Discussing "strategies" to improve access to capital for the private economy

Credit - the main source of capital to promote the private economy

Bank credit has become an important source of capital to help private enterprises expand production and improve competitiveness. In recent times, the State Bank has implemented many solutions to manage monetary policy, interest rates, exchange rates, liquidity supply and regulate capital in the economy to create the best conditions for businesses, especially SMEs. In addition, banks have implemented many policies such as restructuring debt repayment terms, extending and deferring debt, extending loan terms, reducing interest rates after the Covid-19 pandemic, natural disasters, storms and floods, etc., which have contributed to solving difficulties for customers, including private enterprises. For SMEs, the banking sector has identified them as priority lending subjects with preferential interest rates lower than those in normal production and business sectors.

In fact, there are currently hundreds of credit institutions providing capital support to the private economy. By the end of 2024, outstanding credit for private enterprises at credit institutions reached nearly 7 million billion VND, an increase of about 14.7% compared to 2023, accounting for about 44% of the total outstanding debt of the economy. Of which, more than 100 credit institutions have generated outstanding credit for SMEs with a total outstanding debt of 2.74 million billion VND, an increase of 10.7% compared to the end of 2023, accounting for 17.6% of the outstanding debt of the economy; of which 208,992 SMEs still have outstanding debt. This shows that bank credit capital has promptly met the capital needs for production and business purposes of private enterprises, while contributing to promoting economic development and increasing budget revenue.

Despite strong development, the private sector still faces many difficulties and challenges, from institutional issues to limitations in financial potential, competitiveness, access to capital, etc.

Regarding access to capital, especially for small-scale enterprises, the main difficulties that private enterprises are facing include: Lack of collateral, unclear financial records, and unsustainable business models that are not convincing enough to meet bank lending criteria...

Every time we talk to SME owners, the eternal question they mention is: “How to access preferential credit capital?” Banks are always ready to provide capital for production and business, but why do businesses always complain that it is difficult to access bank capital?

Loan to Value

In the role of financial intermediary, "borrowing to lend", banks of course need factors to ensure efficiency and safety for each loan, and the most commonly used measure today is collateral, while many small businesses do not have, or no longer have, real estate or high-value assets to mortgage. For SMEs, unclear financial records are also a problem, many businesses still maintain the habit of "two books" - one for paying taxes, one for... internal understanding - and inevitably cause difficulties for banks in the process of risk assessment. In addition, the business model is not clear, making it difficult for businesses to prove their ability to repay debts to banks. In addition, although the loan approval process of banks has been digitized and is much more convenient, it cannot be easy and "lack of standards" due to the risk of bad debt and system safety... Many businesses can therefore be rejected right from the "parking lot" if they do not meet the disbursement conditions.

In that context, a form of credit supply is being used effectively and is becoming more and more popular among participants: Supply chain lending. Although this is not a very new idea, it has not been really exploited much in Vietnam. At the workshop "Bank capital contributes to promoting the private economy" organized by Banking Times recently, supply chain lending or lending according to the value chain linkage model was also an issue mentioned by many experts and representatives of organizations.

Accordingly, experts generally agree that chain lending has great potential for development, especially if large enterprises at the beginning of the chain can stand up to "guarantee" small enterprises in the chain, so that banks can feel secure and have a more flexible way of assessing risks in lending. Mr. Nguyen Kim Hung - Chairman of the Board of Directors of Kim Nam Group shared that businesses really want enterprises at the beginning of the supply chain to be able to act as a banking agent of commercial banks, and there is a way for banks to lend to enterprises in the chain but large enterprises must take responsibility for being the "beginning of the chain", then SMEs will be able to use the same limit as large enterprises... If this can be done, the borrower will not need to have collateral but can be considered as collateral with receivable rights.

In fact, there have been successful chain-based credit models in Vietnam. For example, going back 13 years, the pilot model of value-chain lending for growing, selling and exporting flowers in Lam Dong was successful. The factors that contributed to the success of this chain were foreign investment in technology and management. More importantly, all those participating in the chain had benefits and were therefore very attached to the chain. On the contrary, when those benefits were loose, it was also the main reason why 20 other chain-based lending pilot models failed.

According to Deputy Governor of the State Bank of Vietnam Dao Minh Tu, for the chain to be successful, all participants must have a common interest, even if there is no legal binding, they still need to commit to their rights. The Deputy Governor affirmed that the banking industry is very eager to implement chain-based lending without collateral, based on cash flow, because this brings great benefits to the economy, businesses and banks. However, the effectiveness of this model depends on the commitment, responsibility and harmonious interests among members in the chain, as well as the coordinating role of the State.

He cited the example of the One Million Hectare High-Quality Rice Loan Program in the Mekong Delta, which has been piloted for nearly two years and has shown clear effectiveness as all parties in the chain benefit. “If such models are replicated, it will be very beneficial for businesses and the economy. For sustainable development, businesses need to link together along the value chain, in the spirit of “if you want to go far, you have to go together,” the Deputy Governor emphasized.

According to experts, although supply chain lending can help SMEs access capital more easily, businesses themselves need to proactively change to adapt to this model. In particular, financial transparency is a prerequisite. It is time for businesses to build a transparent financial reporting system with independent audits. This not only helps businesses increase their reputation with banks but also creates more favorable conditions when participating in large supply chains. In addition, building close relationships with leading businesses is also extremely important. In addition, businesses also need to demonstrate stable cash flow.

At that time, it is believed that the problem of no collateral will no longer be a big story. But at least, the bank must see that the business's cash flow is operating regularly and has prospects for future development. The eternal question "how to borrow capital?" of many SME owners will therefore soon have an answer. Only when all parties change and make efforts together, can the capital flow truly flow in the right direction, helping the private economic sector take off strongly in the coming time.

Source: https://thoibaonganhang.vn/ban-ke-sach-cai-thien-kha-nang-tiep-can-von-cho-kinh-te-tu-nhan-161782.html