Banks Foster Enterprise Development

 

Several years ago, Bac Son Co. Ltd, located in Bac Son District, Son La Province, borrowed VND500 million (US$31,250) from Agribank Bac Son Branch to restore its docynia indica wine production on the verge of closure. “At that time, this was actually a venture but we still tried to carry out the project and we were, thus, successful,” said Mr Do Manh Thang, Director of Bac Son Co. Ltd. At present, Bac Son Tra wine (Northern Docynia indica) is very popular and Bac Son Co. Ltd is expanding production. In addition to wine production, the company also manufactures Bac Son mineral water, a product with strong taste of the northern highland area.

 

Mr Thang said his company now employs 150 workers. “Since our first day of operation, Agribank Bac Son Branch is our capital supplier. With the initial VND500 million loan, we have made profit and are now able to double the loan to VND1 billion. To fuel production expansion, the company wants to borrow VND3 billion from Agribank,” Mr Thang added.

With Agribank loans, many SMEs have escaped development difficulties. Not only Bac Son Co. Ltd, but many other rural SMEs profit from loans by Agribank.

 

However, not all enterprises are as lucky as Bac Son Co. Ltd. According to Mr Nguyen Ngoc Tuan, General Secretary of Hanoi SMEs Association, many Vietnamese SMEs are thirsty for capital to expand their businesses. “The most valuable assets for enterprises to place mortgages are real estate, but difficulties in legal procedures prevent enterprises from getting bank loans. Besides, establishing business plans is not easy because the management and human resource level of SMEs is not very high,” Mr Tuan emphasised.

 

According to statistics, Vietnam has about five million people working for SMEs and the sector annually recruits hundreds of thousands of new employees. The SME sector has become a main source of employment, especially in rural, remote and mountainous areas. However, according to Dr Pham Thi Thu Hang, Director of the SME Assistance Centre under the Vietnam Chamber of Commerce and Industry (VCCI), the biggest difficulties for SMEs are poor management and skills, backward technologies and equipment, poor information, vulnerability to policy changes and limited capital.

 

These obstacles for SME development pushed Agribank to cooperate with Vinasme. According to the agreement, Agribank pledges to lend VND10,000-15,000 billion, or some 30 per cent of its deposits, to SMEs that satisfy Agribank requirements.

 

Vinasme will coordinate with Agribank to introduce credit policies, customer strategies and Agribank banking services to its members; introduce SMEs to open transaction accounts and use Agribank products and services; organise training and consulting courses to instruct SMEs on setting up business plans, financial management and implementing projects efficiently; and coordinate with Agribank branches to monitor and assist enterprises in business and in implementing investment projects to increase loan usability as well as the solvency of enterprises.

 

Also according to the agreement, the two sides will meet every six months to review the lending situation to SMEs and analyse the good points, weak points and difficulties in implementing the agreements. Then, the two sides will build concrete targets and solutions for the following phase. Annually, the two sides review the programme, organise dialogues with outstanding SMEs of Vinasme, and commend outstanding individuals in the implementation of the cooperation agreement as well as excellent SMEs for efficient loan use.

 

According to the Agribank report, its outstanding loans for SMEs reached VND53,770 billion by March 31, 2007, increasing 4.61 per cent compared with the amount in the beginning of the year and accounting for 29.1 per cent of Agribank’s total loans. Several Agribank branches reported high growth in outstanding loans for SMEs, including Nha Be (up 153 per cent), Binh Chanh (50.6 per cent), Vinh Long (30 per cent), East Hanoi (19.21 per cent) and South Hanoi (15.13 per cent). The number of SMEs with outstanding loans at Agribank is 20,361 enterprises, an increase of 1,242 enterprises from early 2007. An average outstanding loan for an SME is VND2.65 billion.