BIDV is the first bank to do indirect loans of the Small and Medium Enterprises Development Fund.

Lending rates will be even lower

The Small and Medium Enterprises Development Fund (SMEDF) is a non-budget governmental financial fund established by the Prime Minister in 2017 for non-profit objectives. The SMEDF's three functions are to help small and medium-sized enterprises (SMEs) through lending, financing, and capacity building through consultation and training programs. Simultaneously, the SMEDF Fund's second job is to attract external resources and the bank to undertake support operations in addition to the cash granted by the State.

SMEDF is now financing directly or indirectly to commercial banks through capital allocation. Its direct loan lending rates are 80% of the lowest commercial lending rates; the lowest commercial lending interest rate is determined by comparing lending rates of four state-owned commercial banks with the largest total assets at the time the Fund's lending interest rates are determined.

While the lending interest rate on indirect loans is the bank lending rate for SMEs, it must be equivalent to the lending rate on direct loans. The lending fee for indirect loans is the amount SMEDF must pay to the bank to issue the loan, which is agreed upon by the two parties but does not exceed 50% of the interest gained on the indirect loans for each project or production plan.

The Government requested the Ministry of Planning and Investment in Resolution 105/NQ-CP dated July 15, 2023 to guide SMEDF in reviewing lending interest rates in accordance with regulations on the Fund's operations and applying a 2% reduction in direct and indirect loans' lending rates for SMEs from the Fund's capital.

Mr. Pham Xuan Kien, Chairman of the SMEDF Board of Directors, stated that the Fund will select the lowest interest rate among the four state-owned commercial banks and reduce it by 20% to obtain the bank's interest rate, while continuing to reduce it by 2% in accordance with Resolution 105/NQ-CP.

Scaling up SMEDF’s operations

Experts are puzzled, however, by the SMEDF's meager operations thus far. According to the Ministry of Planning and Investment, the total approved fund capital for loans is 425 billion VND (entrusted loans and loans) in three years of operation under Decree 39/2019/ND-CP, up to June 2023; the total loans disbursed based on project progress is approximately 270 billion VND. This is a little amount when compared to the number of SMEs and their financing needs.

One of the problems is that the SMEDF's capital remains insufficient. The minimum charter capital of the SMEDF is 2,000 billion VND, according to Decree 39/2019/ND-CP, however the actual allotment is only 837.25 billion VND, and the SMEDF's capital is around 1,107 billion VND. Even when fully backed by charter capital, this capital is insufficient in relation to the scale of the credit institutions.

As a result, according to Dr. Nguyen Dinh Cung, former head of the Central Institute for Economic Management, the SMEDF should seek more outside shareholders and potentially raise cash from commercial banks...

Another factor limit ing the SMEDF's lending activities is the requirement for SMEs to ensure equity capital to participate in projects, production and business plans of at least 20% of total investment capital and ensure sufficient capital for project implementation while meeting loan security provisions.

These are all onerous criteria for SMEs, according to experts. The Ministry of Planning and Investment acknowledges that SMEs are always short on resources and have difficulty accessing preferential funding sources. They encountered more challenges than other businesses in meeting lending regulations due to a lack of collateral, inexperienced business owners, and no credit history to determine creditworthiness...

These restrictions, however, remain unchanged in the proposal to amend Decree 39/2019/ND-CP issued by the Ministry of Planning and Investment.