Realising SME Support Policies

In reality, many agencies at different levels are now functionally supporting SMEs. For instance, the Ministry of Industry and Trade has trade promotion programme for enterprises funded VND15 - 50 billion in 2012. However, the fund value annually declined, with VND170 billion in 2009, VND120 billion in 2010, and VND55 billion in 2011. In addition, the Ministry of Science and Technology also has scientific and technological application support funds while the Ministry of Agriculture and Rural Development has national target development programmes: agricultural insurance, etc. However, in practice, these agencies fail to perform directional and cohesive roles. Support sometimes cannot reach needing businesses. From practice, the Ministry of Planning and Investment asked the Government to build an action programme to accumulate resources and enhance capital productivity.

 

SME-supporting agencies have exposed weaknesses in resources and expenditures. While central agencies only focus on building SME development policies and solutions, local agencies are slow at bringing interest support policies and lending guarantee policies to practice because of insufficient capital. According to surveys by Business Development Department under the Ministry of Planning and Investment, owner’s equity accounted for the largest part in SME’s capital structure, with 72.3 percent, followed by bank credit, 11.44 percent; commercial credit, 11.32 percent; and personal loans, 4.37 percent.

 

Another difficulty for SMEs is their very narrow access to loans because banks always require borrowers to have collaterals. Meanwhile, most SMEs have very little capital and limited assets. Therefore, it is difficult for them to create the trust of banks to obtain loans. Without enough capital for production and investment activities, they easily face stagnation and bankruptcy. Worse, even if they are qualified for loans, approval procedures are slow and complex. A lot of business opportunities are reported to be missed by such a way of working. The vicious cycle of insufficient capital and slow production again dogged this kind of enterprise.

 

According to surveys by the Business Development Department and other agencies, in 2011, only about one third of SMEs in the country had access to bank loans. And, about 5 - 10 percent of them finally borrowed money from banks. This figure was quite modest because they could not bear exorbitant interest rates.

 

That’s right. The Government has issued a lot of preference policies in support of SMEs. One of them is Decision 03/2011/QD-TTg on guarantee mechanism for SMEs to borrow loans. The Vietnam Development Bank was assigned to support and guarantee SMEs to borrow loans at commercial banks. Accordingly, they will be supported both in solutions and capital. But, in fact, 80 percent of interviewed businesses do not know this policy and other similar credit support programmes. The SME Credit Fund wants to set up funds in all 63 provinces and cities but only 13 funds were established and most of them are ineffectively operating because of limited budgets.

 

The Business Development Department will further improve legal framework and policies for SME development, and enhance their competitiveness and access to credit sources. Particularly, the department will soon set up the SME Development Fund, build mechanisms and policies to encourage commercial banks to increase credits for SMEs and promulgate regulations on establishment, organisation and operation of SME Fund.

 

The department also encourages enterprises to invest more in science and technology. In addition, it will help them to train human resources, modernise labour market information system and national labour market database (2011-2015).

 

At present, SMEs account for 99.7 percent of total businesses in Japan, employ 70 percent of workers and contribute half of the country's added value. SMEs are a key factor of the economy, particularly in services, retail and construction, playing key roles in serving local economies and providing jobs. Thus, Japan encourages SMEs to improve their management to adapt to economic and social changes. However, Japan's supports for SMEs are a bit different from Vietnam. Specifically, instead of using staffs at SME support centres as in Vietnam, Japan invites leading experts in different industries to support SMEs with steps of business start-up. On the other hand, when we determine to support businesses, our supports are consistent, concerted and well-coordinated. And, Japanese banks lend SMEs, basing on the assessment of projects, technology and management skills rather than collaterals.

 

Central authorities necessarily deem business support as a major policy. Danang City now has about 13,000 enterprises, of which SMEs account for 97 percent. However, the city does not have much fund for business support. As the deputy director of the Department and the director of Business Support Centre, when I asked for the budget [for business support] with the Municipal People's Committee, I was informed that [a business] will get VND50 million. This is too small for even an SME.

 

In fact, many enterprises only have determinations and aspirations of business but they lack a lot of factors to become a real business. Therefore, this sort of enterprises needs to be trained to withstand market pressures. According to the statistics from the Department of Planning and Investment of Nam Dinh province, many enterprises have very poor-quality accounting books, which deteriorate the trust of lending banks.