SME problems that limit the sector’s development
Vietnam’s SMEs are calling for a review of lending rules. Stringent banking requirements limit SMEs’ access to finance. This is hampering the sector’s growth and development.
The Ho Chi Minh City Business Trade Union Association presented a study reflecting the current situation in the country’s business environment. The experts paid particular attention to the problems faced by small and medium-sized enterprises. The document also contains suggestions on how to solve these problems.
Difficulties of entrepreneurs
In the study, entrepreneurs outlined the key problems they face:
– about 40% of companies have difficulty securing new orders;
– rising prices for input materials are the reason for increasing production costs for about 40% of entrepreneurs;
– a sharp drop in consumer demand was noted by 50% of respondents. This has led to a reduction in revenues and profits;
– 39% of SMEs experience a lack of capital for business development.
These factors lead to the closure of businesses, which has a negative impact on the country’s economy.
The authors of the document cite the example of Huy Long An. The company leases agricultural land to grow durians and bananas. Director Vo Kuan Hui noticed the company’s difficulties at the end of 2024. At the time, the company was in the process of restructuring its leased land and was seeking support from a bank. Despite preliminary approval, the loan process has not yet been completed.
The main reason for the difficulties is the imperfection of the rules for re-leasing land. The legislation does not provide for the possibility of pledging. Furthermore, the lease period for farmers and foresters is limited to 1-3 years. Bureaucracy remains an additional obstacle. Lease formalisation requires a significant amount of documentation. This increases the time needed to prepare and conclude contracts.
In addition, the characteristics of the agricultural sector make access to finance difficult. Slow cash flow makes it impossible to take advantage of favourable interest rates.
Problems with access to finance do not only affect agriculture. The association notes that there is a lack of investment in machinery, which harms the industry’s income. In order to remain competitive, companies are forced to reduce investment. Government support helps in part.
Solution options
A key means of overcoming these barriers is to improve SMEs’ access to credit on favourable terms. At present, only 30-35% of SMEs can obtain a secured loan. At the same time, financing against future assets is practically not used. Although this mechanism could be optimal.
Moreover, financial counselling for entrepreneurs is a good support. They help to identify new ways of developing a business. For its part, the Association calls on state and commercial banks to consider revising the conditions for lending to SMEs.
