SMEDF - A new source of finance for SMEs

Small and medium-sized enterprises (SMEs) can now get loans at preferential interest rates from a fund operated by the Ministry of Planning and Investment (MPI).

It was heard at a recent meeting in Ho Chi Minh City. Ms.Hoang Thi Hong, chairwoman of the Small and Medium Enterprise Development Fund (SMEDF), said the fund began functioning last April and has identified three lenders, Vietcombank, BIDV and HDBank, through whom to lend to SMEs.

SMEDF is a state financial institution affiliated to the MPI and established under Decision No. 601/QD-TTg dated April 17th 2013 of the Prime Minister with charter capital of 2 trillion VND, in order to effectively implement SME development support policies according to Decree No. 56/2009/ND-CP dated June 30th 2009 of the Government on SMEs development support.

Tasks of the fund is supporting SMEs that have feasible business plans encouraged by the State and conformable with the purposes of the fund in order to improve the competitiveness of enterprise and contribute to the increase of incomes and employment creation. Operation of the fund follows demand of SMEs in each stage of development, through 2 supportive methods: Financial and capacity building assistance. In which, financial assistance helps SMEs access to funding easier to do start-up, develop, expand their business, overcome crisis periods and ensure the sustainability of business operation. Capacity building assistance includes activities in financial and administrative consultancy, business linkage, helping SMEs promote maximum efficiency of loans from the fund.

The fund have started to receive applications for loans, Ms.Hoang Thi Hong said. According to Mr.Bui Hoang Tung, an expert of the SMEDF’s monitoring and risk management division, the fund has four lending programmes with the maximum loan is 70 percent of fixed cost – it does not provide working capital - and must be repaid within seven years. Borrowers can prepay the loans without penalties. SMEs working in innovation and creativity are entitled to loans of up to 10 billion VND (448,430 USD) while the limits for supporting businesses in agro-forestry-fisheries and electronics and mechanical engineering are 20 billion VND and 25 billion VND. SMEs operating in wastewater treatment can borrow up to 25 billion VND. The loans carry a fix interest rate of 7 percent, Mr.Bui Hoang Tung added.

The maximum maturity period is 10 years. Interest rate for short-term loans (a maturity of less than one year) is 5.5 per cent per annum and the interest rate for medium and long-term credits is 7 per cent per annum.

Mr.Bui Hoang Tung also said that SMEs need to otherwise fulfil a number of conditions, including having feasible production or business plans in prioritised areas.

Apart from 2 trillion VND provided by the Government, the SMEDF would also source capital from the private sector to increase its corpus, according to Ms.Hoang Thi Hong.

Mr.To Hoai Nam, deputy president of the Associations of Small and Medium Enterprises, expected the SMEDF to provide SMEs capital in order help them do business effectively. According to Ms.Hoang Thi Hong, now there are over 500 thousand SMEs nationwide, capturing about 98% of total active enterprises, contributing around 45% of GDP and 33% of total state budget revenue and creating 62% of total jobs in the whole enterprise sector. Despite large quantity, SMEs still face many difficulties in approaching finance, mainly due to high loan interest rates of commercial banks and difficult lending conditions.