Bringing preferential loans to small and medium enterprises

It is expected that one week after the signing, the three banks will complete the guiding documents and disbursement process to provide the first loans to small- and medium-sized enterprises (SMEs) in mid-March.

This preferential fund is of great significance since the economy and enterprises are facing adverse and unpredictable impacts from the acute respiratory disease caused by new coronavirus (COVID- 19).

The period after the Lunar New Year also sees declining credit demand while production and business activities are encountering difficulties, therefore, preferential interest rates will be an important factor for enterprises to consider the expansion of investment.

SMEDF is a non-profit and off-budget governmental fund which aims at improving the competitiveness of SMEs and facilitating the development of SMEs, contributing to increasing incomes and creating jobs for workers.

The fund has a chartered capital of VND2 trillion (US$86 million) which is currently providing direct or indirect loans through the allocation of capital to commercial banks, funding innovation SMEs and start-ups, and managing loans, aids, and contributions of organisations and individuals in support of SMEs.

The SMEDF offers short-term lending interest rate at 4.16% per year and medium and long-term interest rates at 6% per year.

The maximum loans for each project does not exceed 80% of the project’s total investment capital while the maximum loan term does not exceed seven years and the maximum grace period is two years.

The SMEDF has so far cooperated with five joint stock commercial banks which have a transaction network nationwide and have experience in providing financial support for SMEs.

The fund has entrusted banks to disburse nearly VND150 billion (US$6.4 million) for SMEs. Thanks to this preferential capital flow, many projects and business plans of SMEs are financed, contributing significantly to promoting production and business activities.

The fund also offers SMEs with capacity building programmes which helps many businesses to make improvements to their governance models as well as building clear market development strategies.

In fact, SMEDF capital allocated to banks and the disbursement amount is not large compared to the banks’ outstanding loans provided to SMEs, but the cooperation helps banks quickly bring loans with low interest rates to businesses.

The fund is defined as "enticement capital" to attract domestic and foreign resources to the SME sector which remains weak and lacks capital. The indirect lending through banks is a timely and specific move of the Government, the Ministry of Planning and Investment and the SMEDF to remove difficulties and support SMEs.