Việt Nam needs financial leasing firms so SMEs can develop

Economic expert Nguyễn Trí Hiếu

According to Việt Nam Chamber of Commerce and Industry (VCCI), up to 70 per cent of small- and medium-sized enterprises (SMEs) have had difficulties in getting loans due to not meeting the requirements of lenders.

Financial leasing companies are considered as a good solution at present. Economic expert Nguyễn Trí Hiếu speaks to the Vietnam News Agency about this issue.

SMEs need capital and banks have also offered many preferential credit packages to attract businesses, but supply and demand are still difficult to balance. Why is this?

SMEs in Việt Nam and across the world are always thirsty for capital. These enterprises have played a very important role in the economies. In Việt Nam, they have contributed a large proportion to the State budget but they find it the hardest to approach capital.

SMEs face high risks when entering the market because they lack market share, have limited financial capacity and especially, they do not have collateral. So, few banks welcome them.

To solve this situation, SMEs must have financial plans and forecasts as well as feasible operational plans when meeting banks, financial institutions, financial companies or investment funds to convince them to invest.

Meanwhile, banks must have a more specific and reasonable appraisal process, be ready to contact SMEs and have suitable products for them.

Over the years, the Government has made great efforts to offer support programmes for SMEs but this group of businesses still needs more.

Besides banks, where else can SMEs go for capital from the financial market?

In Việt Nam, there are many investment funds, but many businesses still cannot take capital from funds because few have specific and practical plans.

Investment funds are ready to provide capital for businesses but they often have strict conditions. For example, the fund will control corporate finance and operation, and join the board of directors to manage the business. When businesses are profitable, the funds often ask for large dividends, up to 50 per cent of corporate profits.

Due to those conditions, many businesses are not interested.

Regarding bond issuance, SMEs are mostly unable to meet the requirements in the Government's Decree 163/2018/NĐ-CP on issuing corporate bonds. Therefore, bond issuance is difficult for SMEs.

Financial companies, including financial leasing companies, are generally an effective support channel for SMEs.

In developed countries, financial leasing is a financial solution for businesses, especially SMEs. Financial leasing generally consists of two types: operating lease and financial lease.

For small businesses that do not have money to buy large equipment such as cars, ships or even airplanes, the finance leasing company will buy the assets and lease them back.

Or the enterprise assigns asset ownership to the finance leasing company to get some working capital for production and business and then leases it back from the finance leasing company.

The financial leasing activities give SMEs the opportunity to receive large amounts of capital for production facilities. However, in Việt Nam, financial leasing is still unpopular and local enterprises do not know much about this solution.

What are the positives and limitations of this solution in Việt Nam?

Many SMEs need long and medium-term capital for production and business, including equipment, transport means and production facilities. Therefore, the potential in the financial leasing sector in Việt Nam is huge.

But the current obstacle is the limited number of financial leasing companies in Việt Nam. Perhaps, it is also partly due to challenges in getting enough capital to open a financial leasing company.

If financial leasing companies want to buy expensive equipment for lease, they can raise capital via bond issuance.

However, if the financial leasing company is new and doesn't have a strong reputation, it will be very difficult to issue bonds. These companies also struggle to get 5-10 year loans from banks.

Clearly, financial leasing companies themselves also face difficulties in finance so the capital supply of financial leasing companies is not enough for SMEs.