According to a 2018 report by the World Bank, Vietnam's credit access index ranks 29th out of 190 economies surveyed, higher than the average of the Organization for Economic Co-operation and Development (OECD) and East Asia & Pacific.

But Vietnamese small and medium-sized enterprises (SMEs) said it is a big challenge for them to access credit.

According to the Vietnam Chamber of Commerce and Industry (VCCI), only 30 percent of SMEs in Vietnam have access to loans from the formal sector, with the rest having to use their own funds or depend on unregulated loans.

This makes it hard for them to find business opportunities and solve other problems with respect to cash flow, working capital, and debts.

The VCCI has drawn up a list of loans types and the challenges each segment faces.

Bank loans

Many banks have made it possible for SMEs to get access to credit.

In the past few years most joint stock banks have earmarked tens of trillions of dong ($1=VND23,381) for priority sectors.

However, they said a majority of SMEs lack collateral, management experience, scale, and cash flow management system and are vulnerable to market changes.

VCCI’s statistics show that 70 percent of SMEs do not have access or have difficulty in accessing credit.

Microcredit

Microcredit refers to small loans companies get.

Microfinance providers are usually non-governmental organizations or credit cooperatives though they may have commercial banks as investors.

According to Pham Xuan Hoe, deputy director of the central bank’s Institute of Banking Strategy, microfinance institutions bring finance to remote areas and less developed communities, especially in important sectors in agriculture and rural development.

Microfinance providers believe their funds are limited and the legal framework for microcredit is weak.

Microfinance activities in Vietnam are fragmented, their products and services are not diverse and their financial sustainability and performance are modest. As a result, this form of lending is not very popular.

Issuance of shares

At a forum titled “Solutions to Boost Fund Sources for small and medium enterprises” organized by the VCCI in Hanoi last August, economist Can Van Luc said enterprises have not resorted to issuance of shares and bonds regularly to raise capital.

The VCCI said SMEs have limitations with regard to issuance of shares and bonds since many cannot meet the required conditions.

The stock market has been volatile with low liquidity, so mobilizing capital through issue of shares very difficult.

Unregulated loans

Finding it difficult to borrow from banks, many SMEs look for funds from the informal sector (unregulated loans).

Their simple borrowing procedures, great flexibility, and acceptance of a range of collateral make this type of loan very attractive to businesses.

At a seminar on capital - finance at the Vietnam Economic Forum on August 21, vice chairman of the National Financial Supervisory Committee, Ha Huy Tuan, said data from the Central Institute for Economic Management showed that enterprises depended on unregulated loans for 30 percent of their funds.

Nguyen Kim Hung, general director of the Vietnam Enterprise Restructuring Company, said for some SMEs this went up to 60 percent.

These enterprises are mainly startups run by young individuals, he said.

They do not know how to raise funds and getting bank loans is a challenge for them, he explained.

"When they cannot get bank or government loans, they are forced to use unregulated loans.”

However, this is fraught with risk and businesses could easily go bankrupt since unregulated loans have much higher interest rates than banks.

According to VCCI figures, small and super small businesses make up 85-90 percent of Vietnam’s SMEs and 90 percent of startups do not make profits in the first three years.