also work with the Government and responsible micro-finance enterprises to ensure they have systems that don't allow them to over-lend and make loans borrowers can't afford.
It's very important for individuals, who want to start small businesses, to access finance. We have helped many micro-finance institutions around the world and we look forward to helping in Viet Nam as well.
We don't lend directly to businesses; we just provide technical advice and capacity-building to set standards.
We work with banks and financial institutions to help them learn how to provide credit to SMEs. We set standards so that lenders know how to evaluate borrower capacity and avoid too much debt.
Interests rates in Viet Nam are now 18-20 per cent. The high rates make it very difficult for SMEs and other enterprises to make a profit. What is your advice?
Interest rates for micro-finance and small businesses is usually higher than for major enterprises because it requires resources for lenders to provide credit for this type of business. They lack finance statements, credit history, transparent information about collection and repayment and are much riskier loans.
Lenders need resources such as a much more extensive labour force to encourage them to make this kind of loan. But with competition, the rate will fall. A tool like an on-line registration system makes the job of credit assessment easier with lower costs, but it is important to encourage more and more banks and financial institutions to enter the market.
Do you think the Viet Nam Government should allow more foreign banks and financial institutions to enter this market?
It does not have to be foreigners. It can be domestic companies. But you need the right framework to encourage both foreign and domestic lenders.
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