Officer of Vinh Phuc Investment Development and Credit Guarantee Fund guide customers to register for guarantee procedures to access bank loans. Photo: Chu Kieu

National credit guarantee funds were supposed to operate as a bridge to enable SMEs get bank loans, but they have remained dormant.

SMEs in desperate need of funds

SMEs are currently in desperate need of supportive policies, particularly interest rate reduction programs. This package, however, can only be implemented if businesses have access to bank credit. Otherwise, it makes no difference how low the interest rate is.

According to the 'Small business, big growth' research, which polled over 1,000 SME owners throughout the world, roughly 70% of SMEs failed to obtain enough or have any loans at least once in the last five years.

The foregoing scenario is exacerbated by the fact that national credit guarantee funds are inefficient, to the point where many localities, such as Da Nang, have abolished the credit guarantee fund due to its ineffectual operation.

This is attributable to a variety of factors, according to financial specialists. To begin with, the national credit guarantee funds are quite small, with the provincial budget providing at most VND 100 billion at the time of formation. However, many localities have not yet supplied sufficient funding for these subsidies. Notably, the capacity to manage and run national credit guarantee funds remains restricted; the processes of dossier appraisal and supervision, debt collection, and so on are still in progress.

Furthermore, national credit guarantee funds have the power, under existing legislation, to terminate or deny the full guarantee obligation. So, credit institutions are less interested in credit guaranteed by these funds as a result of the possibility of disputes.

Furthermore, when it comes to credit guarantees, funds require businesses to have collateral assets and at least 20% equity in order to engage in investment projects. These requirements are more stringent than those set forth by commercial banks.

A major overhaul needed

Experts believe that current credit guarantee regulations must be changed in order for national credit guarantee funds to function effectively.

The most difficult issue is the regulation on collateral assets, because removing it would expose state capital as well as capital donated by diverse entities to several risks. However, keeping this rule in place will not be able to fix the existing problems, because once a collateral asset is established, firms could "knock on the door" of banks rather than going through national credit guarantee funds and paying guarantee fees.

As a result, national credit guarantee funds should be developed on the model of venture funds, with cash provided by investment funds, credit institutions, and businesses. When it comes to credit guarantee, it will not require collateral assets.