SAPROF Study for SMEFP Phase III The Socialist Republic of Vietnam
SAPROF Study for SMEFP Phase III
Final Report
December 2008 December 2008
JAPAN INTERNATIONAL COOPERATION AGENCY
SAPROF STUDY TEAM (NOMURA RESEARCH INSTITUTE, LTD.) Introduction ______1 I. Overview of SME Finance and Assessment of Challenges ______2
1. Overview of Reform Policy and Assistance Program for SME Promotion______2 1-1. Development of SMEs in the Growing Vietnam Economy ______2 1-2. Review and Perspective of Banking Sector Reform______7 1-3. Review and Perspective of Private Sector Reform ______13 1-4. View of SME Promotion in the Context of Reform Policies ______17
2. SME Promotion Policy and Support for SME Finance ______19 2-1. Framework of SME Promotion Policy ______19 2-2. Policy for Enhancement of SME Finance______24 2-3. Importance of SME Development for Challenges of Vietnam Economy______31
3. Overview of Finance Needs and Challenges in SME Finance ______39 3-1. Overview of Financing Needs of SME______39 3-2. Practice and Infrastructure of Security Property______41 3-3. Presentation Capacity of SME for Smoother Finance ______43 3-4. Challenges of SME Finance in the Recent Economic Environment______43 3-5. Case Study of SME Finance______44
4. Review of Financial Institutions Capacity of SME Finance______49 4-1. Review of Fund Mobilization______49 4-2. Impact of Recent Monetary and Economic Environment______52 4-3. Review of SME Lending Capacity ______54 4-4. Review of Marketing Capacity in SME Business______58 4-5. Critical Issues for Further Improvement of SME Finance Capacity______59 4-6. Summary ______59
5. Overview of Assistance Programs Provided by International Donors ______60 5-1. Programs/Projects Providing Financial Supports to SMEs ______60 5-2. Other Programs/Projects Providing Other Supports to SMEs ______62
6. Conclusion ______65
II. Assessment of SMEFP Phase I and II______67
1. Achievements and Challenges of Ph I&II, Improvements for Phase III______67 1-1. Size of Project______67 1-2. Schedule ______67 1-3. Disbursement ______67 1-4. Loan Scheme ______68 1-5. Credit Assessment of PFI ______69
i 1-6. Management Information System (MIS) ______69 1-7. Training, Manual, PR ______70 1-8. Executing Framework______74 1-9. Monitoring Scheme ______74 1-10. Summary ______75
2. Review of Loan Applications and Disbursements______76 2-1. OLL Disbursement and Repayment ______76 2-2. Characteristics of SME Borrower______79 2-3. Geographic Distribution ______82 2-4. Distribution of Invested Industrial Sector______84 2-5. Characteristics of Loan Product ______89
3. Assessment of SMEFP II______93 3-1. Relevance ______93 3-2. Effectiveness______94 3-3. Efficiency ______95 3-4. Impact______95 3-5. Sustainability ______97 3-6. Specific Impact Indicators for SMEFP II ______98 3-7. Specific Impact Indicators on Socio-Economic Status ______99 3-8. Specific Impact Indicators on Japan ______106 3-9. Recommendations for the Evaluation and Analysis of Phase III Project Effects ______107
4. Conclusion ______108
III. Execution Plan of SMEFP Phase III ______109
1. Scope of SMEFP Phase III ______109 1-1. Target and Objective of SMEFP III ______109 1-2. Loan Scheme ______120 1-3. Training, TA, and Promotion and Manuals ______128 1-4. Overview of Scope of SMEFP III ______131
2. Plan of Cost and Funding ______132 2-1. Size of Fund______132 2-2. Cost of Loan Component______139 2-3. Cost of Technical Assistance Component ______141 2-4. Total Cost of SMEFP III ______143
3. Schedule ______144 3-1. Estimated Disbursement ______144 3-2. Selection of Consultant ______145
ii 3-3. Schedule of Loan Component ______145 3-4. Schedule of Technical Assistance Component______146
4. Framework of Operation and Management of Phase III______147 4-1. Executing Agency:______147 4-2. Fund Allocation ______152 4-3. Approval Procedures of sub-Project including Environmental Impacts ______154 4-4. Monitoring and Reporting Scheme based on MIS: ______158 4-5. Monitoring of PFI Performance______163 4-6. Monitoring for Environmental Impacts ______164 4-7. RFA Management ______166
5. Monitoring Indicators______169 5-1. Expected Impacts on Various Challenges ______169 5-2. Operation and Effect Indicators ______169
6. Expected Types of sub-Projects to be Conducted within 6 Months from L/A ______171 6-1. Typical Needs and Challenges ______171 6-2. List of Expected sub-Projects ______172 6-3. Tier I Enterprises: ______173
7. Cooperation Schemes Enhancing Vietnam SMEs’ Business with Japan ______177 7-1. Achievements and Lessons from Phase II ______177 7-2. Assumed Scheme ______177 7-3. Role of PFIs ______180
Annex I-1 List of Banks in Vietnam
Annex I-2 Summary on SME Support Programs/Projects Funded by Other Donors
Annex I-3-a SME Promotion Policy Documents
Annex 1-2-b Members of the SME Development Promotion Council
Annex I-4-a List of Projects Entitled to Investment Credit Loans
Annex I-4-b List of Good Items Entitled to Export Credit Loans
Annex III-1 Scoring Formula for Selection of PFIs
Annex III-2 Tentative Result of Scoring of PFIs
Annex III-3 Estimation of MIS Cost
Annex III-4 The List of Legislations on the Environmental Protection of Vietnam
Annex III-5 Screening Form iii Annex III-6 Comparison of JBIC’s Guideline and the Law on Environmental Protection in Vietnam for Projects that Environmental Impact Assessment Report Must Be Prepared
Annex III-7 List of Projects for which Environmental Impact Assessment Report Must Be Prepared
Annex III-8 Sample Approval Decision of an Environmental Impact Assessment Report
Annex III-9 Form for Certifying Register Paper of Environmental Protection
Annex III-10 Tentative List of New Functions of MIS
Annex III-11 Reporting Form for Environmental Monitoring
Summary of Report (in English)
Summary of Report (in Japanese)
iv Abbreviation
ACB Asia Commercial Bank AFTA ASEAN Free Trade Agreement APEC Asia Pacific Economic Cooperation ASEAN Association of South East Asian Nations ASMED Agency for SME Development BIDV Bank for Investment and Development ò Vietnam BSPS Business Sector Program Support CBs Commercial Banks CCF Central People’s Credit Fund CEPT Common Effective Preferential Tariff CGF Credit Guarantee Fund CI Credit Institution CIDA Canadian International Development Agency CIEM Central Institute for Economic Management CI Law Law on Credit Institutions DAB Dong A Commercial Bank (formerly EAB - Eastern Asian Bank) DAF Development Assistance Fund DANIDA Danish International Development Agency DPI Department of Planning and Investment EU European Union EU-SMEDF Small and Medium sized enterprises Development Fund of EU FDI Foreign Direct Investment Finnfund Finish Fund for Industrial Cooperation FIs Financial Institutions FLM Funds Micro Finance GDP Gross Domestic Products GOV Government of Vietnam GSO General Statistic Office GTZ German Agency for Technical Cooperation HCMC Ho Chi Minh City HDB Ho Chi Minh Housing Development Commercial Joint – Stock Bank IFC International Finance Corporation ICPMU International Credit Project Management Unit IPO Initial Public Offerings JBA Japan Business Association
v JBIC1 Japan Bank for International Cooperation (merged to JICA in Oct 2008) JICA Japan International Cooperation Agency JSCBs Joint – Stock Commercial Banks JSC Joint – Stock Company LUR Land use right MD Minute of Discussion MEF Mekong Enterprises Fund MFN Most favored nations MHB Mekong Housing Bạnk MIS Management Information System MOF Ministry of Finance MOJ Ministry of Justice MONRE Ministry of Natural Resources and Environment MPI Ministry of Planning and Investment NA National Assembly NG Non-gradable NGOs Non-Government Organizations ODA Official Development Aid PCs People Committees PCR Project Completion Report PFI Participating Financial Institution Ph.II Phase II PM Prime Minister PR Public Relations Q&A Question and Answer QC Quality Control QCD Quality Control Department RDF Rural Development Fund Sacombank (STB) Saigon Thuong Tin Commercial Joint-Stock Bank SAPROF Special Assistance for Project Formation SBV State Bank of Vietnam SECO State Secretariat for Economic Affair of Switzerland SME Small and Medium-sized Enterprises SMEDPC Small and Medium-sized Enterprises Development Promotion Council SMEFP Small and Medium-sized Enterprises Finance Project
1 This report is drafted during the period in which organizational change of JBIC has been implemented and OEFC of JBIC has been merged to JICA. Therefore, the author would highly appreciate if readers interpret between JBIC and JICA appropriately according to the context. vi SMEFP II Small and Medium-sized Enterprises Finance Project Phase II SMEFP III Small and Medium-sized Enterprises Finance Project Phase III SOCBs State – owned Commercial Banks SOEs State – owned enterprises TA Technical Assistance TAC Technical Assistance Centre T-Bill State Treasury Bill Techcombank(TCB) Vietnam Technological and Commercial Joint-Stock Bank TIFA Trade and Investment Framework Agreement VBARD Vietnam Bank for Agriculture and Rural Development VCCI Vietnam Chamber of Commercial and Industry VDB Vietnam Development Bank Vietcombank The Bank for Foreign Trade of Vietnam Vietinbank Vietnam Bank for Industry and Trade (formerly ICB - Industrial and Commercial Bank of Vietnam) VND Vietnamese dong WTO World Trade Organization
vii Introduction Small and Medium-Sized Enterprises Finance Project (SMEFP) Phase II, in connection with the related policies of the Government of Vietnam, has been implemented in order to enhance capacity of medium and long-term financing from Participating Financial Institutions (PFIs) to SMEs through provision of On-Lending Loan (OLL) and various technical assistances, support SMEs in getting medium and long-term financing necessary for investing through continuous improvement, then contribute to enhanced economic growth of Vietnam through supporting SMEs. Although SMEFP, through two stages such as Phase I and Phase II achieved highlighted results through disbursement of OLL and assistance for PFIs and SMEs, significant difficulties in finance for potential SMEs are still observed. Moreover, Vietnam economy faces challenges on further enhancement of competitiveness of economy as Vietnam was forced to shift for fast tightening economic policy after she faced substantial increase of imports and high inflation hurt daily life of the people. Under this challenging time, SAPROF study aims to develop direction of SMEFP Phase III, based on achievements and challenges raised under SMEFP I & II. Besides, this study shall spotlight on, not only further outreach to potential SMEs in difficulties of finance, but also outreach to sub-projects to enhance industrial competitiveness of Vietnam, and propose innovative linkage of relevant players such as public and private entities in order to support SMEs to cope with this challenging environment.. Chapter I “Overview of SME Finance and Assessment of Challenges” updates environment around SME finance through 5 sections, such as reform policy, SME promotion policy, overview of SME finance, capacity of financial institutions, and assistance programs provided by international donors. Chapter II “Assessment of SMEFP I and II” will review achievements and challenges of SMEFP I and II and extract implications for SMEFP III. Section 1 will spotlight each element of SMEFP program. Section 2 highlights implications from analysis of disbursement data. Section 3 will analyze the facts obtained in the previous sections and provide implications and views for improvements in Phase III. Chapter III “Execution Plan of SMEFP Phase III” will propose execution plan of SMEFP III. Section 3-1 will first discuss the target and objective of Phase III based on fact findings in Chapter I and II as a blueprint of Phase III, the propose the scope such as loan scheme, TA and Promotion. Section 3-2 will recommend plan of cost and funding, the section 3-2 will recommend schedule in accordance with the recommended scope. Section 3-4 will recommend framework of operation and management of Phase III, and section 3-5 will propose monitoring indicators based on the recommended objectives. In order to smooth start, section 3-6 will present expected types of sub-projects based on analysis of data and latest interviews. Section 3-7 will discuss on linkage with relevant entities to enhance sub-projects and finance of sub-borrowers for further strengthening of competitiveness of Vietnam economy through SME finance.
1 I. Overview of SME Finance and Assessment of Challenges
1. Overview of Reform Policy and Assistance Program for SME Promotion
This section will review update of SME finance in Vietnam as an introduction of SAPROF study, then updates banking sector reform and private sector (enterprise) reform because those reforms shall highly impact on premise and objective of SMEFP III. In the end, implications for Phase III will be discussed.
1-1. Development of SMEs in the Growing Vietnam Economy
In the first half of the 1980s, in a country where state-owned companies were considered top favorite of the government, the private sector in Vietnam did not have much room to grow. In 1986, the Vietnamese Government launched the "Doi Moi" policy. Since then, the Vietnamese economy has experienced expeditious development. The annual GDP growth rate of the 2001-2005 period averaged 7.5 percent2. In 2006 and 2007, Vietnam’s GDP growth rate reached 8.2 and 8.5 percent respectively3. From 2001 to 2006, total export turnover increased by 270 percent4. In the context of such impressive development achievements, the private sector has emerged as an important player in the Vietnamese economy. The first turning point in the development of the private sector happened during the end of the 1980s and the beginning of the 1990s, when a number of laws were promulgated, including the Law on Foreign Investment, Law on Private Enterprise, Company Law, and Law on Local Investment Encouragement. These laws serve as legal basis for the operation of various economic sectors generally, and private sector particularly. The second turning point was marked by the promulgation of the Law on Enterprise in 1999. Thanks to the Law on Enterprise 1999, in the 2000-2004 period, up to 73,000 new private enterprises were registered, an increase by 3.75 times in comparison with the 1991-1999 period5. From 01 July 2006, the new Law on Enterprise (2005) came into effect, signaling a new boom in the development of the private sector. Since 2000, the private sector (including SMEs) has seen impressive development in terms of both quantity and quality.
1.1.1. Quantity of SMEs According to the Agency for SME Development of Vietnam (ASMED), in 2005, around 18,400 new SMEs came into operation. It is estimated that by 2010, there will be roughly 0.5 million SMEs in Vietnam 6 . The following figure shows the number of private enterprises (non-state/private enterprises make up the private sector in Vietnam) and private SMEs in Vietnam from 2004 to 20067:
2 “Directing towards the socio-economic development targets until 2010”, Ministry of Planning and Investment, 2006, p.1 3 Ministry of Foreign Affairs 4 GSO. (2007). Statistical Yearbook of Vietnam, 2007 5 Ministry of Foreign Affairs. (2008). Retrieved July 14 from Ministry of Foreign Affair’s website: http://www.mofa.gov.vn/vi/tt_vietnam/nr040810155228/ 6 Source: Agency for SME Development (ASMED) 7 According to Government Decree No. 90/2001/ND-CP, an SME is defined as an enterprise whose number of employees is less than 300, or whose capital is less than 10 billion dongs. 2 140,000 123,392 121,875 120,000 105,169 103,794 100,000 84,003 82,840 80,000 Non-state 60,000 enterprises
40,000 Non-state SMEs 20,000
- Year 2004 2005 2006
Source: Statistical Yearbook of Vietnam 2007, 2006, 2005 Figure I-1 Number of Private Enterprises and Private SMEs 2004-2006
The above figure shows that the number of private enterprises in general and private SMEs in particular has been on an increase in recent years. In 2006, there were 121,875 private SMEs, up by 17% in comparison with 2005, and by 47% in comparison with 2004. If state-owned SMEs are included, the total number of newly-established SMEs increased by approximately 13% in 2005, and by 20.5% in 2006. One year after Vietnam’s WTO accession and the enactment of Decision 236/QD-TTg on the development plan for SME development, the number of SMEs in Vietnam increased even at a faster rate. According to VCCI, in 2007, roughly 50,000 new SMEs registered for establishment. In Ho Chi Minh City only, in 2007, more than 18,500 SMEs came into operation. If Vietnam can keep this rate of SME development, it is very likely that the total number of newly-established SMEs in the 2006-2010 period will meet the target of 320,000 set out in Decision 2368. In the past few years, SMEs have taken the majority of the total number of enterprises in the economy. SMEs have always made up above 90% of the total number of enterprises. Looking further into the structure of the economy (comprising of three sectors, the state, private and foreign-invested ones), the private sector has proved itself to be an increasingly important one. In 2004, the proportion of the number of private enterprises in the whole economy was 91.55%, but in 2006, this proportion increased to 93.95%9. Especially for this sector, SMEs play crucial part, as they make up roughly 99% of the sector (by number of enterprises):
8 Sai Gon Giai Phong newspaper. (2008). Retrieved 26 July 2008, from the Sai Gon Giai Phong newspaper’s website: http://www.sggp.org.vn/kinhte/2008/6/155784/ 9 GSO. (2007). Statistical Yearbook of Vietnam, 2007 3 Table I-1 Proportion of SMEs in the Private Sector and in the Economy
Year 2004 2005 2006 % of SMEs in the private sector 98.62% 98.69% 98.77% % of SMEs in total number of 96.15% 96.80% 97.16% enterprises in the economy Source: Statistical Yearbook of Vietnam, 2007 With a continuous increase in quantity, it is clear that SMEs are playing more and more important role in the Vietnamese economy.
100%
80%
60% Others 40% SMEs
20%
0% 2004 2005 2006 Year
Figure I-2 Proportion of SMEs in the Manufacturing Industry
To see more clearly the role of SMEs in the economy, it is advisable to see the number of SMEs in some important sectors of the economy10. First, the role of SMEs is analyzed in the manufacturing industry. This industry plays significant role in Vietnam’s economic development efforts. According to ASMED11, if Vietnam wants to develop its key industries, such sectors as the manufacturing industry is of great importance, as it provides the economy with many key export products such as garment and textile, rubber and plastic and electrical ones12. This is also the industry that has made the greatest contribution to Vietnam’s GDP in the past four years13. The number of SMEs in this sector increases year by year, with 18,434 SMEs, making up 89.79% of this industry in 2004, up to 24,553 SMEs, or 91.41% of the total number of enterprises in the manufacturing sector in 2006. The following table shows the number of SMEs and its proportion in some sub-industries (in manufacturing industry) providing key export products to the economy14:
10 In accordance with the division of sectors provided in the Statistical Yearbook of Vietnam, 2007 11 According to the meeting between the SAPROF team and ASMED on 15 July 2008. 12 In accordance with GSO’s list of key export products. 13 In accordance with the statistics on the structure of GDP by sector, Statistical Yearbook of Vietnam, 2007 14 In accordance with Statistical Yearbook’s list of sub-industries in manufacturing industries
4 Table I-2 Number of SMEs and Its Proportion in the Total Number of Enterprises in Some sub-industries in 200615 Number Total Number of % of SMEs of SMEs Enterprises in the in the sub-Industry Industry Industry Rubber and plastic products 1564 1643 95.19% Textile 1093 1250 87.44% Engines and electrical equipments 410 459 89.32% Source: The situation of enterprises through the results of surveys conducted in 2005, 2006 and 2007
In the agriculture and forestry one (this sector has been the second biggest contributor to Vietnam’s GDP in the past 4 years16), SMEs also make up about 86-87% of total number of enterprises. In absolute terms, the number of SMEs in this sector has also been on an increase, from 871 SMEs in 2004 to 959 in 200617. In the electricity, gas and water supply sector, a very important one which provides infrastructure elements for the development of the economy, SMEs play even more important roles, as they take nearly 99% of all enterprises in this sector. In another important sector of the economy, i.e the agriculture and forestry, SMEs also make up nearly 90% of the total number of enterprises18.
Proportion of SMEs in the Electricity, Proportion of SMEs in Agriculture and Gas and Water Supply Sector in 2006 Forestry Sector
1% 12%
SMEs SMEs Others Othes
99% 88%
Source: The situation of enterprises through the results of surveys conducted in 2005, 2006 and 2007 Figure I-3 Proportion of SMEs in Infrastructure / Agriculture and Forestry Sectors
From the above analysis, it can be concluded that SMEs have increased in number, and the high proportion of SMEs in the total of all enterprises and in important sectors means the development of SMEs is really crucial to the development of the whole Vietnamese economy. 1.1.2. Quality of SMEs In parallel with a sharp rise in quantity, private enterprises (the majority of which are SMEs) in Vietnam have been playing an increasingly significant role in the national economy.
15 In accordance with Statistical Yearbook’s list of key export products 16 In accordance with the statistics on the structure of GDP by sector, Statistical Yearbook of Vietnam, 2007. According to the Yearbook, the manufacturing industry has contributed 20-22% of Vietnam’s GDP, and the agriculture and forestry sector has made up about 16-18% of total Vietnamese GDP since 2003. Other sectors, such as fishing, mining, construction, wholesaling and retailing, etc. individually make less contribution to the nation’s GDP. 17 GSO. (2007). The situation of enterprises through the results of surveys conducted in 2005-2007. 18 GSO. (2007). The situation of enterprises through the results of surveys conducted in 2005-2007. 5 40% 35% 30% private 25% 20% state
15% foreign- 10% invested 5% 0% Year 2001 2002 2003 2004 2005 2006
Source: Statistical Yearbook of Vietnam, 2007 Figure I-4 Growth Rate (by net revenue) of Three Sectors of the Economy
First, the private sector has achieved impressive operational results, which is represented in the sector’s net revenue: In 2006, net revenue of the private sector was 1,126 trillion dongs, contributing up to 41.96% of total revenue from all enterprises nationwide. This sector’s net revenue is 164.9 trillion greater than that of the state sector, and 529.8 trillion greater than the foreign-investe one. This sector also obtained great achievenents in terms of revenue growth. From 2001 to 2006, the growth rate of the private sector was always higher than that of the other two. The sector’s growth rate was at a peak of 39.18% in 2002, about 1.6 times greater than that of the foreign-invested sector. From 2002 to 2006, its growth rate was always above 30 percent. In 2006, the sector’s growth rate was 32.36%, above twice as much as that of the state sector (14.68%), and about 5% greater than that of the foreign-invested one (27.35%). Apart from a quite stable growth in revenue, the private sector also provides a significant amount of investment for the economy. The following figure shows the proportion of investment made by different sectors of the economy from 2001 to 2006:
100%
80%
60% State 40% Foreign-invested Private 20%
0% Year 2001 2002 2003 2004 2005 2006
Source: Statistical Yearbook of Vietnam, 2007 Figure I-5 Proportion of Investment from Different Sectors into the Economy
While the state sector’s contribution to social investment has been on a decline, the private one is emerging as an important investor in the economy. In 2001, the private sector only made up 22.6% 6 of total investment, but in 2006, it contributed up to 38.1% of total investment into the economy, an increase by 1.7 times in 6 years. It is also the only sector that has seen a continuous increase in its contribution to social investment in the 2001-2006 period. The above analysis about the growth rate and investment contribution of the private sector shows that this sector has been successful in expanding itself in a growing Vietnamese economy. The development of this sector is further illustrated in its contribution to the country’s GDP. The following figure shows the proportion of different sector’s contribution to Vietnam’s GDP from 2003 to 2007:
100%
80% State
60% Foreign-invested
40% Private
20%
0% 2003 2004 2005 2006 2007 Year
Source: Statistical Yearbook of Vietnam, 2007 Figure I-6 Proportion of Different Sector's Contribution to GDP
It can be seen that the private sector has been the biggest contributor to Vietnam’s GDP since 2003. In 2003, 46.45 percent of Vietnam’s GDP came from private sector. Despite a slight decrease in 2004 and 2005, the sector has always made up above 45% of Vietnam’s GDP. Its contribution to the country’s GDP has always been around 3 times more than that of the foreign-invested sector, which has made up of around 15-17 percent of the nation’s GDP. All of the above figures implicitly indicate the important role of the private sector in general, and of SMEs in particular in the Vietnamese economy. As they outnumber any other form of enterprises, and their contribution to the country’s economy is increasing year by year, SMEs prove themselves to be dynamic organizations which need due attention from the government. In the next two subsections, policy for SME promotion and SME finance enhancement will be investigated to see how SMEs have been enabled to develop with government’s promotion policies in recent years.
1-2. Review and Perspective of Banking Sector Reform
During the recent years, under the “Doi Moi” policy, together with economy reform, the banking sector reform becomes an important issue as it can impact to overall economy of Vietnam as stated in the Official Notice No. 191-TB/TW (“Notice 191-TB/TW”) of the Party Central Committee of Vietnam dated 01 September 2005 on objectives, solutions for development of the banking sector of Vietnam to 2010 and vision to 2020 that: “Continued reformation, development and performance improvement of the banking system is an important task for both short term and strategic perspective of the Party and the Government which would promote the socio-economic development, the industrialization, modernization of the country”.
Financial Institutions in Vietnam and their Problems
Financial institutions in Vietnam include the State Bank of Vietnam, 4 SOCBs, 2 policy banks, 37
7 JSBs, 5 JV banks, 37 foreign bank branches, and a cooperative financial institution, CCF. In addition, there are 12 financial companies and 13 leasing companies. Vietcombank was classified as SOCB up to the recent, however, since its equitisation towards the end of 2007, it is classified as a JSB at present. 4 SOCBs, namely VBARD, BIDV, Vietinbank and MHB, are now trying to implement equitisation plans. Even after the equitisation the state intends to retain no less than 51% of the equity shares of SOCBs. SOCBs are now required to increase their capital base and modernize its management style to compete not only with domestic JSBs but also with foreign banks, for foreign banks’ activities will become more aggressive by reduced restrictions on them in line with commitment by the Vietnamese Government to WTO. There are 2 policy banks, VDB and VBSP. VDB is extending loans to policy projects such as infrastructure projects. Recently they faced a financial difficulty by failure of bond issues caused by the disturbance of financial market. As for VBSP their main loan portfolio is micro finance, but the weight is decreasing from 80% to some 60%. VBSP receive SOCBs’ 2% mandatory deposit of their deposit balance, however, equitisation of SOCBs might lead to loss of such fund source. There are 37 JSBs and they are also required to increase their capital base, and modernize their management. Some JSBs are considered financially weak and not so stable, and such JSBs are expected to be merged and upgrading to more sound banks. Joint venture banks are established by SOCBs and foreign partner banks. They are also required to increase their capital base. But recently foreign banks can apply 100% subsidiary banks, and JV status may not be so attractive. In addition, domestic banks are feeling difficulty to increase their investment to JV banks in line with increasing their, equity capital. Thus, the status of JV banks may not be so stable. Foreign bank branches have increased to 37 now. The restrictions on their banking business are expected to be much reduced by 2010 in line with the commitment to WTO, and their activities will become more aggressive. In addition, recently 2 English banks （HSBC and Standard Chartered Bank） are permitted to establish 100% subsidiary banks. As such, foreign bank branches and foreign banks’ subsidiaries will become more active. If foreign banks have branches and also subsidiary banks, they may need to review their functions and decide whether to keep both of them or close their branches. Annex I-1 shows a list of banks which contains all the banks in Vietnam.
The monetary policy of the State Bank of Vietnam The central bank of Vietnam is the State Bank of Vietnam (SBV). It was a single state owned bank, but state owned commercial banks (SOCB) were separated and the current SBV was formed. In the SBV Law, As the basic functions for the SBV the following 4 points are stipulated: 1. SBV is a Government body and a central bank of the Socialist Republic of Vietnam. 2. SBV has a function of State management of currency and banking operations, and acts as a bank for credit organizations. The bank is allowed to issue currency and conduct monetary services in favor of the Government. 3. SBV's operations are aimed to stabilize currency value, help assure safe banking activities and a secured system of credit organizations, and boost the socio-economic development in conformity with socialist orientations. 4. SBV has full legal status and State-owned legal capital, with a Ha Noi based headquarters. The Government established a Consultative Committee for the National Monetary Policy which is comprised of a chairman who should be a deputy prime minister, and SBV’s Governor as a standing member, and other members including representatives from MoF, MPI and other related
8 ministries. The Government consult with the Consultative Committee issues regarding the Government’s obligations and the monetary policy in consultation with the Consultative Committee. The National Assembly decides and supervises the implementation of the national monetary policy, as well as the annual anticipated inflation rate in correlation with State Budget balance and economic growth rate. The Government formulates projects for the national monetary policy and annual envisaged inflation rate to submit to the National Assembly for decision; the implementation of the national monetary policy; decides annual supplementary money supply an d clarifies the purpose of utilizing this sum of money and term when reports must be addressed to the Standing Committee of the National Assembly; and decides other detailed policies and solutions to realize them. In regard to the implementation of monetary policy, the SBV has measures such as credit extension to banks, interest operation, foreign exchange rate, reserve ratio, money market operation and other measures SBV Governor would decide.
Table 1-3 Monetary Policies of SBV Monetary Policy Details Measures Credit Extension to Short-term loan Banks Discount/Rediscount of Credit Note and Short term Securities Loan with collateral of Credit Note and Short term Securities Interest Operation SBV specifies and announces prime and refinancing interest rates. Foreign Exchange Foreign Exchange Rate is the value rate of the Vietnamese dong to the Rate US dollar, and it is set up on the basis of supply and demand in the market, and is regulated by the State. SBV define and announce the exchange rate. Required Reserve SBV identifies required reserve rate for each form of credit institution Rate and each type of deposit, from 0 - 20 percent of total deposit balance kept in each credit institution in each period. The interest rate for required reserve deposits of each form of credit institution and each type of deposit in each period is stipulated by the Government. Open Market SBV runs open market operations through buying and selling treasury Operation bonds, certificates of deposit, SBV's credit notes and other short-term quasi-money valuable documents in the money market.
In addition to the above monetary policy measures, SBV set the upper limit of the loan interest rate of banks and non banks, and the deposit interest rate is also an objective of the monetary policy. The SBV sometimes make verbal intervention. As for the foreign exchange rate, SBV set a fluctuation limit of dong for a day, and SBV announce the official exchange rate everyday. The increase of import in the latter half of 2007 was considered mainly by increase of capital goods. And the inflation trend was expected to be normalized by the tight monetary policy by Teto time. However the inflation trend continued. In March the Government decided to switch to coordinate the fiscal policy directing economic growth and tight monetary policy to coordinate to restrain inflation. However, the big deficit of the current account and the discrepancy of fiscal and monetary policy caused a loss of confidence in VND value and import of gold, steel and other commodity started to increase, which caused further deterioration of current account, and the value of VND against USD went started to go down in the black market. Under such circumstance the foreign exchange policy was to maintain the value of VND focusing on reducing inflation rather than decreasing import and increasing the competitiveness of export. To support this policy SBV clearly confirmed many times to the public especially the local commercial banks that it will have
9 relevant interventions if there is a substantial change in the foreign exchange market. Consequently the confidence for the value of VND is restored. Currently the exchange rate is fluctuating with peg in only a small range. Reform of SBV As it is clear from the explanation above on the function of the SBV, process of deciding monetary policy, the implementation method of monetary policy in the monetary market, the independence of the central bank from the government and the transparency of the monetary policy which the central banks are expected, are not existing and a drastic reform is required. In this regards, a policy to attain the transparency of the monetary reform is clearly stated in the banking sector reform. On the other hand, another important function of the SBV is the inspection of credit institutions such as banks. It also requires reform of transparent inspection operation and efficiency. As for banks among credit institutions, they are subject to some restrictions which would prevent the autonomous management or market principle. For example, SBV set various criteria for sound ratio such as equity ratio, minimum liquidity ratio, usage ratio of long term asset usage of , deposit to credit ratio, loan ratio. usage ratio of long term asset usage of , deposit to credit ratio, loan ratio However, the usage ratio of short term deposit fund for long term assets may be preventing the improving capacity to use more short term deposit fund for long term assets by applying more effective ALM. In addition, the model of SBV under the State Bank law (1997) is no longer suitable due to various reasons. The SBV branch network covers all provinces and central cities (as a SBV’s arm’s length) was cumbersome and ineffective. Thus, “the re-organisation of SBV with a structure and operations as a modern central bank should (i) be market driven under the socialistic direction and in compliance with the international practices, (ii) contribute to stabilize macro economy, (iii) control inflation, (iv) improve the buying power of Vietnam Dong as to serve the economy development of the country” is the first priority task of the banking sector as confirmed by the Party Central Committee of Vietnam stated in the above Notice 191-TB/TW. Followed the above Notice, the Prime Minister’s Decision 112 of 2006 on the Development of the Banking Sector to 2010 and Vision for 2020 covers the following objectives: (i) In relation to SBV:
• To reform organization and operations of SBV to form a professional and well-organized organization in order to have enough resources and capacity to make and implement the market driven monetary policies with advanced technology as make SBV to become a modern central bank reaching the same level of other central banks in the Asian region;
• To build up and implement the monetary policies to stabilize the currency value, to control inflation, to stabilize macro economy, and to get the success in the country’s industrialization and modernization. (ii) In relation to credit institutions:
• To reform and develop the credit institution system to become a modern, multi-business and market driven system with diversified ownership reaching the level in the Asian region where international performance and safety standards are met;
• To develop non-bank credit institutions as to make the financial system to be more balanced and diversified;
• To develop and diversify banking products/services, create a competitive market for banking services and improve the enterprise access to banking services;
10 As a key legal framework for the Vietnam banking sector reform, Decision 112 assigned SBV as coordinator working closely with other state agencies and line ministries for drafting the key laws (amongst other) as follows:
Table 1-4 The Banking Sector Reform Roadmap Defined by Decision 112
No. Description Roadmap 1 New SBV Law replacing for the State Bank of To be submitted to National Vietnam Law (1997) and the Law on amendment Assembly in 2008 and supplement a number of articles of the State Bank of Vietnam Law (2003) 2 New Law on Credit Institutions replacing for the To be submitted to National Credit Institutions Law (1997) and the Law on Assembly in 2008 amendment and supplement a number of articles of the Credit Institutions Law (2004) 3 Deposit Assurance Law To be submitted to National Assembly after 2007 4 Law on Banking Supervision To be submitted to National Assembly after 2007
Discussions with various departments of SBV have revealed that there have been substantial delays in implementing the Banking Sector Reform with key aspects as follows:
• SBV Legal Dept. prepared 7 drafts of SBV Law and CI Law and delivered 7 drafts to Government Ministries such as MOJ, MOF, MPI and so on for comment (of which: the last draft has been submitted to GOV). The draft is also delivered to international donor agencies of World Bank, ADB, CIDA, JICA and so on.
• The important point of the new SBV Law is on the role of the SBV and its independence on the ministries in the areas of organization, human development and accounting.
• There are many arguments on the drafted new law, and at the request of GOV the Governor gave instruction to the Legal Dept. to make further study and finalize the drafts of the 2 laws by 2010. At the moment, while considering the central bank models in other countries, the concurrence on the optimal model of SBV as a central bank has not been achieved.
• The new CI Law includes both banks and non banks such as finance company or lease companies. Current draft includes micro credit and people credit fund, but there is an opinion to exclude these institutions. Policy banks as VDB and VBSP are excluded from CI Law.
• Draft of Deposit Insurance Law is prepared by them and by Deposit Insurance of Vietnam (DIV). The content of these drafts are much different. SBV’s idea is that Deposit Insurance is within SBV’s scheme, but DIV’s plan is independence from SBV.
• New Bank Supervision Law is drafted. They think bank supervision is an important role of SBV.
• The Deposit Insurance Law and Bank Supervision Law will be prepared after the SBV Law and CI Law is finalized or at least at the same time altogether. As for the delay of the reform of SBV, according to the information of SBV, there were arguments on the independence of SBV from other ministries. Other source says that it was caused by the timing of the discussion. In March 2007 the Government realized that Vietnam economy was
11 facing big problem of economic disturbance, the increasing deficits of the current account and the high inflation. The international donors pointed out that Vietnam needs to coordinate the fiscal policy aiming high economic growth and on the other hand tight monetary policy to curb the high inflation. The Government decided to coordinate the fiscal policy and monetary policy which are directing the opposite directions, economic growth and curbing inflation. Just in this timing, the discussion of independence of SBV was raised. Curbing the high inflation was recognized as the top priority policy with coordination of MOF’s fiscal policy and SBV’s monetary policy, and the discussion of independence of SBV, or revision of SBV Law was postponed. Accordingly revision of Banking Law was also postponed. Equitisation of State-Owned Commercial Banks (SOCBs) SOCBs have been continued to lend very big amount of money to SOEs for their national projects and there will be very much concentration of credit risks. In addition, it is noted that SOCBs has a special stipulation. As a general rule, commercial banks may be permitted to extend unsecured loans to enterprises only when the enterprises are financially very sound. However, SOCBs are permitted to make unsecured loans under a government guidance. There is a stipulation in credit institution Law that in such case, any loss caused by objective reasons is compensated by the government. In a case of a SOCB which applied Article 7 criteria for credit evaluation preceding other commercial banks, the non performing loan ratio increased to 11% from a few per cent in the previous financial period. . SOCBs are not only big in scale, but they have comparably various problems such as the quality of the loan assets from their traditional national roles, lack of smooth customer services which are required from the market economy. Therefore, the government decided to promote equitisation and public offering of their stock of SOCBs to secure transparency of the financial standing and introduce market mechanism to their management. All 5 SOCBs decided their plans in 2007 for equitisation execution of IPO and listing their stocks on the foreign stock markets. Among them Vitcombank executed IPO in December 2007, and BIDV and Vietinbank (renamed from Incombank) were scheduled to execute IPO, however, the sudden sharp decline of stock market since early 2008, the IPO execution plans are postponed. The legal basis for equitisation of SOCBs is Decree 109/2007/ND-CP dated 26/6/2007 which facilitates the equitisation of SOEs (including SOCBs) where Government is not intend to hold 100% of shareholding. The roadmap and progress of the SOCB equitisation process is as follows:
Table 1-5 SOCB Equitisation Position
SOCB Name Roadmap Progress Vietcombank - To be equitised during 2007 - Equitisation plan approved on (Government Notice No. 03/TB-VPCP) 26/9/2007 (PM Decision No. - First share bidding: late 2/2007 1289/QĐ-TTg dated 26/9/2007) - IPO done on 26/12/2007 MHB - To be equitised within 2007 - Equitisation plan approved on (Government Notice No. 03/TB-VPCP) 24/3/2008 (PM Decision - IPO 313/QĐ-TTg dated 24/3/2008). + Phase 1: 2006, state shareholding at - IPO has not been done 70% + Phase 2: 2007-2010, share issuance for achieving state shareholding at >51%
12 BIDV Government submitted an equitisation Equitisation plan is still pending plan to NA Session 43 dated 21/9/2006: - Phase 1: Improving the financial position by late 2006 - Phase 2: To be equitised by 2007 Vietinbank Government submitted an equitisation Equitisation plan is still pending plan to NA Session 43 dated 21/9/2006: - Phase 1: Improving the financial position by late 2006 - Phase 2: To be equitised by 2007 - IPO: early 2008 VBARD Government submitted an equitisation No action has been taken plan to NA Session 43 dated 21/9/2006: - Phase 1: Improving the financial position by late 2007 - Phase 2: To be equitised by 2008
The latest information revealed that the equitisation of SOCBs will be completed before 2010 except VBARD.
1-3. Review and Perspective of Private Sector Reform
Before the “Doi Moi” introduced in 1986, the private sector in Vietnam had not received any meaningful policy support from Government, as a result the business environment for private sector was almost closed for public sector. The "Doi Moi" policy however has considerably contributed to the outpacing development of Vietnam economy both quantitatively and qualitatively. The policy has created favourable conditions and legislative basis for the development of private sector. The first milestone in the development of private sector to be taken into account happened during the end of 1980s and the beginning of 1990s, when a number of laws was promulgated, including Law on Foreign Investment, Law on Private Enterprise, Company Law, Law on Local Investment Encouragement, serving as legal basis for the operation of various economic sectors generally, and private sector particularly. The second milestone was recognised when the Law on Enterprise was promulgated in 1999 and came into effect in 2000. As a result there were newly established 73,000 private enterprises registered during the period 2000 - 200419. The third milestone was recognised when the unified Law on Enterprises was introduced in 2005 along with the common Law on Investment which help to create for the first time the same legal framework for enterprises including those in private sector and provide the same investment incentives regime for all types of enterprises in Vietnam. Key legislations related to Private Sector Reform are summarised as follows:
19 Ministry of Foreign Affairs. (2008). Retrieved July 14 from Ministry of Foreign Affair’s website: http://www.mofa.gov.vn/vi/tt_vietnam/nr040810155228/ 13 Table 1-6 Key Legislations on Private Sector Reform
Name of legal documents Amendment/ adjustments Main achievements Legal documents on business operations Law on Enterprises 2005 Replaced (i) the Law on The Law on Enterprises 2005 is a Enterprises 1999, (ii) the unified law which brings a same Law on Companies 1990 playing field for all types and the (iii) Law on Private enterprises including SOEs which Enterprises 1990 are also governed by this Law although some delays are allowed for conversion of SOEs Law on Investment 2005 Replaced (i) the Law on This Law defines the same Foreign Investment in incentives/procedures for all types Vietnam 1996 its of investments without amendment in 2000, and discrimination between local and implementing regulations foreign investments, state and (ii) Law on Domestic private sectors’ investments. Investment Promotions 1994, and its amendment 1998 Decree 02/2000/ ND-CP, dated 3 Replacing Decree Decree 02 makes a guidance on February 2002, of the GOV, on 66/ND-HDBT, dated 2 how to do business registration by business registration March 1992, of the former business household under the new Council of Ministers (now simplified procedures provided the GOV) on business for in the Law on Enterprises registration for household businesses Decision 19/2000/QD-TTg, These legal documents are seen as Decree 30/2000/ND-CP, Decree results of GOV's attempt at 59/2002/ND-CP, all on abandon further simplifying the business of a number of business licenses registration procedures and conditions for new establishment of private companies in Vietnam Legal documents on commercial contracts Civil Code 2005 Replaced the Civil Code The Code serves as the backbone 1993 and terminated the for the private legal system. It Ordinance on Economic confirms the juridical status of all Contracts 1989 legal subjects, defines the basic rights, including ownership right, and sets up the principles for the relationship between the legal status entities and persons in Vietnam. Commerce Law 2005 Replaced Commerce Law The Law provides the principles 1997 for trading activities and competitions in Vietnam. Legal documents on accounting and audit Law on Accounting 2003 and its Ordinance on Accounting The Law on Accounting governs implementing regulations and Statistics 1988, and its accounting activities, accounting implementing regulations unit, accountants and accounting business Legal documents on taxation
14 Name of legal documents Amendment/ adjustments Main achievements Law on Tax Management 2006 Improved tax payment procedures for business entities which are allowed to calculate tax, prepare tax papers and pay tax themselves Law on Value-added Tax 1997, Replaced the Law on The Law tries to avoid the multi and its implementing regulations Turnover Tax (1990) or double taxations which were in existence under the old law, and to make a more transparent taxation system in Vietnam, in favour of enterprises Law on Corporate Income Tax Replaced Law on Corporate Provides more transparent 2008, and its implementing Income Tax 2003, and its taxation system in Vietnam, regulations implementing regulations simplifies the procedures in favour of enterprises, reduced Corporate Income Tax from 28% to 25%. Legal documents on land The Land Law 2003, and its Replaced the Land Law The Land Law 2003 has implementing regulations 1993, its amendment 1998, improved the land management and implementing procedures, provided more rights regulations and incentives to investors. Legal documents on enterprise bankruptcy Law on Enterprise Bankruptcy Replaced Law on Improved the bankruptcy concept 2004 Enterprise Bankruptcy 1993 and defined specific procedures for bankruptcy. Legal documents on banking and financing Law on State Bank of Vietnam These legal documents provide 1997, Law on Credit Institutions private sector with access to 1997, and their implementing various sources of financing, e.g. regulations from the commercial banks, SME Support/Credit Funds, etc., and at the same time simplify the borrowing/lending procedures and conditions in favour of SMEs Securities Law 2006 and its Provides the legal framework implementing regulations which helps private companies to have opportunities of raising capital from Stock market. Legal documents on labour Labor Code 1994, its amendment The Labour Code 1994 creates 2002, and implementing the legal basis for setting up the regulations employment relationship in all economic sectors in Vietnam, including the private sector Legal documents on judiciary and arbitration system Civil Proceedings Code 2004 The Code on Civil Proceedings shall provide basic principles of civil proceedings; the order and procedures for initiation of a legal action to enable courts to resolve
15 Name of legal documents Amendment/ adjustments Main achievements cases in relation to civil, marriage and family, business, commercial or labour disputes. Decree 116/CP, dated 5 Since 1 July 2003, these These simplify the procedures for September 1994, of the GOV, on legal documents will be settlement of commercial disputes the organization and operation of officially replaced by the through commercial arbitration economic arbitration centers; Ordinance on Commercial centers compared to those Decision 204/TTg, dated 28 Arbitration passed on 25 through the people's court system, April 1993, of the Prime February 2003 thanks to more flexible settlement Minister, on the organization of principles and time frame the Vietnam international Arbitration Center; and Decision 114/TTg, dated 16 February 1996, of the Prime Minister, on the expansion of the power for Vietnam International Arbitration Center. Legal documents on business associations Decree 88/2003/ND-CP on This provides the legal basis for business associations20 the establishment and operation of various types of business associations in Vietnam
Under the overall economic restructuring plan, SOE equitisation is also an important area which Government pays a special attention. The equitisation process of state-owned enterprises (SOEs) has been implemented over the past 15 years but the results of the process have not met expectations. The slow progress of equitisation is attributed to barriers from administrative mechanisms. .According to the Ministry of Finance, there are now around 3,800 SOEs that have been equitised. The remaining of more than 1,700 SOEs, and the economic groups and State-run corporations will be equitised/re-organised from now to 2010. However, the SOE equitisation process is now facing difficulties due to the stock market downturn and the failure of initial public offerings (IPOs). While Prime Minister has set 2010 as the deadline for the State-owned enterprise (SOE) equitisation, it is very likely that there will be some delay in the SOE equitisation plan. Notwithstanding given the consistent policies of Government on the development of private sector and the above continued SOE equitisation process, it is expected that there will be more opportunities for the private sector to grow further. This has been confirmed by a MPI’s high-ranking official that the Government will invest in infrastructure and the remaining sectors would be fully open for the private sector to join.
Listed Companies on the Stock Exchange Market There are 2 stock exchange markets in Vietnam, Hanoi Securities Trading Center (HASTC) and Ho Chi Minh Stock Exchange (HOSE). As of Oct 7, 2008, HASTC has 153 listed companies and HOSE has 160 listed companies and 313 in total. Among them, Asia Commercial Bank (ACB) is listed on HASTC, and Sacombank is listed on HOSE.
20 This is under joint preparation by the Ministry of Interior Affairs and Ministry of Justice. 16
1-4. View of SME Promotion in the Context of Reform Policies
In line with Decree 90/2001/ND-CP dated 23 November 2001 of the GOV, a specific institutional system for SME support has been set up linking various state agencies and institutions for promoting the development of SMEs in Vietnam.
Prime Minister
SME Development Promotion Council
Line ministries and MPI Local Other supporting agencies central agencies ASMED Government • VCCI • Vietnam Cooperative Alliance TAC in Hanoi, Da Business • Vietnam Union of Nang and HCMC Information Science & Technology Center Association • SME Association for Rural Business DPIs (Coordinator • Vietnam Young for SME Entrepreneurs development in Organizations Support centers of locality) + Line ministries and supporting units Clubs, local Central Agencies under departments unions, NGOs
SMEs
Figure 1-7 Institutional System for SME Promotion
It is seen that SME Development Promotion Council lead by MPI Minister provides SME development advises to PM. ASMED is a SME policy coordinator at the central level and a standing secretary for the SME Development Promotion Council. DPI under PPC is a SME policy coordinator at locality and other local agencies are also providing support to SMEs. The government agencies at central level are also working closely with private sector represented organisations and other state/private services providers as to enhance SME competitiveness. Given the foregoing, the view of SME promotion is consistent amongst state agencies from the central to the local levels which supported quite well the establishment of SMEs during the recent years as discussed above. However by discussions with SMEs, such support would be not sufficient for further development of SMEs as little SMEs received technical and other assistance as to resolve
17 difficulties and challenges SME face in daily operation (such as quality, productivity improvement, technology, environment, market information, land access etc). This would require more coordination efforts from the state agencies for the development of business service market as well as other technical support. The recent visits to the agencies which are able to provide SME support revealed that: • Institute for Industry Policy and Strategy under MOIT has some 90 staff in different sectors and has ability to collect information from 63 provincial Industry Departments across the country in each local province government. In addition, the Institute maintains relationship with other technical institutes where technical resources are available. • SME Support Center under VCCI has 17 full-time staff and other outsourcing experts. This center is specialized in providing business training and consultancy as well as market information.
In summary of this section, the reform of credit institutions intended to include small and financially weak commercial banks to be merged to larger and more stable banks, improve profitability and risk management of banks, however, the economic disturbance as high inflation and the deficit of the current account and the urgency of economic counter measures caused the delay of the economic reforms. Recent economic difficulties cause some delays of reforms such as Banking Sector Reform and Enterprise Reform. Because of the delay, vulnerability of funding of commercial banks and insufficient market mechanism (priding mechanism) seems to be prolonged. Under this circumstance, in order to overcome economic challenges, necessity of support for SME finance is substantial because active SMEs are essential for economic growth.
18 2. SME Promotion Policy and Support for SME Finance
The objective of this section is to identify and analyze the policies on SME promotion and SME finance support of international donors and of the Vietnamese Government so that the implication of scheme or blue print of the SMEFP III could be well made. The SMEFP project, together with these policies and supports will help facilitate and accelerate the development of the private sector in general, and SMEs in particular by improving their access to financing sources.
2-1. Framework of SME Promotion Policy21
The year 2001 mark the first milestone for SME promotion policy where the first high level policy statement on supporting the Development of SMEs in Vietnam is issued, which is the Government Decree No. 90/2001/ND-CP dated 23/11/2001. This Decree set out the objective to develop SME as an important task in the country’s Socio Economic Development Strategy, to ultimately increase their efficiency and competitiveness in the market, developing their production and business and creating more jobs and improving the standards for labor. In addition to definition of SME, the Decree also define that SME Support Program of the State (“Support Program”) are target programs for SMEs which shall be allocated in the annual plan and 5 year plan decided by the Prime Minister or Chairmen of People’s Committee of provinces or centrally managed cities. This Decree also indicates the priorities to be given to Support Program for SMEs managed by women entrepreneurs. The Government Decree then specifies “supporting policies” in order to realize the above objectives, including investment promotion, establishment of Credit Guarantee Fund (CGF) for SMEs, facilitating the production premises for SMEs, market and competitiveness improvement, export promotion, information - consultancy and human resources training. To realize the policy of setting up CGF for SMEs, in the same year, the Prime Minister immediately issued the regulation on the establishment, organization and operation of the CGF for SMEs, which is accompanied in Decision 193/2001/QD-TTg. The policy for setting up institutional structure for SME support is also indicated in Decree 90. Accordingly various institutions are specified for SME promotion, including (i) SME Development Agency (ASMED) under MPI to assist the Minister of Planning and Investment in carrying out the state management function of SME promotion, (ii) SME Development Promotion Council to advise the Prime Minister of the mechanism and policies for SME encouragement, and (iii) the Technical Assistance Centers for SMEs (in three cities of Hanoi, Da Nang and HCMC) under the SME Development Agency. To further promote SME development, the government assign local Peoples’ Committee (PCs) to direct the SME promotion activities, developing legal instruments on local SME promotion, managing, coordinating, supervising and reporting on the implementation of local SME support programs, and encouraging the establishment and operation of SME support organizations. In 2002, in a continued effort to facilitate the implementation of policy on export promotion, Ministry of Finance issued Circular 86/2002/TT-BTC on supporting trade promotion activities to boost exports for enterprises in all economic sectors, including SMEs. This is the realization of the “export promotion policy” to SMEs mentioned in Decree 90/2001/ND-CP dated 23/11/2001. Accordingly, the State will partly share the cost for key focused trade programs through the establishment of export support fund (at the central level) or trade promotion fund/export support fund at local level. 2003 is the year when a series of policy actions are carried out. Firstly, the regulations on functions, tasks, membership and operation of SME Development Promotion Council 22 were issued (Decision 12/2003/QD-TTg and Decision 185/2003/QD-BKH). Secondly, the former Minister of Trade (now changed to the Ministry of Industry and Trade) specified the regulation on
21 The full policy documents for SME development promotion is presented in Annex I-3-a 22 The list of Council members is provided in Annex I-3-b 19 establishment and management of National Focused Trade Promotion Program, while Minister of Planning and Investment decided to establish SME Technical assistance centers in Hanoi, Da Nang and HCMC (respectively in Decision 104/2003/QD-BTM and Decision 290/2003/QD-BKH). However, not until the end of 2003 could a message on overall continued encouragement of SME development be announced from Prime Minister level (Directive 27/2003/CT-TTg). In this directive, the Prime Minister aimed at overcoming the weaknesses of SMEs, including lack of linkage, low cooperation efficiency and competitiveness, the incapability of business associations in supporting member development. This is a continued effort of SME promotion policy, with a direct link to Decree 90: “Ministers, Heads of governmental agencies, Heads of Government agencies, provinces/cities’ PC chairmen … ensure the equal treatment of SMEs and private sectors in investment, credits, taxes, land, trade promotion, import/export, and at the same time, immediately carry out the followings: (a) expedite and complete tasks as assigned in Decree 90/2001/ND-CP dated 23 November 2001 on supporting the development of SME …” In a separate instruction to MPI, among others, the Prime Minister request that “During the 1st quarter of 2004, MPI has to submit to PM for approval of State Support programs provided to SME as defined in Decree 90/2001/ND-CP”. In 2004, the policy efforts focused on (i) minor amendment and further guidance of the regulations on establishment and operation of CGF (Decision 115/2004/QD-TTG and Circular 93/2004/TT-BTC); and (ii) Human resource training support programs provided to enterprises (Guideline 1347/2004/QD-BKH and Decision 143/2004/QD-TTg). In 2005, the most prominent policy action is expressed in Directive 40/2005/CT-TTg where Prime Minister is determined with further strengthening SME development supports, making a positive leap forward in the implementation of SME promotion policies. In the first place, PM requested for all the ministries and sectors to extensively and closely direct the fruitful implementation of the task of facilitating business environment and supporting SME development set out previously in Directive 27/2003/CT-TTg. Then the PM assigned concrete activities for each concerned Ministry, as follows: + Ministry of Planning and Investment to finalize the design of SME development Plan for 2006-2010 by January 2006; basically setting up the SME promotion and support management system within 2006; directing the localities’ prompt implementation of human resources training & support programs for SME during 2004-2008 period; coordinating with other ministries, sectors and localities to carry out the formation of the information support programs and the Technical assistance programs for SMEs as set out in Decree 90/2001/ND-CP dated 23 November 2001. + Ministry of Finance to review the establishment of Credit Guarantee Fund in the past time23 to propose to the Prime Minister the solutions for pushing up the CGF establishment for SME in localities; submitting to PM the import/export credit policies and perfecting the enterprise finance policy;
23 The policy for establishment of CGF was first stated in Decree No. 90/2001/ND-CP dated 23/11/2001 as one of the “support policies” to SMEs. In the same year, the Prime Minister immediately issued the regulation on the establishment, organization and operation of the CGF for SMEs, which is accompanied in Decision 193/2001/QD-TTg. In 2004, there is minor amendment and further guidance of the regulations on establishment and operation of CGF (Decision 115/2004/QD-TTG and Circular 93/2004/TT-BTC) 20 coordinating with MPI to carry out investment incentive mechanism and provide credit support to rural SME. + State Bank of Vietnam To amend Circular on capital contribution to establishment of CGF for SME to ensure the feasibility of credit access support provided to SME, + Ministry of Trade, to coordinate with relevant ministries, sectors, localities and associations in amendment of the policies and mechanism for national focused trade promotion to enhance effectiveness and facilitation of SME business operation; collecting and disclosing market information assisting SMEs in market forecasting, hence assisting SMEs in doing their businesses. + Ministry of Natural Resources & Environment To further facilitate SME premise access. + Ministry of Science and Technology to make project proposal by second quarter of 2006 to set up a national database to provide information on technology, equipment, product technical specifications and quality standards for SME; To make a project proposal to formulate a mechanism of encouraging the linkage and cooperation between research and production facilities of SMEs, To make a project proposal to formulate a mechanism to support SMEs in registration and protection of industrial property rights towards products and services, exchanging and contributing capital and cooperating in investment in intangible assets of industrial property rights. + Ministry of Foreign Affairs, To propose projects to support SMEs in overseas market. + Chairmen of provincial PCs and associations to closely direct and promote the SME development support activities within localities. Nevertheless, there had not been a comprehensive and concrete program for SME development until 2006 when PM issued Decision No. 236/2006/QD-TTg on Approval of the SME Development Plan is issued. Basic principles guiding the development of SME sector are clearly reflected in this Decision with the first principle (the first bullet below) being cited from the Central Party Executive Committee’s Resolution, as follows:
- Realize consistently the policy of building a multi-sectoral economy. Economic sectors that do business in compliance with legal regulations are all important constituent parts of a socialist oriented market economy with a vision of long term development, cooperation and sound competition
- The State creates a sound policy, legal and institutional environment that ensures fair and healthy competition for SMEs of all economic sectors so as to mobilize all internal and external resources for development investment;
- Develop SMEs in an active but sustainable way, enhancing the quality, increasing the quantity to have economic efficiency and realize the goal of contribution to employment generation, poverty reduction, ensuring social safety and security; SME development objectives are also to be integrated into national goals, and specific socio-economic goals of every region and locality, encouraging agricultural industries, traditional trade villages
21 with a focus on SME development in mountainous areas and regions having socio-economic difficulties; SMEs owned by people of ethnic minority groups, women and the disabled…should be prioritized and supported, priorities should also be given to SMEs having production and investment in sectors that can be competitive;
- State support will gradually shift from direct support to indirect support to enhance the capacity of SMEs;
- The State will link business activities with environmental protection and assurance of social security and safety;
- Raise awareness of governments of all levels about the role played by SMEs in socio-economic development. As the very latest policy instrument on SME promotion in Vietnam, Decision 236 states the development goals for SME in the period, where the general objectives are to boost the progress rate of SME development, creating environment for healthy competition, strengthening the national competitiveness, SMEs are to contribute more and more to the growth of the national economy. Meanwhile the specific objectives indicate particular targets for newly established SMEs, proportion of SMEs with direct exports, employment creation, and the increase of technical workers in SMEs during the planned period. To realize the above objectives, the Decision also provide for the ten main tasks, and in a more concrete way, specific actions are set out for implementation in seven groups of solutions, as follows: 1. Group of Solutions 1: Simplifying regulations to facilitate business registration; market entry and business activities of enterprises; 2. Group of Solutions 2: Creating access to land and work premises for SMEs; 3. Group of Solutions 3: Facilitating access of SMEs to finance, with priorities for enterprises having products for exports, high value added products; 4. Group of Solutions 4: Support programs for increasing capacity and improving competitiveness of SMEs; 5. Group of Solutions 5: Developing skilled labor force to meet the requirements of SME development for the period 2006-2010; 6. Group of Solutions 6: Creating a social attitude towards the SME sector; 7. Group of Solutions 7: Management of the implementation of the SME Development Plan 2006-2010; In brief, the assignment of work at central and local levels is as follows: + At the central level: 1. The SME Development Promotion Council will provide overall co-ordination of the Plan implementation, monitoring and evaluation of the implementation of the Plan and SME Development Action Plan in different ministries, agencies and localities. 2. MOF is to coordinate with MPI to consolidate and develop the budget plan under the State budget to ensure the implementation of groups of solutions. 3. Ministries and agencies are responsible for preparing and carry out specific tasks as per the assignment and schedule for each solution.
22 + At the local level: 1. Provincial People’s Committees are to formulate their own provincial SME Development Plans and detailed Action Plan and the implementation roadmaps; cooperate with relevant ministries and agencies to reach the local SME development targets; allocate sufficient human resource and annual budget to ensure the implementation of the SME development plan at the locality; 2. Establishing provincial/municipal “Coordination Unit of SME Development Plan implementation’ with members from relevant provincial departments and local business associations, and the DPI Director General being the Standing Secretariat; 3. Annually, submitting implementation reports of provincial/municipal SME development plans to MPI for the consolidation of these reports to submit to the Prime Minister. Recently, in the process of realizing the above policies, there have been some inadequacies which lead to the need for revising Decree 90. According to the 1st draft of the amendment of Decree 90, revisions are recommended to some main issues, as follows: First, the definition of SME is in Article 3. Currently, “SMEs are those independent business and production establishments that have registered their business under the current legislation, have the registered capital of less than VND 10 billion or the average number of annual employees of less than 300”. Though the current two criteria to classify SMEs are not different with international practice, they cannot reflect the reality of enterprise scale by different sectors/areas. The registered capital is quite different with operating capital of an enterprise. Meanwhile, the criterion of annual employee number is just the expected figure, and because the laws do not require enterprise to register this number, there is no basis to classify enterprise after their business registering. Therefore, according to the 1st draft of the amendment, these two criteria are changed to be “in level 1 of System of economic sectors of Vietnam 2007; and registered capital and average number of employees each year as follows: Table I-7 Definition of SME from Draft Revision of Decree 90 Super Small Small Enterprise Medium Enterprise Entrepreneur* Employers Register Employers Register Employers Sector capital capital Sector A (agriculture, < 10 < 5 billions < 50 < 10 < 200 forestry, fishery) billions Sector B, C and D < 10 < 10 < 200 < 20 < 300 (manufacture and billions billions industry) Sector from E to U < 10 < 5 billions < 50 < 10 < 100 (Trading and services) billions
Second, the target for application of the Decree (Article 4) is proposed to be “ Enterprises established applying to Enterprise Law 2005; Co-operatives established applying to Co-operative Law; Business family registered to Decree 88/NĐ-CP” to update the prevailing laws on all types of enterprises. Third, “the support programs” in Article 5 are changed as “to develop stimulated sectors and areas”, and supplement “support terms” in the inclusion of a support program.
23 Fourth, in the Article 7, the draft revision of Decree 90 suggests to additionally establish SME Development Fund to support the establishment of CGF for SMEs and support SMEs in general. Detailed activities of the SME Development Fund are also proposed in this draft revision. Fifth, Article 9 is significantly changed. The Article’s name of “market and competitiveness strengthening” is proposed to be “Market and raising technology and industry ability”. Clause 4 and 5 of this Article is made more clearly on government encouragement, at the same time new clauses are supplemented to indicate government’s assignment to different ministries, SBV and commercial banks to carry out this support policy. Sixth, the last clause of Article 11 is suggested to be deleted to be in line with current practice Seventh, in Article 12, the reporting requirement for SME Development Agency is amended from “every six months” to “annually”. This change can be deemed to contribute in the more efficient operation of the SME Development Agency and also an evidence of a certain progress in SME development in Vietnam. Eighth, in Article 15, the SME Development Promotion Council is proposed to change the “standing secretary” from “Director” to “Deputy Director” of ASMED. Further, the names of Ministries in this Article are also corrected to reflect recent change in Government structure. Ninth, in Article 17, proposal is made to classify the local SME promotion tasks into two level: (1) The functions/tasks of Central cities/provinces PC; and (2) Central cities/provinces PC assign these functions/tasks to Department of Planning and Investment (DPI) under the relevant PC. Similarly, the reporting requirement in this Article is also changed from “six months” to “annually”.
Implication for Scheme of Phase III: The assessment of the framework for SME promotion policy as described above, implies for the SMEFP Phase III, it is worthy to consider the change the eligibility criteria for the end-borrowers where the size of eligible end borrowers in terms of number of employees could be in line with Table above so as the financing supports are given to the real small and medium enterprises in different sectors/industries.
2-2. Policy for Enhancement of SME Finance Major policy for SME finance promotion so far can be grouped into two categories (i) establishing and operating Credit Guarantee Fund for SMEs; and (ii) other credit and finance support policy to SMEs. 2-2-1. Credit Guarantee Fund for SMEs Regulation on CGF The regulation on establishment and operation of CGF is available right in the year of Decree 90 – the first highest policy document on SME development – is issued in 2001. Until now, a number of other legal documents have been promulgated to guide and amend this regulation. Below is brief of mechanism and policy for a CGF to be established and operated to support SME activities in Vietnam. Definition A CGF is a financial institution operating for non-profit purposes, ensuring the recovery of capital and self-payment of expenses, with the minimum charter capital of 30 billion VND, reporting to and under management of MOF. It has legal person status, charter capital, balance sheet and its
24 own seal and may open accounts at the State Treasury and domestic commercial banks. CGF’s capital comes from the following sources:
- Charter capital (Budget allocated from province, Capital contributed by credit institutions, Capital contributed by enterprises, Capital contributed by production and/or business associations, organizations representing and supporting SMEs)
- Lawful aid capital (including ODA capital) for the purpose of developing SMEs, cooperatives as well as agricultural, forestry and fishery development programs
- Capital supplemented from the results of operation of CGFs as prescribed Establishment The Chairman of provincial PC decide on the establishment of CGF by considering and ratifying the project proposal to set up CGF meeting all eligible conditions24. After establishing CGF, Chairman of the provincial PC has to report to MOF on the establishment of CGF in their localities Organization and Management Chairman of the provincial PC can decide to organize a CGF in one of the following type:
- Establishing a CGF with Management Council, the Control Board under the Management Council, and the Executive Board. The CGF shall entrust the management of credit guarantee operations to the local Development Assistance Fund or local financial funds (the entrusted units).
- Issuing decisions on assigning local financial funds with the task of providing credit guarantees to SMEs. Business of Credit Guarantee Target clients subject to credit guarantee - SMEs as defined by the laws. - Cooperatives and unions of cooperatives. - Individual business households - Farm owners, peasants and fishermen households that carry out projects on aquaculture, offshore fishing, planting of industrial trees or husbandry... Criteria for credit guarantee - Having feasible and loan recovery investment projects/business plans. - Having the total value of the mortgage or pledge at credit institutions of at least 30% of the loan value. - Having no tax debts or overdue debts to credit institutions or other economic organizations. Level, term and fee of guarantee - Credit guarantee level is no more than 80% of the difference between the loan value and the value of the client’s mortgage or pledge at credit institution(s); The credit guarantee level for a client does not exceed 15% of CGF’s equity.
24 The eligible conditions include: (i) Having charter capital of 30 bi VND at the minimum; (ii) Having the proposed candidates for Management Council, Control Board and Executive Board, who are adequate individual’s civil act capacity and qualification background suitable with the requirements of CGF business; (iii) Having draft charter, organization and business plan suitable with legal provisions.
25 - The term for credit guarantee is in line with loan term as agreed between client and the credit institution(s) - Credit guarantee fee is equal 0.8%/year, being calculated on the guaranteed value Exercise of guarantee commitment - After receiving notice by the credit institutions that a client cannot repay or fully repay their due debts to credit institutions even after the credit institutions have applied all measures to recover debts, the CGF shall repay debts, on behalf of the client, to credit institutions according to their committed guarantee liability. - The guaranteed clients shall have to acknowledge compulsory debts and repay the CGFs the amount having been paid on their behalf and with an overdue interest rate as specified in relevant legal regulations. Practice of CGF Establishment and Operation As mentioned above, CGF is the first and foremost issue to be addressed in SME support policy in Vietnam in 2001. Upon the promulgation of this policy, enterprises highly expected that CGFs would help to clear their difficulties in capital sources. However, three years after of policy promulgation, only three provinces of Tay Ninh, Tra Vinh and Yen Bai could set up CGFs for their localities. Until now, there are 11 provinces/cities having set up CGFs, i.e. Tra Vinh, Ha Noi, Vinh Phuc, Bac Giang, Ha Tinh, Dong Thap, Ho Chi Minh, Ninh Thuan, Binh Thuan,Yen Bai and Kien Giang. However, only three of which have guarantee exposure, which are Tra Vinh, Yen Bai, Vinh Phuc provinces. The first reason for the low progress of CGF establishment results from the unwillingness and limited financial capacity of those eligible for doing so. The capital requirement to set up a CGF is VND 30 billion. Meanwhile, one of the major directions of CGF establishment is based on business associations, especially SME associations. However, in practice, these associations are low in financial capacity, hence cannot contribute capital and secure its members to obtain loans from banks to contribute in CGF. Enterprises themselves do not want to contribute capital because in practice, their capital is so limited. And for PC, their budget is limited as well. The commercial banks are also reserved in contributing capital to set up CGF because partly of their limited capital. On the other hand, the banks maintain that the contribution of capital to set up CGF for guaranteeing borrowers of the credit institutions themselves are not meaningful practically, further they do not rely on the sustainability of CGF. The second reason, as observed, is that the legal regulations remain inadequate. For example, the regulation on CGF establishment does not identify clearly the rights and obligations of the organization contributing capital to set up CGF. CGF for SMEs is a type of financial institution operating not for profit purpose, but to preserve capital and cover cost. Therefore, this regulation does not attract enterprises in investing in the fund because enterprises always aim at profit.
2-2-2. Other Credit and Finance Support Policy for SMEs In addition to CGF for SMEs, other credit and finance support policy provided to SMEs are specified in Notice 144, Directive 40 and Decision 236. According to Notice 144, the Chairman of SME Development Promotion Council suggest to pay attention to the approaches to credit solutions for SME in finalizing the 2006-2010 SME development plan, where it’s necessary to create a legal mechanism for commercial deeds, especially certificate for land use right to make them available as collateral for SMEs access to credit.
26 Directive 40 also request MOF to develop mechanism and policy for export/import credit, to propose mechanism for credit encouragement and support to rural SMEs and other potential localities, trade villages, etc. Then, in Decision 236, more comprehensive targets and actions are specified for SME credit enhancement. The Decision firstly set out major tasks of encouraging the set up of different types of banks, JSCBs specialized in serving SMEs, including development of financial leasing business and non-collateral credit available to SMEs with efficient and feasible projects. To realize this task, Decision 236 then outline Solution group number 3 out of 7 solution groups, which is aimed at facilitating SME access to finance, with priorities for enterprises having products for exports, high value added products. In turn, in the actions for this solution, Decision 236 provide for two different activities:
- SBV is responsible for preparing a resolution on some credit solutions for the region II, III, mountainous area, islands, mass inhabitant area of the Khmer ethnic minority, the traders and communes under programme 135 ( disadvantaged regions) by separating clearly policy credit and commercial credits: The Viet Nam Bank for Social Policy (VBSP) and Development Bank (VDB) offer preferential loans in disadvantaged regions; commercial banks offer loan by the commercial credit regulations in disadvantaged regions;
- MOST in coordination with MOF study and issue the regulation on establishment and operation of venture investment funds. Decree 151 is the regulations on State’s investment credit and export credit and VDB is assigned with the responsibilities of carrying out the state policy on investment/export credit. Therefore, more details of this policy will be presented in the last part of this section with regards to the operation of VDB.
The Vietnam Bank for Social Policy (VBSP) (1) Source of fund
(i) the government - contributes 100% of VBSP capital which counts about 1/3 of VBSP fund
(ii) borrowing at market interest rates from commercial banks (2007: 8.4%/year) - this makes up 50% of VBSP fund (4 state-owned commercial banks have to reserve 2% of their deposit base to contribute to VBSP capital). (iii) the rest comes from public deposit (VBSP can take short/long term deposits) and other source such as borrowing from SBV and ODA funds.
(2) Financing policy: (i) VBSP loans are mainly micro-finance for the following purposes: • Job creation: with every 1,000USD loan amount, at least one job must be created • Household production in disadvantaged areas • SME financing under the KfW program. (ii) Lending policy: mostly for newly-established enterprises, especially in rural disadvantaged areas (newly-established enterprises are ones which have been under operation in less than 3 years, and they cannot reach commercial banks for financial sources).
27 (iii) VBSP actively approach customers: If the distance from the community and the VBSP branch is more than 3 km, VBSP officers will actively reach the community and offer them loans. (3) Proportion and trends of loans for different purposes: (i) Job creation: 7.6%, and increasing in percentage (ii) Micro businesses/enterprises: 10%, and increasing in percentage (iii) KfW program: <1%, and increasing in percentage (iv) Micro finance (i.e. households): >80%, and decreasing in percentage. (4) Direction on lending policy: focus on lending to students and micro enterprises. That is why the percentage of household finance is decreasing in percentage. (5) Terms and conditions for SME loans: (i) If the loan amount is more than 6,000 USD, collateral is required. Collateral may be in the form of real estate and/or assets financed by the loan. (ii) Lending term: ≤ 5 years. (iii) Lending for: • working capital • machinery purchase. (iv) Lending limit: 5 billion VND (≈ 30,000 USD) (v) Interest rates: lower than those of commercial banks. The Vietnam Development Bank (VDB) VDB has initial chartered capital of VND 5 trillion (USD $314 million). Since VDB is exempt from minimum reserve requirements and will not participate in deposit insurance activities, its payment liquidity is to be guaranteed by the Government, and as a non-profit organisation, exempt from budgetary obligations. The bank is also entitled to mobilize capital by issuing bonds, deposit certificates, raising postal savings and borrowing from other domestic and foreign financial institutions. (1) Source of funds: ODA Projects and State credit (2) Financing policy: (i) Lending policy: + providing preferential loans with lower interest rate compared with market rate (i.e. fixed at 12% for state credits) + Only finance medium and long term, not financing working capital + Collateral: financed asset (valued 70% of total loan) + SME own asset (30%) (ii) Target customers: 100% domestic Enterprises, Priority given to SMEs (iii) Number of loans provided to SMEs so far: 5,000 loans, accounting for 60-70% total loans. The trends is that this percentage will increase up to 100% because by 2009, all big SOEs will go equitized (as regulated by the Gov) then no more SOEs of SME size any longer. (3) Funding and programs (i) ODA Finance + EU-SMEDF: SME Development Fund • This fund is being managed by EU, which used to be Federal Republic of Germany fund for Vietnam Labor. This August, this fund is transferred to be under the management of VDB. • Two steps loans (wholesales to 4 CBs)
28 • Non-refundable • Completed disbursement, 5 years to recover principles • Upon transfer to VDB, the original scheme shall be kept as it is (but only for recovery). After 5 years, VDB will consider direct finance from VDB and not focus on profitable projects like Commercial Banks. + KfW Program • 10 million USD • Directly from VDB to SMEs • Any SME (by definition) can access to this loan (ii) State Credit Programs Investment credit, including investment loans, investment credit guarantees and post-investment supports; Export credit, including export loans (for exporters and importers), export credit guarantees, bid-participation guarantees and contract-performance guarantees. + Subject: Enterprises and economic organizations which have projects entitled to investment loans, investment credit guarantees or post-investment supports (hereinafter called investors); Domestic enterprises and economic organizations having export contracts or foreign organizations importing goods which are entitled to borrow capital and enjoy export credit guarantees; Note that the subjected enterprises should be 100% Vietnamese (SOE or Private). In practice, so far there is one exceptional case, at the decision by Prime Minister: KCP sugar moving plant from Hue to Phu Yen province as the input materials – sugar canes – are more available in Phu Yen. + Funding: • State budget fund: charter capital, state capital allocated for offsetting the interest rate difference and post-investment supports; state capital allocated for implementation of the Government's programs and targets. So far, the Gov has disbursed 20 trillion VND (600-700 million USD), and Government paid in capital is 10 trillion VND; • Government bond, Government guaranteed bonds, VDB bond (11% fixed: 5 years); promissory note, deposit certificate; • Capital borrowed from postal savings service companies, social insurance funds as wel1 as domestic and foreign financial and credit institutions • Other capital sources as prescribed by law + Financing criteria: • For investment loan: (i) Eligible project: The projects that needs government support and/or not profitable (Infrastructure, Health Care, Environment Protection, Industrial Sector that need quick development based on 5 Year plan prioritized by the government, including Cement, Shipbuilding, Sugar, Rubber). The list of investment project entitled to investment credit loans is attached in Annex I-4-a, which includes projects of investment in the building of industrial parks, economic zones, export-processing zones and hi-tech parks, which can provide the infrastructure for SME development; (ii) Maximum loan capital for a project = 70% of total project investment (excluding liquidity capital). 29 (iii) Lending currency is Vietnam dong (iv) Interest rate = the government 5 year bond yield + 0.5%/year • For Investment Credit Guarantees: (i) Eligible project: similar to investment loan; (ii) Maximum guarantee level = total project investment (excluding liquidity capital). (iii) Guarantee is provided free of charge • For export loans: (i) Eligible goods subject to loan: under the list of good items entitled to export credit loans attached in Annex I-4-b; (ii) Maximum loan = 85% of the contract value or L/C value or valid drafts value. (iii) Lending currency is Vietnam dong (iv) Interest rate = announced by MOF (at most twice a year), compatible with market rate • For Export Credit Guarantees: (i) Eligible goods subject to loan: similar to export loan; (ii) Maximum guarantee level = 85% of the value of an export contract or the L/C value. + Guarantee charge = 1% of the guaranteed credit balance a year (4) Problems of SME financing (i) VDB is now in shortage of fund but cannot effectively mobilize funds from commercial banks nor from issuance of its bonds because the mobilizing rate (i.e. market rate) is high compared with its fixed rate applying to loan provision or to its bond coupon rate. (ii) There is a big demand for credit by SMEs of all sectors and industries. And SMEs have difficulties in obtaining medium & long term loans owing to their lack of fixed asset for collateral. (iii) Commercial banks are not interested in financing these projects so the situation is that many SMEs cannot get the funding needed. the expectations is that VDB can use ODA fund to cover this shortage (iv) Most of projects for SMEs are ranked in Group B&C, but some big projects (cement and hydropower) can be ranked in A group. For these big projects, i.e. 1 trillion VND, such as cement, hydropower, steel, initially the number of staff was limited (when applying for the loan) which mean they are eligible, but after that, there will likely be the needs for setting up subsidiaries to execute the project, then the original company is no longer being SME, which means no longer eligible for the projects (5) Target of Supporting Industry VDB used to finance mechanic sector and a good deal of shipbuilding. VDB has not financed automobile sector, since most of the entities are foreign invested enterprises which are not eligible for VDB finance. In the coming time, VDB can support supplier industry by developing industrial and high tech parks. (6) Environment safeguards: (i) VDB require environment certificate/license (when applicable) for appraising the loan (ii) Credit staffs of VDB also go on-site supervision to SMEs to check environment safeguards.
30 (iii) Credit staffs of VDB also examine license that SME obtain for imported equipment. Implication for Scheme of Phase III: From the assessment of the policy for enhancement of SME finance above it is implied that SMEFP III continues to be in line with the Vietnamese Government policy to give more financing sources for SME development. In addition, in line with Decision 236, the SMEFP III may consider giving more priorities to PFIs specialized in serving SMEs (e.g. higher credit line) and to SMEs having products for exports or high value added products or involved in supporting industries (e.g. in terms of lower interest rates for sub-loans ).
2-3. Importance of SME Development for Challenges of Vietnam Economy
From subsection 1.1, it can be seen that SMEs have grown in both quantity and quality, and their development is of great significance to the national economy. This subsection further analyzes the importance of SMEs by showing the relevance of SME development to Vietnam’s efforts to overcome economic challenges. Since Vietnam adopted the reform policy, its national economy has obtained great economic achievements. Vietnam’s active integration into the global economic arena is shown in its membership of WTO (World Trade Organization), ASEAN (Association of South East Asian Nations) and APEC (Asia-Pacific Economic Cooperation Forum). As the 7th official member of ASEAN, Vietnam automatically becomes signatory to the ASEAN Free Trade Agreement (AFTA) in 1995. The implementation of AFTA mainly depends on the Common Effective Preferential Tariff (CEPT) Scheme. According to the CEPT implementation roadmap, by 1 January 2006, Vietnam shifted all of the items in the Temporary Inclusion List (for import tariff) and Sensitive List (SL) to the Inclusion List25. According to the Protocol to Amend the Agreement on the CEPT Scheme for AFTA for the Elimination of Import Duties dated 31 January 2003, import duties on items in the Inclusion List of ASEAN 6 (Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand) shall be eliminated (i.e. import duty = 0%) by 2010. The deadline for other four ASEAN nations (Cambodia, Lao PDR, Myanmar and Viet Nam) to eliminate their import tariffs on products in the Inclusion List is 2015. As a member of ASEAN, Vietnam has also initiated some steps for the realization of the ASEAN-China Free Trade Area (ACFTA), and ASEAN-Korea Free Trade Area (AKFTA). These FTAs mean Vietnam can penetrate into the market of the other nine ASEAN nations (export to ASEAN nations usually make up 16-17% of Vietnam’s total export turnover in the past three years26) as well as to other East Asian nations. In conformity with the CEPT scheme, Vietnam will have to cut its tariff on cars to 0-5% in 2018. According to Decision 36/2008/QD-BTC dated 12 June 2008 on the Issuance of the Special Preferential Import Tariff of Vietnam to implement the Common Effective Preferential Tariff (CEPT) Scheme of ASEAN nations during the 2008-2013 period, import duties on most types of ordinary automobiles (i.e. not for special purposes such as hearses or golf cars, etc) will remain at 83% until 2010, and then reduce to 70% and to 60% in 2011-2012 and 2013 respectively. For motorbikes (mopeds, scooters, both CKD and other types), the import duties still remain high at 90% until 2011, and will decrease to 6% in 2013. This means duties for cars and motorbikes imported from other ASEAN countries will still remain high in the next 5 years. Also in accordance with Decision 36, for car and motorbike parts, import duty on all parts will stay constant at 5% from now to 2013.
25 Association of South East Asian Nation. (2006). Joint Media Statement of the Twentieth Meeting of the ASEAN Free Trade Area (AFTA) Council. 26 In accordance with the Statistical Yearbook of Vietnam, 2007. 31 In respect of this industry, the tariff reduction roadmap for WTO may be slightly longer. For four-wheel drive (4WD) automobiles with cylinder capacity of 2,500 cc and above, import tariff will be cut to 47% after 10 years from year of membership (January 2007), and for other automobiles with cylinder capacity of 2,500 cc and above, the tariff will be reduced to 52% within a 12-year time frame. For automobiles with cylinder capacity below 2,500 cc, the reduced import duty is higher, at 70% after 7 years from membership27. Vietnam has 10 years or more to develop its supporting industries for automobile production, and the support from SMEFP in this area will be a good help for the economy, if the supporting industries can be developed within this time frame. WTO membership also brings a lot of opportunities for the Vietnamese economy. Under the WTO mechanism, Vietnam will be offered the MFN (Most-favored Nation) principle, which means it has greater chance to penetrate the markets of all WTO members basically with the same equal conditions as other member nations. WTO membership means Vietnam has to actively improve its business environment, which will contribute to the long-term sustainable development of the economy. In fact, the year 2007 (when Vietnam became an official WTO member) was also a year when the Vietnamese economy experienced dramatic development. The FDI flow to Vietnam reached 21.3 billion USD, increased by nearly 78% in comparison with 2006. In this year, the country’s export turnover reached a peak of 48.6 billion, up by 22%28. Industrial output also increased significantly at a 17.1% rate29. Also in this year, Vietnam signed the Trade and Investment Framework Agreement (TIFA) with the US. With this agreement, it is expected that Vietnam’s export to the US and inward FDI from American investors will increase significantly. Despite all the above achievements, the Vietnamese economy has to face a number of challenges. 2.3.1. Challenges to the Vietnamese Economy First, the competitiveness of the economy is still low. According to the World Economic Forum, in 2007, Vietnam ranked 68th out of 131 surveyed countries in terms of its competitive level. Its weak competitiveness can be traced back to insufficient infrastructure, backward educational system, and lack of high-quality well-trained laborers30. The low competitiveness of the Vietnamese economy is shown in its export per capita in comparison with other countries:
Table I-8 Export Per Capita of Some Countries and Territories (USD/person) Country Year 2004 2005 2006 Japan 4430.1 4656.7 5095.4 China 457.8 584.1 738.7 Thailand 1507.2 1712.5 2024.0 The Philippines 486.4 480.4 555.6 Vietnam 322.9 390.4 473.4 Source: Statistical Yearbook of Vietnam, 2007 Vietnam’s export per capita has always been low in comparison with other neighboring countries. In 2006, its export per capita was even less than one tenth of that of Japan. In comparison with Thailand, Vietnam’s annual export per capita has been about one third of the equivalent of Thailand. Comparing to the Philippines, a country with some similar economic conditions to Vietnam, its
27 Translated from the website of Vinh Long’s Department for quality measurement criteria: http://vinhlong.tbtvn.org/default.asp?action=article&ID=2029. 28 Statistical Yearbook of Vietnam, 2007. 29 http://www.qdnd.vn/qdnd/baongay.kinhte.tinkte.qdnd 30 World Economic Forum. (2008). “The Global Competitiveness Report 2007-2008”. Retrieved 08 August 2008 from the World Economic Forum’s website: http://www.gcr.weforum.org/ 32 export per capita is also lower. This number implies that Vietnamese products have not been able to prevail products from other countries in the international market, and hence, this means the competitiveness of Vietnamese products is still low. This problem with competitiveness is becoming more and more urgent with Vietnam’s membership in FTAs and the WTO. Vietnam is an agriculture-based country, with farmers making nearly 80% of the population, but its agriculture sector still bears many weaknesses itself. With WTO accession, the traditional advantage of cheap labor in Vietnam no longer plays such important role as it did in the past. Most Vietnamese farmers still cultivate on a small scale without clear planning and the without the assistance of modern technology. With WTO commitments, Vietnam has to remove all of its non-tariff barriers, cut export and production subsidies, and reduce import tariff by 20%31. As a result, Vietnam will face many difficulties if it wants to export its agricultural products to other countries, when developed nations still subsidize for their agriculture sectors and develop very sophisticated technical barriers systems. Similarly, the manufacturing industry may have to face competition from other nations. Like agriculture, the advantage of low labor cost is of less importance in this industry with WTO accession. For this industry, issues such as modern technology and skillful labor force are decisive factors. However, Vietnam lack those factors, which means Vietnam cannot develop its comparative advantages to compete with other well-organized and high-tech international producers in both domestic and foreign markets. In particular, for the textile, garment and footwear industry, an important sub-sector (of the manufacturing sector) which provides many key export products for Vietnam, difficulties concerning competitiveness also show up. With WTO commitments, Vietnam commits to reduce its tariff on garment imported products from 2007. With footwear products, import duty will be cut from 40% to 30% in 201232. Especially for garment and footwear products imported from China, preferential tariffs have been adopted since 2007 in accordance with Decision No. 26/2007/QD-BTC dated 16 April 2007 promulgating the special preferential import tariff of Vietnam to implement the ASEAN-China Free Trade Area. With these commitments, cheaper imported products, especially from China, threatens to reduce the market share of domestic producers in the national market. WTO and FTA membership not only influences domestic producers but also other FDI firms in Vietnam. Import duty reduction and elimination means domestically-produced products of Vietnamese FDI firms will face fierce competition from imported ones. In the past, FDI manufacturers relied on importation for their input, and this did increase the production costs for FDI firms in Vietnam. However, they can still operate their production line because their final products were still cheaper than imported ones. However, as Vietnam joins WTO and FTAs, some FDI firms find it very difficult to continue their operation because of competition from cheaper imported products. For example, Sony has decided to close its manufacturing facility in Vietnam in September this year due to Vietnam’s WTO commitments. Instead, Sony will set up a wholly-owned enterprise to import Sony products from other markets into Vietnam33. Other FDI firms such as Toyota also face the same problem, if Vietnam’s supporting industries are not developed enough to provide them with necessary inputs34 (for more information about supporting industries, please refer to Section 1.4.2. The importance of SMEs in helping Vietnam cope with economic challenges). The second challenge that the economy has to face is in terms of employment. As a country with a young population structure, each year, the country needs to create about a million new jobs for its
31 Translated from the website of the Information Center for agriculture and rural development: http://www.agro.gov.vn/news/newsDetail.asp?targetID=5027 32 http://www.hochiminhcity.gov.vn/left/tin_tuc/tin_thoi_su/2007/03/16-03-2007.04 33 http://vietnamnews.vnagency.com.vn/showarticle.php?num=04BUS260708 34 Translated from Sai Gon Giai Phong newspaper’s website: http://sggp.org.vn/kinhte/2008/8/161124/ 33 working population, which, according to some economists, is beyond the capacity of the economy35. Next, as Vietnam becomes the 150th member of the WTO, many economists warned that the rich-poor and urban-rural gap would adversely become widened. As a prerequisite condition for Vietnam to join WTO, trade barriers for import products should be removed. This brings a lot of difficulties to Vietnamese farmers (who make up about 80 percent of the country’s population), as their agricultural product will have to compete with that of international producers who have advantages in technological capacity. With low production capacity and a lack of modern technology, Vietnamese farmers, mainly coming from rural areas, now will face more challenges in earning their livings. In 2007, the average growth rate of the whole economy was 8.5%, but that of the rural area was only 3%36. The income gap between rural and urban areas still persists. The following table shows average monthly income per capita in 2002, 2004 and 2006 of urban and rural areas: Table I-9 Average Monthly Income Per Capita in 2002, 2004 and 2006 of Urban and Rural Areas (Unit: Thousand dongs) Year 2002 2004 2006 Area Urban 517 815 1058 Rural 225 378 506 Source: Statistical Yearbook of Vietnam, 2005, 2006 and 2007 The average income per capita of urban people has always been about twice as much as that of the rural people. Social income is also distributed unevenly among different groups of people. The income of the richest group of the society (whose income is categorized as group 5 - this group is made up of 20% of the population with the highest level of income) and the poorest group (whose income is categorized as group 1 – this group is made up of 20% of the population with the lowest level of income) shows great disproportion:
(Thousand VND)
1800 1542 1600 1400 1182.3 1200 Group 1 1000 800 Group 5 600 400 200 141.8 184 0 2004 2006 Year
Source: Statistical Yearbook of Vietnam, 2007 Figure I-8 Average Monthly Income of the Richest and Poorest Group
In 2006, the poorest people in Vietnam only earned about 184 thousand dongs per month, while the richest people earned up to 1,542 thousand per month. This means the income gap between these
35 http://news.bbc.co.uk/2/hi/business/6084910.stm 36 http://www.sggp.org.vn/chinhtri/2007/11/132411/
34 two groups in 2006 was nearly 8.4 times. In 2004, this number was only 4.46 times37, which means the gap widened significantly after two years. The fourth noticeable challenge to the economy is an increasing trade deficit. Although export turnover has been on a gradual increase in recent years, import turnover has also increased, even at a faster rate in some years:
Bill USD 70 62.9 60 48.6 50 44.9 39.8 40 36.8 32 32.4 Export 30 25.3 26.5 20.1 Import 20 Trade balance 10
0 -4.4 Year 03 -5.2 04 -5.1 t) -10 0 -5.5 2 20 2005 2006 (es 2007 -14.3 -20
Source: Statistical Yearbook of Vietnam, 2007 Figure I-9 Export and Import Turnover and Trade Balance from 2003 to 2007 (Billion USD) 2007 was the year when Vietnam achieved the highest economic growth rate after 12 years. However, in this year, trade deficit of the economy reached a record high of USD 14.3 billion, an increase by 280 percent in comparison with that of 2006 (USD 5.1 billion). As the Vietnamese economy develops, the country also has to face the challenge of capping the inflation rate. In 2007, the inflation rate reached a two-digit number of 12.7%, the highest level from 1992. The situation in 2008 tends to be worse, with an estimation of the Central Institute for Economic Management (CIEM) showing that the lowest possible inflation rate of 2008 is 22%. With this inflation rate, the development rate of Vietnam in 2008 is estimated to be only 6.7%, down by 1.8% in comparison with that of 2007. As a result of the above accelerating inflation trend, the Government has switched the focus of the overall economic growth to restrain inflation and the current foreign exchange policy is focused on reducing inflation rather than increasing the competitiveness of export. To support this policy SBV clearly confirmed many times to the public especially the local commercial banks that it will have relevant interventions if there is a substantial change in the foreign exchange market. Apart from the above, Vietnam also has to face other challenges such as insufficient infrastructure, low human development index, etc. As key players in the growing Vietnamese economy, the private sector in general and SMEs in particular should be developed to help Vietnam cope with the above challenges. The next part (1.4.2) will analyze the necessity of SMEs in helping Vietnam overcome those challenges.
37 Statistical Yearbook of Vietnam, 2006 35 2.3.2. The Importance of SMEs in Helping Vietnam Cope with Economic Challenges SME development is of great importance to the Vietnamese economy. First, SMEs usually act as sub-contractors for large enterprises, i.e. they are key players in “supporting industries” which provide input materials for big and important industries, especially assembly ones
Box I-1 Weak Capacity of Vietnamese SMEs in Supporting Industries
In 2002, Canon set up its first production facility in Vietnam. For convenience and cost reduction, Canon wanted to find qualified Vietnamese suppliers to provide screws for its assembly line, but out of 20 surveyed SMEs, only one was qualified. Source: Department of Industry, Ho Chi Minh City, http://www.congnghiep.hochiminhcity.gov.vn/DetailNews.asp?ID=625 Vietnam’s automotive industry is one of the prioritized sectors that the Vietnamese government wants to develop, yet its supporting industries are still under-developed. Supporting firms are only able to produce simple spare parts such as car seats. “Any time our company wants to produce a luxurious product line, we have to depend on foreign suppliers for supplementary parts, even with simple supplementary parts such as seats and cover clothes because domestically-produced products do not meet our quality demand,” said Mr. Nguyen Xuan Dien, staff of the Marketing Department, Saigon Transportation Mechanical Corporation (SAMCO). Source: Sai Gon Giai Phong newspaper, http://www.sggp.org.vn/kinhte/2008/3/145895/
As they make up the “backbone” of the economy, SMEs can help create the “added value” for the economy. However, most Vietnamese SMEs lack the basic quality control and factory management capacity (such as 5S, Kaizen, ISO) to produce high-quality input products (“parts”) that meet the standards and quality specifications of multinational firms. As a result, most assembly manufactures in Vietnam have to rely on imported parts for their inputs. This, in turn, reduces the ability of the economy to produce “added value”, and results in an increasing import turnover.
Box I-2 Value Added of Vietnamese SMEs in Supporting Industries
Supporting industries are made up of enterprises which make and supply components and spare parts for large firms. These large firms will carry out the final assembly work. About 90-95% of the value of a mechanical product comes from those components and spare parts made by supporting industries. However, the average added value the Vietnamese economy produced in 2007 was only 9.96%, and it is estimated that this number may reduce to 8.3% in 2008.
Source: Vietnam Economic News If Vietnamese SMEs are well-developed to become good suppliers for large firms, the Vietnamese economy can benefit in the following ways: (i) The nation can produce greater “added value”, and large manufacturing firms can rely on domestic SMEs for inputs. As a result, the country will not have to rely on importation for materials and inputs. Thanks to this, Vietnam also has good conditions to develop its manufacturing industries, and hence, can orientate itself towards exportation. All of these factors help reduce trade deficits.
36 (ii) Through business partnership with larger partner firms, Vietnamese SMEs can approach advanced technologies and management methods. This will help increase the competitiveness of the national economy as a whole and of SMEs in particular. (iii) Good supporting industries attract big foreign corporations to invest in manufacturing facilities in Vietnam. This will create many job opportunities for local people. From the above analysis, it can be seen that SME development is really important for Vietnam if it wants to increase its competitiveness and improve its trade balance.
Box I-3 Comparative Advantage of Vietnamese SMEs in Supporting Industries “Vietnam now has to identify and develop its comparative advantages. The assembly industry brings high added value and its supporting industries need due attention for development,” said Mr. Shinji Fukukawa, President of Japan Intellectual Property Corporation at the Japan-Vietnam roundtable on the impact of WTO membership on SMEs in 2006.
Second, as private enterprises (or SMEs) outnumber other forms of businesses in the national economy, SMEs create jobs for the nation’s work force. As state-owned enterprises (SOEs) undertake the equitization and restructuring process, SMEs may become a new working place for people who previously worked at SOEs and now lose their jobs due to SOE re-organization. SMEs also bring job opportunities to young people as they turn into their working ages. This important role of SMEs is shown in the number of people employed by SMEs in the 2004-2006 period: It can be seen that SMEs are now creating job opportunities for an increasing number of people. In 2004, the sector employed about 2.2 billion people, making up 38.3% of the labor structure of the economy. These numbers increased to 2.8 billion and 41.23% respectively in 2006. This means after 2 years from 2004 to 2006, SMEs create up to nearly 600,000 new jobs for Vietnamese people, nearly 1.5 times more than other enterprises do. The analysis implicitly shows that SMEs help Vietnam cope with its challenges about employment for the working population. The role of SMEs in the labor market is illustrated in an ambitious target set out by the government in Decision 236/2006/QD-TTg, which states that SMEs should create 2.7 million extra jobs in the 2006-2010 period.
(Thousand people) 8000 7000 6000 5000 Other enterprises 4000 SMEs 3000 2000 1000 0 2004 2005 2006 Year
Figure I-10 Number of Employees in SMEs and Other Enterprises
Third, sound SMEs bring about stability and sustainability for the economy. By nature, SMEs are more flexible than large firms, so “an economy which has a higher proportion of SMEs is more likely to be able to adjust smoothly to exogenous shocks/business cycle swings than an economy
37 with a larger proportion of large enterprises38”. In the context of a declining world economy and the threat of inflation in 2008, the flexibility of SMEs can help stabilize the Vietnamese economy. Thanks to its flexibility, SMEs are less likely to be affected by economic crises. Therefore, strong SMEs are also what the Vietnamese economy need in the long run. Furthermore, while larger businesses tend to locate their head offices at big cities and economic centers, SMEs can expand their operation in many rural localities. These SMEs can employ local people, create income for those people and hence, help improve their living conditions. This may help bridge the urban-rural and rich-poor gap in Vietnam. In summary, from this section, it can be seen that SMEs play crucial roles in the growing Vietnamese economy. Therefore, their development can help Vietnam tackle its long-lasting problems of low competitiveness, unemployment, increasing social gap, and trade deficit; and Vietnamese policy makers have paid significant attention to SME promotion. Such project as SMEFP will provide a good chance for SMEs to expand their operation and improve their capacity to better assist the national economic development. SMEFP III can help Vietnam meet the target of Decision 236 and cope with its employment tension if it provides soft loans to SMEs for job creation purposes. SMEFP III should also focus on the supporting industries to help Vietnam increase its capacity to produce added value, and hence, improve the overall competitiveness of the economy.
38 World Bank. (2003). The SME Development in East Asia and the role of Local Governments - A Case Study from Malaysia.
38 3. Overview of Finance Needs and Challenges in SME Finance
This section will review achievements and remained challenges in SME finance in Vietnam based on data assessment and intensive interviews with SMEs and PFIs so that this SAPROF study can clarify necessary and important outreach for enhancement of SME finance and competitiveness of the economy considering recent economic challenges.
3-1. Overview of Financing Needs of SME
By types of banking history, SMEs responding “difficulty” are more frequently observed in order of no-bank borrowing, borrowing from JSB, borrowing from SOCB.
c/ People’s Credit Fund Very difficult b/ Joint stock Difficult banks Less difficult a/ State-owned Easy Very easy commercial banks
None
0 50 100 150 200
Figure I-11 Difficulty of Finance by Type of Banking History
Looking at difficulty of finance based on decision tree analysis from the field survey of SMAEFP II, smaller SMEs face more difficulty, particularly younger (less than 2 years since start-up) face most difficulty.
NO: 11%, 1 <=2 Yes: 89%, 8
NO: 64%, 101 Total: 100%, 9 <=8,000 Operating Share of responding Yes: 36%, 57 years to “difficulty of Total: 100%, 158 finance” NO: 68%, 138 Rgst. NO: 67%, 100 <=74 >2 Yes: 32%, 64 Capital Yes: 33%, 49 (m VND) NO: 73%, 242 Total: 100%, 202 NO: 84%, 37 Total: 100%, 149 Number of >8,000 Yes: 27%, 91 employees Yes: 16%, 7 NO: 80%, 104 Total: 100%, 333 Total: 100%, 44 >74 Yes: 20%, 27
Total: 100%, 131
Figure I-12 Drill Down of Profiles Responding Difficulty
Looking at finance needs for SMEFP based on the same method above, larger SMEs in terms of number of employees have stronger needs. Among smaller SMEs, SMEs facing higher difficulty of
39 finance have stronger needs. Among less difficult SMEs, SMEs which point out high interest rates as main reason show stronger needs, particularly those which do not point out lack of collateral as main reason show stronger needs. To sum up, SMEs which have less problems in collateral, and that are keen on interest rate, might be those which need SMEFP in smaller group, while larger SMEs have strong needs for SMEFP in general. Regarding maturity preference, there are strong needs for SMREFP with maturity of 5 years and 10 years.
official sources 1 a/ State-owned commercial banks 2 b/ Joint stock banks 3 c/ People’s Credit Fund 0 d/ None
Figure I-13 Needs for SMEFP by Banking History and Maturity Preference
From the visits made both during SMEFP II and SAPROF, some of the SMEs said that they have the specific financing needs as follows (please refer to the case studies for further description of the financing needs):
• Needs for direct information of preferential long term loan programs and its eligibility (not blocked by PFIs)
• Needs for financing investment of high quality production facilities when the SME has passed a certain level of production tests, imposed by Japanese manufacturers, but before they are given a mass production order/contract.
• Non-financial needs to reduce credit risk, such as through business matching and marketing know how to address the needs of FDIs.
• Non-financial needs to reduce credit risk, such as technical assistance on technological issues on production, especially when they plan to diversify into a quite different business line.
40 3-2. Practice and Infrastructure of Security Property
On the legal aspect, in the whole legal framework for security property as illustrated in the Figure below, the reform brought by the 2005 Civil Code and Decree 163 39 have helped to enable collateral-based lending, as follows: It is possible for all kinds of movable property to be used as collateral: mortgages can be created from tangible and intangible assets of any nature, including future assets. The procedures for creating security interests are simplified: parties are now able to address their rights and obligations in a lending agreement that includes definitions of guarantees and covenants, events of default, and remedies. Priorities between the different creditors have been clarified. A general rule has been put in place that favors the first creditor registered with top priority for claiming collateral in the event of debtor default
.
39 On November 29, 2006, the Vietnamese Government issued Decree No. 163/2006/ND-CP on security transactions which provides detailed provisions on signing and performance of security transactions as well as the realization of security property. This newly issued Decree replaces Decree No. 165/1999/ND-CP on the same matter and abolishes Decree No. 178/1999/ND-CP on security for loans granted by credit institutions, both of which were issued in 1999. Decree 163 comes into full effect on January 27, 2007. 41 Civil Code 2005
• Law on Land Types of security • Objects used for security • Detail when mortgages and • Registration of security transaction guarantees over land use rights Replaced Civil Code 1995 • Property used for security of several obligations can be granted • Order of priority for payment Effectively from 1 July 2004 Effectively from 1 July 2006
Decree 181 Decree 08 march 2000 on Decree 163 dated 29 December 2006 on registration of security transactions security transactions • Detail when mortgages and Replaced Decree guarantees over land use • • Entering into security transactions Fees 178 on security for rights can be granted • • Implementation of security transactions Effectively from Principles of registration loan provided by CI • • Realization of property secured by a pledge 16 November 2004 State management • Order and procedures for registration or mortgage Effectively from 23 march 2000 Effectively from 27 January 2007
Circular 03 (joint) Circular 05 (joint) of Circular 06 of MOJ dated Circular 04 of MOJ Decision 286 of Circular 03dated 23 of MOF and MOJ MOF and MONRE dated 28 September 2005 dated 17 May 2007 the SBV dated 3 April 2001 dated 10 January 16 June 2005 (amended) (amended) April 2002 (amended) 2007 • Implements Decree 181 • Implements Decree 08 by • Provides guidelines (amended) • Guidelines for the • Collection, and Decree 08 by providing guidelines on on registration of • Regulation realization of management and providing guidelines on order and procedures for installment contracts, co-financing security property use of registration registration of mortgage registration of security property lease by CI licensed for loan provided fees and guarantee using transaction at the national contracts and contract to operate in by CI. Effective from • Information land use right and assets Registration Agency of assigning rights to Vietnam. 07 May 2001 provision charges attached to land. Secured Transactions. reclaim debts Effective from Effectively from Effective from 29/07/2005 Effective from Effective from 19 April 2002 5 February 2007 8 November 2006 15/07/2007
Figure I-14 Map of Legal Framework for Security Property40
40 Source: Business Issues Bulletin – Vietnam No. 21 (24) August 2007 - VCCI/MPDF ; and updated by Vision & Associates. 42 In practice, the financial institutions in Vietnam always require property as collateral in order for a client to obtain a loan. A recent IFC survey of lending practices shows that 93% of banks prefer real estate as security for commercial loans41. However, the assets of SMEs in Vietnam are usually movable assets, such as inventory or receivables. These moveable assets, which are worth billions of dong, could be put to productive use if businesses could use them to secure the financing they need to upgrade and expand. In a meeting with a wood temple construction company (SME) in Bac Ninh province, the company revealed that CGF did not accept their inventories as collateral because CGF can’t exercise control over them. Furthermore, some banks even don’t accept the financed assets as collateral, while they still manage that financed assets of the enterprise. Kim Long Moulding Company’s owner, for example, has to use his own house to secure a loan in January 2008 to invest in new building and machinery. Though the bank (BIDV) did not agree for them to use the financed asset to be collateral, they still keep all the papers certifying the values and legitimate owner rights of Kim Long’s financed assets. This case is even more unreasonable when the required collateral is worth almost doubled the value of the loan secured by the company (i.e. collateral of VND 5 billion against the disbursed loan of VND2.65 bil). According to Kim Long company, collateral can be considered the biggest challenge of SMEs of the similar size.
3-3. Presentation Capacity of SME for Smoother Finance Interviews with SMEs show that most SMEs are not familiar with the bank loan procedures such as loan documentation, feasibility study, so SMEs used to need non-financial services from credit institutions. In addition some SMEs especially the small-scale ones have limited presentation capacity which may limit business opportunities in securing large orders as well as getting new clients. For example, Minh Dao Co Ltd (i.e. Gear manufacturing company) has rent some small workshops at the site of a military company which are located in different places although they are some ten meters far each other, this fact is not attractive to clients as machinery and equipment are not installed in a production line. It would be much better if these machineries are on one place as it looks more professional and the management would better manage the manufacturing process, product quality as well as the working environment and safety. As a result, the company’s opportunities to access bank financing may be limited.
3-4. Challenges of SME Finance in the Recent Economic Environment Challenges of SME finance in the recent monetary environment are as follows:
• Continuing global financial slowdown with increased pricing for oil, raw materials which ultimately create a high inflation. The recent visit to Gia Lam Sewing Machine Joint Stock Company, the Director raised a critical issue that due to the SBV tightened monetary policy which would restrict loan book growth, commercial banks become prudential in lending and the Company’s clients face difficulties for payment for product/services purchased. As a result, the Company’s sales receivables collection term increased to 6 - 8 months which is much longer that the normal sales collection term of 2 – 3 months;
• High borrowing interest rates which mean high costs for investment: this fact would postpone new investment projects. Many SMEs advised that due to high borrowing cost caused by the recent interest rate race, they are not confident to make new investment as project becomes less viable. Notwithstanding under the pressure of big orders from international buyers such as Honda, some SMEs need to invest high-tech equipment (such as digital CNC machines, welding robot). Challenges of SME finance in the recent FTA environment would require upgrading the Vietnamese production skills to match international competition. This would normally require technology transfer from FDIs. Particularly, SMEs investing in Supporting Industries have some challenges as follows:
41 Vietnam: Increasing access to credit through collateral (secured transactions) reform, IFC-FIAS, June 2007
43 • Implementing sound QCD management, • Improving and proving production capacity • Investment in a High Cost, high precision machine which means a high break-even point • Limited demand for such high quality goods in the current Vietnam market
3-5. Case Study of SME Finance 3-5-1. Difficulty in Gaining Access to Banks Located in the outskirts of Hanoi, KL Molding Company specializes in manufacturing moulds for making metal and non-metal products, for Japanese motorbike companies and military organizations. It has about 10 mechanical engineers, that operate CNC machines, discharge machines, polishing machines, etc. At present, it has 4.8 billion VND as registered capital and the latest results (FY 2007) are 5 billion VND as sales (30% annual growth) and 10% of sales as profit before tax. As business was growing, the CEO planned to build a new factory and applied for a loan at one of the PFIs, without knowledge of the SMEFPs. However, he was denied of the long term loan. Afterwards, one of the SMEFP II consultants introduced the JBIC program to this company at JETRO’s Exhibition on Supporting Industries in Hanoi, November, 2007. The CEO presented the information leaflet given by the consultant to the banker, and his loan was approved, which in turn, was financed by an On-lending Loan from JBIC. This case shows that SMEs, that do not have good relationship with their banks, may be denied the opportunity of long term loans, without any serious consideration of its business case, and that direct promotion of SMEFP to a good set of SMEs may help both SMEs and the bankers to further grow.
3-5-2. Difficulties to Assess the Investment Timing to Enhance the Production Capacity for Japanese Manufacturers FDI manufacturers will usually have a multi-layer parts supplier system. Each layer will have different needs, detailed as follows:
HONDA
Layer 1 Key Supplier 1 Key supplier 2 Key Supplier n
a d
Layer 2 lier pp Supplier f Su Supplier c Supplier e Supplier b Supplier
1 2 3 4 5 6 7 8 9 10 11 i Layer 3
Figure I-15 Honda’s Parts Supplier Chain
44 Discussions with SMEs in the above supplier chain (i.e. K.L. Molding, Tan Hoa and Honda) further revealed that while suppliers of the Layer 1 and Layer 2 need medium and long-term financing for machinery/plant building investment, suppliers in Layer 3 or lower may need mainly working capital, as the production process requires less sophisticated manufacturing machines at lower levels. Located in Tu Liem Industry Park, Hanoi, Vietnam, Tan Hoa Co Ltd specialises in manufacturing (i) motorbike parts such as mufflers, rims, rear forks, handles, chain cases (ii) nuts, bolts, collars and fasteners (iii) other parts for mechanical products. Tan Hoa has been able to supply parts to Honda as a second layer supplier, since it adopted the 5S, Kaizen standard systems, which was a prerequisite to be considered a good candidate for a supplier. Total registered capital is above VND6 billion, Sales for first 6 months of 2007: is over VND16 billion, Number of employees are around 200. Under pressure of frequent orders from Honda, and also from other FDIs (Piaggio and SYM), Tan Hoa needs finance for the investment of high-tech equipment as follows:
• Amada machine: 160,000 USD. (70% from JBIC, 30% from equity) • Steel based product processing machine (Digital CNC equipment, Robots for manufacturing these products. Along with the above financing needs, Tan Hoa always need to change/upgrade equipment especially buying Japanese high precision equipment. However from the SME financing aspects and considering the position of supporting industries in Vietnam, there are some challenges i.e. high costs of investing Japanese high precision machines, limited market demand for high quality product as there are limited number of buyers despite that fact that. some experts said that the motorcycle industry in Vietnam is saturated. It is clear that much more challenges exist if the automotive industry is taken into consideration. Co Loa Mechanical Joint Stock Company is a mechanical parts maker providing parts to truck makers and Japanese motorcycle companies. For its new business plan for making a new product for the Honda Vietnam Group, it needs to invest in CNC machines, but only after passing Honda’s sample production tests. The Honda’s selection process has a 5 step selection process:
• Step 1: Honda will seek suppliers and ask them to send company profile/overview for the purpose of identifying a potential suppliers
• Step 2: Interesting firms will be asked to send in their Organization structure, customers, management system, etc
• Step 3: For interesting firms, Honda will send in Honda’s own staff/expert to check supplier, on-site
• Step 4: For interesting firms, Honda will send spare parts sample and ask the firm their quotation
• Step 5: For interesting firms, Honda will send in their team and work in detail of the pilot test order and will ask sample production. If sample products are satisfactory, Honda will make order and in this case the company need long-term financing for plant expansion and new equipment as well as working capital.
3-5-3. Cases of Challenges to Diversify Business and Access FDI GL Machine Joint Stock Company is a garment mechanical company established in 1977. At present, it has about 7 billion VND as registered capital and 40 billion VND as sales (in 2007, with 10% annual growth). Their main products are 1) stitching equipment, parts and accessories, 2) General equipment
45 for factory such as air cooling systems and ventilation systems, and conveyers and 3) electrical works. They sell their products to 300 clients, mainly to textile and garment industry followed by leather and shoes industry. In order to serve existing clients, the company has financial need of 7-10 million VND to replace equipments, as its equipment are mostly second-hand Japanese (bought from Haiphong) and Chinese machines, there is a need for company to replace outdated machines by new ones. However, currently they face some difficulties in bank borrowing such as high interest rate and longer payment periods from their customers due to the recent tightened monetary policy and shortage in collateral. Although they have succeeded in having certain market share (40% in the North and 15-20% in the South of Vietnam), the director regards that they need to broaden their customer base in terms of industry, with the view that textile and garment industry may face stiff competition under the ASEAN FTA in the foreseeable future. According to the director, they have a plan to produce equipments and parts to Japanese companies, yet they do not have an idea how to approach Japanese companies. In order to migrate into the supporting industries, GL needs non-finance support such as business matching and trade promotion, not to mention low-cost financing to upgrade their technology to be competitive in the new business sector,.
3-5-4. Cases of Challenges to Improve Productivity and Develop Market Size MD Co. Ltd. is a gear manufacturer that enjoyed the benefits of SMEFP in 2004. It produces gears for 1) printing machines, 2) flexo printing, and 3) heavy trucks for mining. The total sales in 2007 was 1 billion VND. Their main customers are local mining companies since their products have not reached the international standards for the following reasons. First of all, the quality of raw material is not good or consistent in the local market. There are imported materials but too expensive ($6-7/kg whereas $2-3/kg for local one) for them to choose. Secondly, the accuracy of products is not good due to the old equipments and the quality of the outsourced tempering process. However, as gear making machines are worn down rapidly, and customers are demanding more sophisticated gears and parts, MD has needs to constantly replace and upgrade his machinery. This requires careful business planning and financing, as machines for cutting and grinding gears are expensive, but the number of customers are limited for such machinery parts in Vietnam, where the (Supporting) Industries are not well developed. Moreover, most of their equipments are old, second-handed machines from the 1960s and machine oil is used for only once. Usually they sell used oil to oil waste company, but after the rapid rise of oil price, reducing the oil consumption has become an important management issue. New machines recycle oil by themselves. Therefore, one of their financial needs come from this equipment replacement plan. By purchasing new machines the company will not only obtain high accuracy equipments to better serve new customers and reduce oil costs, but will also have an environmental friendly factory. In addition to the machinery financing, the present factory site is already crowded with machines and inventory, hence moving out to a new factory site (industrial zone) and building has become the top priority issue for the management of MD. This will require financing for a new factory.
3-5-5. Impact of Tighter Financial Market: 4P Ltd. is a company that produces Printed Circuit Boards (PCBs) for Manufacturers in the electronics sector, such as Canon (Japan). In 2004, the company borrowed SMEFP I funds to finance machinery required to produce PCBs, for (non Japanese) foreign electronic manufacturers. As this company is a 100% Vietnamese company which can produce PCBs, it has strong demand for mass production of
46 PCBs from foreign players, and hence, invested in production lines with advanced equipment (Surface Mount Technology). However, recently the company has been cancelled finance for the investments, as their main bank could not finance long term loans due to the recent tightening of monetary policy. This shows that the investment needs from the international demand of FDIs may not be in line with the domestic monetary (tightening) policy of Vietnam, which may create a stronger need at SMEs and PFIs for fast disbursement of SMEFP-III.
Conclusions Factors that have Impact on SMEs Demand for Loans
• Demand for loans will be determined by annual turnover and investment. Annual turnover might depend on both of growth of domestic market and foreign market on top of current turnover. Investment might depend on both expected profitability and risk on top of current profit.
Annual turnover Macro policy (t-1)
Growth of Annual domestic FTA, duty turnover market
Growth of foreign Industry Finance needs market policy
Profit (t-1) FDI
Expected New investment profit technology growth
Risk
Figure I-16 Factors of SMEs’ Demand for Loan
• Expected profit growth will be influenced by the local industrial policies as well as regional trade policies such as FTAs, and by the regional strategy of multinational companies regarding FDI and adoption of new technology42.
• Adoption of new technology of the SMEs, which will be determined by multinational customers’ demand for better products and better price and the speed of technological transfer from the multinationals to the local SMEs.
42 Since the Vietnamese Government launched the "Doi Moi" policy, FDIs have a strong influence on the development of the industries in terms of technology and investment. This trend may intensify as FTAs may eventually force all industries to face international competition as well as new demand from international markets.
47 • For the short-run, tightening monetary policy in macro policy has a strong and immediate negative impact on the demand of goods, as it reduces appetite for new investment through higher interest rate and lower demand for products and may eventually force some SMEs to bankruptcy. Possible Approaches to Overcome the Negative Factors
• Demand for JBIC loans will be strong from SMEs in the manufacturing industries, since they will need to upgrade their production technology to international level.
• Competitive interest rate loans may enhance investment in technology upgrades
• Even though machines can be bought, technology and international marketing are difficult to master, and hence, building relationships with multinational manufacturing companies to obtain orders, technical assistance and access to the global market would be another condition for the growth of SMEs. Implications and Conditions for the Design of SMEFP-III
• Focus on manufacturing industries and its supporting industries, especially on SMEs that are selling to multinational manufacturing companies or their suppliers will upgrade Vietnam’s manufacturing capacity to meet the international markets
• PFIs that lend to SMEs that are selling to multinational manufacturing companies or companies in the supply network should be given incentives to facilitate the matching with multinational companies.
• This includes not only the mechanical parts makers, but also the raw material (e.g. steel) processing companies, which quality upgrade is necessary to improve the level of local contents.
• Lending for the investment of production equipment in the supporting industry would require knowledge of the production/order process of the Japanese manufacturers and the improvement of the management and marketing of the suppliers.
48 4. Review of Financial Institutions Capacity of SME Finance
This section will review current SME finance from view point of capacity of commercial banks in Vietnam in order to address the issues on what shall be the scope of Phase III, especially what kind of loan scheme and technical assistance, and get implications for effective linkage scheme.
4-1. Review of Fund Mobilization Deposit of banks increased 31.6% annually in the period from 2002 to 2006, while lending increased 31.6% annually in the same period.
1,000
800
600
400 trillion VND trillion
200
0
4 ） e 002 003 00 2 2 2 2005 2006 un
007(J 2
demand deposits time deposits foreign currency deposits credit to the economy
Source: IMF Country Report, Statistical Appendix Figure I-17 Deposit and Lending of Vietnamese Banks
Loan to deposit ratio has been kept more than 90 %, which is very high in comparison with Japanese banks of which the loan to deposit rate is just above 70%. This might limit lending capacity of the banks in general in terms of liquidity
Table I-10 Comparable Figures of Japanese Banks (Fiscal Year 2006)
City Banks Regional Banks Loan to deposit rate 71.7% 72.8% Composition of deposits Demand deposit 59.7% 52.7% Term deposit 40.3% 47.3% Source: Bankers Association of Japan
Comparing the composition of deposits between Vietnamese banks and Japanese banks, demand deposits share much higher share in Japanese Banks. In general, demand deposits of retail customers are stable funding source which are not sensitive to interest rate in comparison with shorter term deposits. Particularly, considering less credibility towards banks and high interest rate preference among consumers, Vietnamese banks seem to be more vulnerable in terms of funding base.
49 Looking at medium and long-term funding of 9 PFIs, share of medium and long-term funding is about 21% in JSBs while that is about 33% in SOCBs as of end of 2007. Because of this and the significant difference of size and stability, JSBs tend to be more cautious for liquidity, as they keep higher liquidity ratio and lower usage of short term funds for medium and long-term lending.
Table I-11 Funding of PFIs (average of 6 JSBs) 2005 2006 2007 Liquidity ratio (%) -with 7 days standards 133.36% 265.47% 200.04% - with 1 month standards 79.10% 168.14% 129.83% Ratio of short term funding used for medium and 4.23% 4.09% 6.19% long term lending Medium and long term fund/ Total funding (%) 21.41% 23.61% 21.18%
Table I-12 Funding of PFIs (average of 3 SOCBs) 2005 2006 2007 Liquidity ratio (%) -with 7 days standards 99.59% 100.81% 101.96% - with 1 month standards 97.91% 88.40% 94.21% Ratio of short term funding used for medium and N/A 23.87% 13.47% long term lending Medium and long term fund/ Total funding (%) 36.47% 31.21% 32.97% Source: Response to questionnaire by 9 PFIs Notes: minimum requirement for the liquidity ratio is 100 % for 7days standard and 25% for 1 month standard. Maximum level allowed for the usage of short term funding for medium and long-term lending is 40% (commercial banks) and 30% (other CIs) (Decree 457).
In order to enforce safety in terms of liquidity of the banks, SBV strictly monitor and set required ratios for liquidity ratio and usage of short term funds for medium and long-term lending in Decision 457/2005/QD-NHNN dated 19/4/2005 and its amendment Decision 03/2007/QD-NHNN dated 19/1/2007). According to Banks and Nonbank Credit Institutions Department, SBV in under revision of these regulations, which include stipulation of more accurate calculation method by business groups such as Banks, Non-banks, Micro Finances, and Peoples Credit Fund. On the other hand, as liquidity gap is major source of profitability of retail banking business, liquidity risk shall be managed through risk management such as Asset and Liability Management which considers both asst and liability side and both risks and expected returns. In this regard, SBV mentioned abolishment of strict control of the share of usage of short term fund for medium and long-term lending in the future, which seems positive steps for self management of banking business in Vietnam.
As to improve the capital base of credit institutions, Decree 141/2006/ND-CP dated 22/11/2006 has stipulated a roadmap for the legal capital increase, detailed as follows:
50 Table I-13 Legal Capital Applicable to Credit Institutions Types of Financial Institutions Unit to 2007 2008 2010 Agribank billion VND 2,200 3,000 3,000 SOCBs except Agribank billion VND 1,100 3,000 3,000 JSBs billion VND 5-70 1,000 3,000 billion VND (161) 1,000 3,000 Commercial Banks Joint Venture Banks million USD 10 N/A N/A Foreign banks (100％ ownership) billion VND N/A 1,000 3,000 million USD 15 15 15 Branches of foreign banks billion VND (242) (242) (242) Cooperative CCF billion VND 100 1,000 3,000 Institutions PCF billion VND 0.1 0.1 0.1 Domestic Non-Banks billion VND 50 N/A N/A Joint Venture Non-Banks million USD 5 N/A N/A Non-Banks 100% owned Non- Banks million USD 5 N/A N/A by foreign entities FiN/Ance Companies billion VND N/A 300 500 Leasing Companies billion VND N/A 100 150
This requirement of enhancement of capital base is critical for smaller JSBs, CCF, and Non-banks as the increase form the previous level is large. This regulatory requirement of increased capital base would promote mergers of smaller financial institutions which is aimed in the financial sector reform. During a recent interview, CCF advised that it will increase its charter capital (VND712 Bil) by VND500 Bil in late 2008 and to VND2,000 Bil in 2009. These increases in charter capital would help to improve its safety ratios. In conclusion, Vietnamese banks, particularly JSBs, have vulnerability in liquidity because they have not yet established stable retail customer base. Therefore, in order to keep safety of banking system, SBV requires banks to keep uniformed level of liquidity, which tends to discourage sophisticated Asset and Liability Management of banks. Liquidity Ratios The PFIs’ historical liquidity ratios are as follows: Table I-14 PFIs’ Historical Liquidity Ratios during 2005 – 2007 2005 2006 2007 With 7 days With 1 With 7 With 1 With 7 With 1 standards month days month days month standard standards standard standards standard MHB 31.20 71.56 83.03 ACB 184.8 83.1186.4 90.9 225 104 Sacombank 164 100 160 120 217.5 116.5 Vietinbank N/A N/A N/A N/A N/A N/A CCF N/A N/A112 642 282 991 DAB 113 35 688 480 260 276 Techcombank 111.1 97.8 179.0 115.5 175.5 111.3 HDB 94 71 181 80 204 101 Source: Response of PFIs to questionnaire
51 Ratios of Short Term Funds used for Long Tem Lending The PFIs’ historical data on ratios of short-term funds used for long-term lending are as follows: Table I-15 PFIs’ Historical Ratios of Short Term Funds used for Long Term Lending during 2005 – 2007 (%) PFI 2005 2006 2007 MHB 10.21 24.73 2.98 ACB 0 0 0 Sacombank 19.10 15.54 25.5 Vietinbank N/A N/A 23.96 CCF 0 0 0 DAB 0 0 5.22 Techcombank 0 0 0 HDB 6.3 9.0 6.43
4-2. Impact of Recent Monetary and Economic Environment During the first 7 months of 2008, the Vietnam economy has experienced a number of difficulties where the high inflation has been one of key problems which would impact negatively to the overall economic growth. GSO statistics show that for the first 7 months of 2008, the inflation has reached a level of 27.04% annually. As such, the GoV has set a first priority in its action plan which puts restraint on inflation. In response to high inflation in 2008, SBV tightened monetary policy by increase of required deposit reserve ratio, compulsory purchase of government bonds to banks, and increase of policy rates. SBV also set annual credit growth ceiling of 30%. As described in the previous section, Vietnamese banks lack stable funding sources based on retail customer base, sudden monetary tightening intensified liquidity concern of banks and caused scarcity of VND in the financial market, and triggered hard competition among banks for providing higher deposit interest rates. This competition was intensified by interest rate preference of consumers and by smaller banks of which customer base is limited who joined banking business as a result of economic boom in the last few years. Thus, deposit rates increased as much as nearly 20%. SBV checked by unofficial instructions to cool down substantial interest rate competition. Some banks have had to switch to interbank market where the VND overnight interest rate in a critical point of time during early 2008 reached a high level of 43% as annual rate43. According to some PFIs, some of them show larger dependence on non-deposit borrowing. Competition of higher deposit rates squeezed profit margin of banks as there is a ceiling of lending rate which shall not be more than 1.5 times of base rate which is one of the policy rates. Facing this difficulty, banks are said to impose illegal fees on borrowers such as compulsory deposits and even direct fee under the table. Major JSBs such as Sacombank and Techcombank were detected by SBV for such illegal practice.
43 As per Vietbao.vn dated 20/2/2008
52 Table I-16 Transition of Interest Rates December December 2008 Source 2006 2007 Feb - 19th May - 11th June - May 11th June onward Base rate * 8.25 8.25 8.75 12.00 14.00 SBV Ceiling rate N/A N/A N/A 18.00 ** 21.00 SBV Relending rate 6.5 6.5 7.5 13.00 15.00 SBV Discount rate 4.5 4.5 6.00 11.00 13.00 SBV Ceiling of loan 12.375 12.375 13.125 18.00 21.00 N/A rate (Base rate X 1.5) Deposit rate News paper, (Schedule from 8.52 – 7.08 – etc. 16.00 - 17.10 1 month to 60 9.18 9.36 months) *: www.sbv.gov.vn **: Refers to Decision No. 16/2008/QD-NHNN by SBV Governor
Such confusion in the financial market implies challenges which Vietnamese banks face. First, for banking management, there is much room of sophistication of bank management such as interest rate management according to risk and relationship, marketing strategy to provide non-price merits to retail customers based on market segmentation. Second, for the view of the regulator of banks, in accordance with liberalization of financial markets as a whole, relaxing of lending rates is another challenge because the ceiling of lending rate is stipulated in Civil Code, which is out of coverage of SBV. In terms of SME finance, although accelerated inflation causes many difficulties for SMEs and further needs of borrowing, banks suffer from smaller capacity of lending and impose higher cost of borrowing on SMEs. In broader view, however, real challenge is structural problems of Vietnam’s economy. Substantial inflow of capital through FDI and ODA, which is huge in comparison with the scale of domestic economy, increased money supply, dependence of import, hence venerable to external price increase while enhancement of domestic production capacity has been lagged. In order to restructure and improve the structure of the economy, it is critical to develop industrial competitiveness which would contribute to exports and substitution of imports by focusing limited resources to business sectors which Vietnam shall focus in the long time development strategy.
53 4-3. Review of SME Lending Capacity Overview of Medium and Long Term Loan for SMEs Looking at SME loan by PFIs through middle of 2008, growth rate was accelerated during 2007, then seemed to level off. Among those, medium and long-term loan has grown faster than short-term loan. Table I-17 SME Lending of PFIs (1) Dec-05 Dec-06 Dec-07 Jun-08 SME (or non-state enterprise) loan: billion VND 12,512 20,684 38,014 49,540 total amount short-term loan billion VND 8,925 15,305 27,251 33,323 medium and long-term loan billion VND 3,587 5,379 10,763 16,217 SME (or non-state enterprise) loan: annual growth N/A 65.3% 83.8% 30.3% annual total growth short-term loan annual growth N/A 71.5% 78.1% 22.3% medium and long-term loan annual growth N/A 50.0% 100.1% 50.7% SME (or non-state enterprise) loan: number 53,062 69,440 77,489 79,075 total number short-term loan number 48,855 63,627 71,078 70,811 medium and long-term loan number 4,206 5,813 6,412 8,264 average short-term loan million VND 183 241 383 471 amount medium and long-term loan million VND 853 925 1,679 1,963 Source: response to questionnaire (total of MHB, HDB, ACB, Sacombank) Notes: Growth rate of June 2008 is semi-annual growth rate since the end of 2007.
Medium and long-term loan for SMEs shared slightly less than 30% of the total SME loan, while average amount of medium and long-term loan for SMEs substantially larger than that of short-term loan. Table I-18 SME Lending of PFIs (2) Jun-08 SME (or non-state enterprise) loan: billion VND 77,986 total amount short-term loan billion VND 55,897 medium and long-term loan billion VND 22,089 SME (or non-state enterprise) loan: number 87,896 total number short-term loan number 76,993 medium and long-term loan number 10,903 average short-term loan million VND 726 amount medium and long-term loan million VND 2,026 Source: response to questionnaire (total of TCB, MHB, HDB, ACB, DAB, Sacombank)
Out standing of leasing for SMEs of leasing companies under PFIs is about 4% compared with loan amount of parent PFIs. Table I-19 Leasing for SMEs Dec-05 Dec-06 Dec-07 Jun-08 Leasing for SMEs of leasing conpanies number 191 223 326 366 under PFIs billion VND 474 553 785 1,047 annual growth N/A 16.6% 42.1% 33.3% average, million VND 2,482 2,478 2,408 2,860 medium and long-term loan for SMEs billion VND 13,465 17,807 18,387 25,171 annual growth N/A 32.2% 3.3% 36.9% ratio of leasing against banking leasing / loans 3.5% 3.1% 4.3% 4.2% Source: response to questionnaire (total of ACB, Sacombank, Vietinbank)
54 Remained Difficulties of SME Lending According to the field survey of SMEFP II, borrowers of SMEFP I face less difficulty. This implies experience of SMEFP of the both of lenders and borrowers mitigate information opaqueness because SMEFP requires richer information than normal loans. Table I-20 Share of SMEs Facing Difficulty of Finance by Borrower/non-borrower of SMEFP I (%)
Very Difficult Less Easy Very Total difficult difficutl Easy
Borrowers of SMEFP I 0 16 72 12 0 100
Other SMEs 1 27 55 17 1 100
By observing SMEFP II, OLL disbursement process has been implemented quickly as some PFIs had good experiences in SMEFP I which have been extended to SMEFP Phase II. Statistics show that most of PFIs under SMEFP II have utilised almost whole limit (92.9%) allocated to them in quite short time (approx within a time frame of 7 months). This fact would suggest that the PFI’s SME lending capacity has been improved in a sense. Table I-21 OLL Disbursement Progress under SMEFP II Unit: VND Billion PFIs Limit Disbursement as Loan request in at 10/6/2008 progress BIDV 130 130 0 ICB 280 280 0 ACB 50 46.5 0 CCF 50 48.4 1.7 EAB 50 40.5 10 HDB 70 70 0 MHB 50 21 14.8 Sacombank 50 46.6 6 Techcombank 70 60.4 7.6 Total 800 743.4 24.1
However, the interviews with PFI suggest this achievement might be highly influenced by the economic conditions. Needs of PFIs for long term funds in general was accelerated because tight monetary policy substantially squeezed liquidity availability of PFIs while borrowing needs had not yet contracted significantly. Besides, under such economic conditions, some PFIs seem to sell SMEFP II loans strongly to their preferred customers. According to assessment of lending capacity during the training courses and on-site coaching in the Pilot Trial of SMEFP II, the following challenges remained to be pointed out.
Collateral First, regarding practice of collateral, it is common practice for local banks to take collateral that
55 covers not only the financed assets but also other properties of SMEs (e.g. LUR, plant and building, machinery and equipment etc). However in the local context the land regulations, the legal and commercial procedures to affect collateral are too complicated and time consuming which sometimes delayed the credit procedures and made trouble for SMEs in obtaining medium/long-term loans. The collateral issue becomes more seriously when LUR has not been granted to all SMEs even they have been using lands for some tens of years (for example Gia Lam Sewing Machine Joint Stock Company has used land since its establishment in 1977 but it has not successfully obtained LUR yet despite of some efforts made). As an evidence the procedures to effect and disposal of different types of assets as collateral are summarized as follows: Procedures for effecting LUR/land attached assets as collateral
• Step 1: To sign a loan contract containing terms of LUR/land attached assets mortgage or to sign a loan contract and a LUR/land attached assets mortgage contract;
• Step 2: To apply the registration of LUR/land attached assets mortgage by related parties to the loan/LUR/land attached assets mortgage contract (within 05 working days for the date of signing the loan contract).
• Step 3: Registration of LUR/land attached assets mortgage shall be conducted by the LUR Registration Office within 05 working days or 15 days (for localities in mountainous, island and remote areas) from the time the LUR Registration Office receives a valid application file Procedures for disposal of LUR/land attached assets as collateral (refers Article 130.3 of the Land Law)
• If a mortgagor using LUR/land attached assets fails to discharge or discharge correctly the obligation to pay stipulated in the loan contract, such mortgaged LUR/land attached assets shall be disposed in accordance with the agreement in the contract of mortgage;
• If the LUR/land attached assets is not able to be disposed in accordance with the agreement in the contract, the mortgagee shall have the right (i) to assign the mortgaged LUR/land attached assets to another to recover the debt or (ii) to request the competent State body to hold an auction of the LUR/land attached assets or (iii) to institute proceedings in accordance with law.
• To protect interests of related parties, it is required that: - In case it is necessary to dispose the LUR mortgage which has been registered, the mortgagee (e.g. the bank) must register a written notice on dissolution of such registered LUR/land attached assets mortgage at least 15 days before dissolving at the LUR Registration Office. - Within 05 working days or 15 days (for localities in mountainous, island and remote areas) from the time the LUR Registration Office receives a valid application file, the LUR Registration Office shall: (i) record the registration of the written notice on dissolution, (ii) certify the request for registration of the notice on dissolution, (iii) notify in writing the dissolution to all the related registered mortgagee in case LUR/land attached assets were used to secure the performance of a number of obligations. Procedures for effecting movable assets as collateral (refers. Article 10, 15 of Decree No.08/2000/ND-CP on registration of secured transactions)
• The applicant lodges an application for registration of the Secured Transaction and pays the registration fees to the related competent authorities for registration.
• The registration of assets mortgage and/or pledge shall be conducted by the related competent authorities for registration within a maximum duration of 3 working days from the date of receiving the application.
• The applicant shall be issued a certificate of registration of the Secured Transaction.
56 Procedures for disposal of movable assets as collateral Generally, the disposal shall be based on the agreement between related parties in line with the laws. In case of any dispute arisen, the litigation procedures may be applicable. Capacity of credit assessment The challenges include inability of reliable financial statement of SMEs, underdevelopment of internal credit rating and objective pricing methodology, while basic lending procedure and lending policy has been developed in most banks. As Decision 493/2005/QD-NHNN stipulates transition from article 6 in which loan asset shall be classified according to arrear of more than 90 days to article 7 in which loan asset shall be classified according to internal credit rating. Within 2008, most major banks have already submitted their credit rating design and trial result of asset classification to SBV as of middle of 2008. However, the quality of credit rating is still to be improved. Typical method of the rating is combination of financial assessment based on about 10 key financial ratios and qualitative assessment such as management and business strategy. But financial scoring lacks objective center figure of financial rations based on inter branches or broader database, and scoring of qualitative assessment is still very primitive and seems to be insignificant for evaluating business risk. Linkage of the scoring or credit rating with credit risk or default probability is still beyond the business plan. It is necessary to start to develop data base which contains historical data of financial profile and default cases. Long term lending Under, regulatory requirements based on Decision 457, short term preference of depositors, non-existence of interest rate swap market, recent tightening of monetary policy, most PFIs face further difficulty. Some of the regulation such as the ratios of short-term funds used for long-term lending stipulated in Decision 457 may discourage PFIs in developing sophisticated ALM (Asset and Liability Management).
• The implications for enhancing SME finance would suggest that it is recommended for PFIs to take the financed assets as collateral. It is believed that this would be easier for SMEs to access medium/long-term loans.
Looking at lending practice of PFIs based on response to the questionnaire, there is not significant improvements for share of medium and long-term loan, share of loans to domestic private enterprises. Rather, share of domestic private enterprise in JSBs actually decreased in 2007 because some of JSBs promoted lending to SOEs. On the other hand, share of non-secured loan increased in JSBs. Among JSBs, Techcombank started new small size loan product without collateral which applies scoring method. Techcombank started scoring loan as a pilot project in 2008. Target borrower is small enterprise of which annual turnover is not more than 100,000 USD. And loan amount shall be not more than 300 million VND. Under these conditions, Techcombank provides small loan based on scoring which composes minimum financial profile and non-financial profiles which are related to business competitiveness.
57 Table I-22 Selected Lending Measure of PFIs (average of 6 JSBs) 2005 2006 2007 Loan portfolio by term -Short term (%) 66.06% 67.81% 65.67% -Medium and long term (%) 33.94% 32.19% 34.33% Share of loans to domestic private enterprises 37.93% 38.05% 32.80% Growth of loans to domestic private enterprise 56.87% 63.42% 99.53% Loan classification by collateral -Secured loans (%) 86.52% 85.34% 84.22% -Non -secured loan (%) 16.17% 17.60% 18.90% Table I-23 Selected Lending Measure of PFIs (average of 3 SOCBs) 2005 2006 2007 Loan portfolio by term -Short term (%) 57.67% 56.85% 62.50% -Medium and long term (%) 42.33% 43.15% 37.50% Share of loans to domestic private enterprises 43.50% 30.65% 32.28% Growth of loans to domestic private enterprise 43.75% 33.50% 21.50% Loan classification by collateral -Secured loans (%) 77.02% 83.90% 83.54% -Non -secured loan (%) 22.98% 16.10% 16.47% Source: response to questionnaire
4-4. Review of Marketing Capacity in SME Business In terms of marketing capacity in SME business, the marketing organisation of PFIs has not been well set up. While most of PFIs have their own client database but this database can not be shared between PFI’s branches as it is uncentralised. For example (i) Techcombank head office has a database, however when requested for provision of the profiles of some clients in a specific segment, the information retrieval needs manual search and this can be done by head office staff only (ii) when requested CCF for provision of the profiles of clients in selected provinces, CCF has had to ask its branches to provide such information as it can not touch to the database of its branches. This reflects the fact that the PFI database for marketing is not efficient enough. Regarding staff capacity, most of PFIs advised that they don’t have separate marketing staff, but normally credit officers are in charge of marketing activities. This fact may limit marketing initiatives as credit officers used to busy with routine credit assessment works and they pay attention on marketing when spare time is available. By observations, it is common that the marketing tools have not been developed by PFI branches sufficiently as most of branches have not developed their own interview questionnaire for information collection which is considered an important tool in marketing. Notwithstanding some PFIs are quite active in marketing through media or using workshop event such as Techcombank which helps somehow to improve its image as well as the branding. For SME finance, PFIs had better develop market segmentation based on the concept of relationship banking which would help to collect effectively information while human resource is limited. In SME financing, non-financial information is an important type of information which credit officer can to obtain through relationship banking. In relationship banking, SMEs have benefits of receiving preferential pricing for loans and other services (deposit, fund transfer, electronic banking, payroll etc). On the other side, PFIs is able to monitor credit risks including business risk of the client and collateral asset such as machinery and inventory. By observations, the above concept of relationship banking is still new for local banks. As a result most of local banks are not willing to accept inventory as collateral while this type of collateral is commonly used in foreign countries. For example, at a recent visit to a SME producing wood temple products a
58 credit officer of CCF Bac Ninh said that his branch doesn’t accept logs (key raw material) as collateral due to (i) the CCF policy not to take inventory as collateral (ii) difficulties in controlling SME inventories which is very likely that the relationship banking is absent.
4-5. Critical Issues for Further Improvement of SME Finance Capacity The observations in SMEFP II and the recent interviews between Consultant and various state agencies and SMEs revealed that critical issues for further improvement of SME finance capacity are as follows:
• More clear policies of PFIs on collateral which shall be extended to various types of SME assets such as LUR, machinery and equipment, inventories, sales proceeds/receivables etc
• Application of the relationship banking concept in SME financing.
• Promotion of non-financial services to SMEs (technology transfer, production management, technical training, business matching etc);
• Capacity building for PFIs on target sectors (e.g. supporting industries);
• Develop a policy manual which would help PFIs as to achieve a more balanced portfolio which may avoid the possibility that a substantial loan amount is provided just to some specific sectors (e.g. transportation services).
4-6. Summary Vietnamese banks, particularly JSBs, have vulnerability in liquidity because they have not yet established stable retail customer base. Actually, tightened monetary policy with high pace triggered hard competition among banks for providing higher deposit interest rates. This implies storing necessity of continuous support on long-term finance for PFIs. Regarding SME lending capacity, commercial banks still need to make substantial efforts to establish skillful credit assessment, broader acceptance of collateral, and sophisticated ALM in order to overcome in market failure in SME loan market.
59 5. Overview of Assistance Programs Provided by International Donors In recent years, the issue of SME development has received great attention from the donor community. International donors have provided funding for a wide range of assistance for SMEs, from direct credit/capital provision, SME management training to policy and legal framework improvement and capacity enhancement for SME-support government agencies. This section aims at providing general information about such programs/projects, comparing those programs/projects with SMEFP II.
5-1. Programs/Projects Providing Financial Supports to SMEs Apart form SMEFP, a number of programs and projects have been implemented or planned for the purpose of providing short to long-term financial sources to SMEs. Such programs/projects can be listed as follows: SME Development Fund (SMEDF) Project (2004-2008) This EU-funded project provides medium and long-term credits to SMEs through 4 intermediary PFIs (Asia Commercial Bank ACB, Vietinbank, Techcombank TCB, and Sacombank SCB). The project started in September 2004 and end at the end of August 2008, with a grant amount comprising 20 million Euros plus 1 million Euro for Technical Assistance. The project also provides training to 4 PFIs (and SME managers. The Project is made up of two components with details as follows: • The lending component: Loan facilities have a term of 5-8 years, with a grace period of one year. SMEs are provided with loans from 4 PFIs basing on PFIs’ lending policy. The definition of SME is the same as in the Decree 90 of 2001, and there is no specific target industry sector or specific region. • The training component: This component aims to improve the capacity of the PFIs, the Development Assistance Fund (DAF) (which is currently the Vietnam Development Bank VDB) and Project staff to support SME lending process44. This project is very similar to SMEFPII, as it provides finance sources for SMEs nationwide. However, the scope of the loan to SMEs in this project must not exceed 5 billion dongs, while that number for SMEFPII is up to 20 billion dong. This program end at the end of August 2008, and EU agreed with Vietnam Government to transfer the funds to VDB as a grant which is currently amounting approximately 400 billion VND and VDB will continue the SME Financing Program as an executing Agency. Rural Finance Program (2002-present) This is a large-scale program funded by World Bank. The objectives of the Program are to set up the Rural Development Fund (RDF) and assist the Fund in providing credits to rural SMEs through BIDV (Bank for Investment and Development of Vietnam). The program started in May 2002 and scheduled to end in September 2008. Up to now, three projects have been initiated under the Program. Currently the Second Rural Finance Project is under implementation and is made up of two components, one of which is to provide credit lines to rural micro enterprises and SMEs through the Rural Development Fund (RDFII) and Funds Micro-Finance (MLF). In the Second Project, BIDV is the implementing agency which provides on-lending scheme to PFIs. The implementing agency in Phase I was SBV, but WB thought this kind of (TS) Loan is not a function of the Central Bank, and the implementing agency was changed from SBV to BIDV from Phase II. The Second Project’s main objectives are to: • Further assist the Rural Development Fund by extending additional medium and long term financial resources for private viable investments in the rural areas;
44 Taken from the project’s leaflet
60 • Further support the government in its efforts to alleviate rural poverty through the extension of financial and institutional support to the micro-finance loan fund and its implementation agencies; and • Institutional support to strengthen the capacity of BIDV as a wholesale financial institution serving the rural areas45. This Second project hopes to support up to 90,000 private SMEs and 10,000 micro enterprises in rural areas. The Third Rural Finance Project has been approved on May 22 this year with a total budget of 280 million USD. The program period is 2008-Dec. 2013. With a loan maturity of 40 years and a grace period of 10 years, the Third Project is expected to bring the following outcomes: (i) improve rural enterprises’ access to finance; (ii) increase capital investment of and employment in rural enterprises; (iii) strengthen lending activities, particularly term lending to rural private enterprises by PFIs on market-based terms46. Different from SMEFPII, whose beneficiaries are SMEs nationwide though excluding 4 cities, Hanoi, HCMC, Da Nang and Hai Phong., and this project just provides financial sources for SMEs in rural areas such as livestock farming and not harmful to environment.. However, with this project, rural SMEs can apply for loan facilities with no limit for the loan. Mekong Enterprise Fund (2002-present) Mekong Enterprise Fund is a private equity fund whose main aim is to provide local privately-owned SMEs in the Mekong region (including Vietnam) with equity or quasi - equity capital. The first Fund with its original capital of 18.5 million USD was used up to invest in 10 Vietnamese SMEs from 2002 to 2005. Invested enterprises operate in various areas, including plastic goods production, wood processing, garment and packaging. The second Fund (Mekong Enterprise Fund II) was opened in 2006 with a capital of about 50 million USD. The second Fund focuses on companies involved in manufacturing, brand building, distributing and retailing activities. The Funds mainly focuses on SMEs with strong management capacity and are highly export-oriented. The Funds’ main purpose is to achieve a good return on investment, so most of their invested companies have high development rate in revenue (The average annual growth rate of 10 companies invested by MEF I was 35.4% in 200647). With the success of the first two Funds, the third Fund will be launched in late 2008. The financial source of the Fund comes from ADB, SECO (State Secretariat for Economic Affairs of Switzerland), the Nordic Development Fund (NDF) and Finnish Fund for Industrial Cooperation Ltd. (Finnfund)48. From the list of invested enterprises of MEF I49 and the focus industries of MEF II provided by the Mekong Capital website, it can be seen that like SMEFP, this project also pays great attention to potential companies in supporting industries. IFC Loan to Techcombank (2008) On April 3, 2008, the International Finance Corporation (IFC), a member of the World Bank Group provided a 320 billion VND (around 20 million USD) loan to Techcombank to enable easy access to finance for Vietnamese SMEs. Along with this, IFC will also provide consultancy for Techcombank in the field of banking services for SMEs.
45 World Bank. (2003). Vietnam's Second Rural Finance Project Disbursed $13 Million in first Month. Retrieved July 21, 2008 from World Bank’s website: http://www.worldbank.org.vn/news/press18_01.htm 46 World Bank. (2005). Vietnam: Third Rural Finance Project. Retrieved July 21, 2008 from World Bank’s website: http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21778145~pagePK:34370~piPK:3 4424~theSitePK:4607,00.html 47 http://www.mekongcapital.com/mef.htm 48 Mekong Capital. Retrieved July 24, 2008 from Mekong Capital’s website: http://www.mekongcapital.com/mef.htm 49 Examples of companies in supporting industries which receive investment from MEFI are Tan Dai Hung Plastic, Ngo Han magnet wire, Minh Phuc package printing
61 It should be noted that all of the above-listed projects adopt the two-step loan approach, which means PFIs will play the role of intermediaries as they provide sub-loan mechanisms to SMEs50. The eligible SMEs are SMEs as defined in the Decree 90 and 50% or more owned by private sector, and of any industry. The maximum amount available is 1 million USD.
5-2. Other Programs/Projects Providing Other Supports to SMEs This subsection lists programs/projects whose focus area is on other supports to SMEs rather than on finance provision. Most of the programs/projects in this section provide support to SMEs through the enhancement of government agencies’ capacity in promoting SME development or the improvement of the legal environment for SME development. Vietnam Competitiveness Initiative (2003-2006) The project was funded by the United States Agency for International Development (USAID) with an aim to improve the competitiveness of SMEs in Vietnam and support the growth of the Vietnamese private sector. The project helped enhance SME capacities by providing assistance for SME management. It also provided training and technical assistance to banks to improve their ability to serve SMEs, especially in the area of providing loans for SME development. The project started in December 2003 and ended in September 2006. During its four years life span, the following SME-related activities have been undertaken in the project: • supporting various research studies on topics critical to private sector and SME growth • enhancing regulatory impact analysis capacity within the government • strengthening the capacity of business associations to effectively lobby on behalf of their members for necessary reforms • understanding the importance of competitiveness through public events and workshops • developing the cluster strategies and action plans • introducing the clusters/sub-sectors to reputable agents, both domestic and foreign, to enhance market access • identify and design strategic cluster/sub-sectors activities with new technologies, market access, standards, and training, and • linking clusters/sub-sectors with institutions and other business services that support them • developing bank training courses that will increase the ability of bank employees to lend to SMEs • providing technical assistance projects with partner banks to increase their ability to service SMEs51. Assignment of Advisory Expert on SME Promotion Policy (2006-2008) Through this project, JICA provided specialist advice on SME promotion to ASMED (Agency for SME Development) and TAC (SME Technical Assistance Center). The assignment of advisory expert is 2 years from August 2006 until August 2008. The project also brought about better coordination among donors in the area of SME finance through SME Partnership Group. The expected outcomes of the project are listed below: • The function of ASMED/TAC to provide support for SMEs is strengthened • Awareness of relevant stakeholders (government bodies, private associations, etc.) towards SME policy is increased
50 IFC. (2008). Retrieved July 23, 2008 from IFC’s website: http://www.ifc.org/ifcext/media.nsf/content/SelectedPressRelease?OpenDocument&UNID=B94C48B F8A1B4B6985257420005E47A1 51 ASMED. (2008). International Cooperation for SMEs. Retrieved July 21, 2008 from ASMED’s website: http://www.business.gov.vn/WorkArea/showcontent.aspx?id=2676&LangType=1033
62 • Understanding of the ASMED/TAC staff on SME promotion policy is improved and adapted to Vietnamese context • Information and knowledge on Vietnamese SMEs are accumulated and utilized for SME policy formulation • ASMED plays the leading role in coordinating the activities of SME related bodies in Vietnam • Donor activities in the field of SME finance is well coordinated and collective efficiency is ensured through information sharing and frank exchanges of opinion52. Assistance to Establish the National and Provincial SME Support Infrastructure (2004-2007) This is a project co-financed by Finnish, Italian and Norwegian ODA. The project supports the development of SMEs through (i) better policies, legal and institutional framework, (ii) improved access to information on legal documents concerning SMEs, government support and ODA programs to support SMEs, and (iii) enhancement of operational capacity for ASMED and the SME Development Promotion Council (SMEDPC). The project’s first phase started in 2004 and ended in December 2007. SME Development Program Loan (2004-2008) This is a large-scale program jointly funded by ADB, AFD and KfW. The loan fund is provided to MOF for support of the state budget for spending for the following program objectives. The program is divided into two sub-programs lasting from October 2004 to August 2008. The Program’s objective is to improve SMEs’ access to finance, land-use rights and international markets. Its focal areas are (i) improved current business registration and licensing systems, (ii) improved government's policy and institutional framework for SME development, (iii) enhanced access to finance and land use rights for SMEs, (iv) legal framework for land use and (v) enhanced access to international markets for SMEs by improving the technical standard framework53. Vietnam Private Sector Support Program (2005-2008) In this program, the European Union contributes 9.05 million Euro and provides technical assistance for the purpose of promoting SMEs through the creation of favourable conditions for SMEs, and the establishment of two incubators in Hanoi (for food processing and packaging) and Ho Chi Minh City (for information technology) to support the creation of SMEs in some selected provinces namely Hanoi, Hai Phong, Can Tho and Da Nang. The Program started in 2005 and is expected to end in December this year54. GTZ-funded SME Development Program (2005-2009) GTZ (German Agency for Technical Cooperation) contributed 8.31 million Euros as grant money for ASMED, VCCI (Vietnam Chamber of Commerce and Industry) and selected local governments to implement this program. The Program started in May 2005 and scheduled to end in April 2009. The Program aims at improving the competitiveness of private SMEs in Vietnam, and promoting their long-term and sustainable development. This will help create jobs and income for Vietnamese people, and hence, make positive contribution to the nation’s GDP. The focus of the Program is also on improving the business environment for private sector development and enhancing the market position of SMEs in selected sectors, especially in provinces outside the major growth centres. Phase I of the Program is underway and is expected to end in April 200955.
52 ASMED. (2008). International Cooperation for SMEs. Retrieved July 21, 2008 from ASMED’s website http://www.business.gov.vn/WorkArea/showcontent.aspx?id=2674&LangType=1033 53 ASMED. (2008). International Cooperation for SMEs. Retrieved July 21, 2008 from ASMED’s website: http://www.business.gov.vn/WorkArea/showcontent.aspx?id=2654&LangType=1033 54 Ms. Nguyen Thi Thu Hang, KfW’s Program Officer 55 ASMED. (2008). International Cooperation for SMEs. Retrieved July 21, 2008 from ASMED’s website: http://www.business.gov.vn/WorkArea/showcontent.aspx?id=2662&LangType=1033
63 Business Sector Program Support (BSPS) (2005-2009) This DANIDA (Danish International Development Agency) funded program aims at increasing the competitiveness of the business sector. The program started in January 2005 and scheduled to end in December 2009. SMEs in targeted province of the program can benefit through the removal of regulatory and administrative barriers to their development, improved labor conditions, better access to information and support services, and more efficient dispute resolution and arbitration systems. Specific objectives for the project are: • Improving the business environment in target provinces through the enhancement of administrative capacity of provincial authorities and the simplification of administrative procedures • Improving labor conditions in the private SME sector in selected provinces (Ha Tay, Nghe An, Lam Dong and Khanh Hoa) • Increasing global competitiveness of private SMEs by enabling them to access necessary information and providing support services • Creating a more efficient formal dispute resolution and arbitration system • Developing research capacity to provide analytically effective economic policy advice56
Assistance Policy of ADB and a View on the Reform Delay Assistance of ADB to Vietnam in the past was a level of Yen 1,400 million and Yen 400 million is low cost ADF (Asian Development Fund) and Yen 1,000 million is higher cost OCR (Ordinary Capital Resources). OCR is used for Infrastructure project such as electric power (generation and transmission) and highway road. ADF is applied for soft program such as reform program or social equity projects. For improving the business environment, ADB provided 3 sectors, Financial Sector Reform, SME Development Program Loan and Mekong Fund for support of smaller enterprises. As of the delay of economic reform, a view of ADB staff commented that it would be due to the economic situation and it is only a temporary delay. Basically reforms are proceeding. Under the current stock market situation, IPOs cannot be pursued. As for the SBV reform, independence of the central bank is not a clear cut matter. Currently SBV is a part of the Government. Governor of the SBV becoming not a minister may not be so meaningful. Even the delay of economic reforms, ADB will continue the assistance of the similar level with the past years.
56 ASMED. (2008). International Cooperation for SMEs. Retrieved July 21, 2008 from ASMED’s website: http://www.business.gov.vn/WorkArea/showcontent.aspx?id=3654&LangType=1033
64
6. Conclusion
The reform of credit institutions intended to include small and financially weak commercial banks to be merged to for larger and more stable banks, improve profitability and risk management of banks, however, the economic disturbance as high inflation and the deficit of the current account and the urgency of economic counter measures caused the delay of the economic reforms. Recent economic difficulties cause some delays of reforms such as Banking Sector Reform and Enterprise Reform. Because of the delay, vulnerability of funding of commercial banks and insufficient market mechanism (priding mechanism) seems to be prolonged. Under this circumstance, in order to overcome economic challenges, necessity of support for SME finance is substantial because active SMEs are essential for economic growth.
Looking at SME promotion policy, ASMED is under revision of Decree 90 in which size of capital in terms of definition of SME might be increased. While MOIT has developed Master Plan of Supporting Industry in 2007, Action Plan for supporting industry including financial support is scheduled to be developed by early 2009, as enhancement competitiveness of Vietnam economy is urgent facing deterioration of current account deficit and abolition of tariffs under AFTA. CGF may be restructured after revision of the relevant regulation to be finalized within 2008. In view of Policy Bank, JBIC is developing draft plan of another TSL which focuses project to cope with climate change. As for planning of SMEFP III, the following issues shall be considered; • Revision of eligible end-borrower in terms of SME status • Targeting Supporting Industry • Utilization of CGF in a few years timeframe • Demarcation with another TSL by JBIC for VDB
Regarding challenges for SME finance, although disbursement of SMEFP II has been completed smoothly, SMEFP III may pursue higher goals such as outreach for SMEs in financing difficulties and business projects/sectors which shall bring larger impacts on competitiveness of Vietnam’s industrialization. In order to promote outreach for difficult SMEs, dissemination of SMEFP III among SMEs and encouragement of SMEs for application of borrowing might be necessary. As for targeting business sectors, SMEFP III might focus Supporting Industry. SMEs in the supporting industry often face difficulty of finance when they are stepping up to meet re requirement of FDI enterprise because they lack contact with banks and because there are substantial uncertainty caused by lack of history in high tech production. Therefore, SMEFP III needs to develop effective scheme to support this business stage of SMEs.
Vietnamese banks, particularly JSBs, have vulnerability in liquidity because they have not yet established stable retail customer base. Actually, tightened monetary policy with high pace triggered hard competition among banks for providing higher deposit interest rates. This implies storing necessity of continuous support on long-term finance for PFIs. Regarding SME lending capacity, commercial banks still need to make substantial efforts to establish skillful credit assessment, broader acceptance of collateral, and sophisticated ALM in order to overcome in market failure in SME loan market.
International donors aim to introduce market economy by economic reform in Vietnam. However, by the recent aggravation of the economic situation and the government decision to take necessary counter measures with a top priority caused the reform, and international donors are showing irritation toward such delay. WB is criticizing that there is no assurance of observation of conditionality by a one time withdrawal of funds at the beginning of the phase of the program. Nevertheless, their assistance will be continued with a similar volume, while there is a strong sympathetic view that the discussion of independence of the central bank in the midst of needs of coordination between fiscal policy and monetary policy was a very bad timing, and IPOs at the time of dull stock market is an almost impossible thing..
65 Assistance programs for supporting SMEs development will may be classified to indirect SME assistance program such as for preparation of environment of SME’s business activities, and direct SME assistance program by providing financial support or technical assistance reaching to individual SMEs. In general, some of programme focusing the latter are being finalized because it fulfilled planed objectives. In such circumstance, JBIC’s SMEFP II and III are classified as direct SME assistance program. It is highlighted as it aims to mitigate/overcome market failure in SME finance and might promote industrial competitiveness which shall be a big help to Vietnam under very difficult economic situation.
66 II. Assessment of SMEFP Phase I and II
1. Achievements and Challenges of Ph I&II, Improvements for Phase III
Chapter II will review achievements and challenges of SMEFP I and II and extract implications for SMEFP III. Section 1 will discuss achievements and remained challenges by items of project scheme of SMEFP, based on the experience of implementation of previous phases and discussion with ICPMU and PFIs.
1-1. Size of Project Capacity of Loan Origination of PFIs Total fund for loan component of Phase II is JPY 6 billion, 50% larger than JPY 4 billion of Phase I. This size, however, seems to be not enough in comparison with the needs of PFIs and SMEs as some PFIs pointed out that they have to reject significant number of potential applications from the customers because of limit of allocated fund. According to interviews with PFIs, most PFIs could have completed double of actually allocated fund during the first 9 months since the start of OLL. On the other hand, during that 9 months, most PFIs observed significant changes of financing needs from their SME customers after tightening of monetary policy started to impact on the economy. Capacity of Operation The other aspect, in addition to the loan origination capacity the economic and financial conditions described above, is capacity of operation of executing agency (ICPMU). In Phase II, there was a concern that increase of PFIs might put much burden on the operation of ICPMU. Based on the rough assessment of ICPMU that appropriate number of PFIs might be around 10, Phase II selected 9 PFIs. In this regard, although ICPMU smoothly handles 9 PFIs in general, the operation sometimes balked for substantial time once some inquiries from PFIs cause some disputes. Further improvement of manuals and closer coordination between ICPMU and consultant might be necessary to enhance capability to cope with irregular cases. 1-2. Schedule Prolonged selection of consultant caused significant delay of starting Phase II. The process of selection of consultant includes development of selection criteria, publishing tendering, selection of application, etc. The internal discussion among ICPMU and selection committee spent a lot of time in `Phase II. Phase III may need to develop clear time line of the selection with requirement of report of detail reasons when the execution agency fails to meet each schedule point. Development of budget also took time in Phase II because the schedule developed in SAPROF became little bit obsolete and ICPMU started over planning budget again. After OLL agreement between ICPMU and PFIs, newcomer PFIs had to spend a few months before they understand the procedures and disseminate them to branches, which caused disadvantage to them in comparison with experienced PFIs. Enough time of trainings before OLL start might be necessary for newcomer PFIs. 1-3. Disbursement According to interviews with PFIs, manufacturing shared most in the business sectors of sub-projects in PFIs located in South, while sectors spread among various ones such as transportation, construction and manufacturing in North. The details will be discussed in section 2.1.
67 Origination of SMEFP at branches is important as initial negotiation of loan terms at branch could have more favorable impact on sub-projects because SMEs might be encouraged by better loan terms supported by SMEFP. However, in most newcomer PFIs headquarter considers application of SMEFP after branches set up tentative terms in the discussion with SMEs without consideration of SMEFP, which have limited impact on the terms. 1-4. Loan Scheme 1-4-1. Target of sub-Loan (end-borrower, sub-project) In Phase II, according to interviews and analysis of data, some PFIs focus repeaters of SMEFP or good customers with strong relationship, rather than supporting SMEs which could not get finance without SMEFP scheme. Regarding viewpoint of business sectors, Japan Vietnam Joint Initiative seeks to promotion of supporting industry (or parts industry) which is able to get order from Japanese manufacturing. Some PFIs stated that they may need further supports such as business linkage and useful information about business relationship between applicant SMEs and Japanese manufacturing. 1-4-2. Eligibility of end-borrower End-borrower must be SMEs in Phase I and II. As discussed already, MPI (ASMED) is considering revision of definition of SME stipulated Decree 90. According to interviews with PFIs, most PFIs pointed out necessity to increase limit of registered capital from VND 10 billion to around VND 20 billion. Regarding limit of number of employees, some PFIs hope to higher limit for labor intensive sectors such as textile. Besides, outreach to SMEs which are in transition to develop continuous business relationship with Japanese manufacturing might need relaxed limit of size because Japanese manufacturing require larger production scale to the suppliers. 1-4-3. Terms of Each Lending Stage Structure of Loans in Project Cost The description of non-eligible items in Policy Manual is complicated or obscure according to PFIs and ICPMU. Calculation of tax which shall be excluded from eligible project costs is difficult in practice of SMEs. PFIs and ICPMU mentioned some manual should show examples of indirect expenses which are one of non-eligible items because indirect expenses are not clear enough for PFIs to fully understand. Some PFIs request SMEFP shall allow LUR be eligible, and lower required minimum share of SMEs contribution which is 20% to total eligible sub-project cost in Phase II. However, considering limitation of credit risk taking by PFIs and normal collateral ratio (around 70%), these requests might be not so relevant to effectiveness of SMEFP. The loan structure of SMEFP shall be tuned so that limited fund can be used as “leverage” to support many potential projects which might not be materialized without SMEFP. Higher share of OLL amount to sub-project would not necessarily contribute to effectiveness of SMEFP. Interest Rate Interest rate of sub-loan is up to PFIs in Phase II. Most PFIs apply preferential interest rate lower by 1 to 4 % annually than normal loan products which are comparable. Some PFIs developed transfer pricing system which introduce market mechanism between headquarter and branches, which leave pricing of sub-loan to branches while headquarter provides cheaper funds in the case of SMEFP loan. Interest rate of OLL is subject to recent T-bill rates in Phase II while reference rate is weighted average of deposit rates in Phase I. Most PFIs show concerns for volatility of the reference rate of Phase II because branches or SMEs have to take this interest rate risk depending on pricing method of PFIs. If interest rate of sub-loan is variable rate which is subject to OLL rates, SMEs owe the interest rate risk, while if sub-loan is fixed rate branches owe the interest rate risk. Thus, Phase III shall consider some alternative reference rate such as weighted average of deposit rate or long term government bond. Considering most frequent maturity which SMEs prefer, average of yield in a certain period, 6 months
68 for example, government bonds with near five years maturity remained might be a good reference for OLL rate. But with limited issuance volume of government bonds, another candidate of reference rate is weighted average of deposit rates. Currency Phase II allow both USD and VND as for denomination of sub-loan while OLL is only VND. This discourages PFIs providing USD sub-loan because of exchange rate risk. ICPMU suggests transfer from MOF to SBV might be divided into two parts of USD and VND so that SBV can provide OLL in both USD and VND. However, it is difficult to estimate currency needs of SMEs. Moreover, that scheme might cause conflict with currency policy of SBV. 1-4-4. PFI ICPMU did not develop long list based on open application because that may cause difficulty of selection among so many applications. Actually, Phase II developed short list of 17 PFIs based on unofficial request for application. ICPMU scored application from 13 PFIs which submitted complete information. Among 12 PFIs which reached to qualification level of score, ICPMU selected 9 PFIs based on the recommendation in SAPROF and experience in other similar donor projects. If open tendering shall be implemented in Phase III, some initial filtering such as regulatory rating (3 grades), branch networks, and length of operation might be necessary. Regarding extending PFIs to non-bank such as leasing, leasing could bring merits because leasing could bring broader access channel of SMEs through purchase of machinery, and enable further outreach to SMEs with higher credit risk. On the other hand, necessity of support by SMEFP and efficiency and effectiveness of monitoring shall be considered. 1-5. Credit Assessment of PFI Most PFIs already submitted internal credit rating which is required by regulation of loan classification in which banks have to shift from arrear standard to internal credit rating standard for classification of credit assets. This regulatory change will have impact on non-performing loan of PFIs. The change tends to be higher NPL ratio while the degree of the impacts depends of business type of PFIs. Regarding the quality of credit assessment, most PFIs still have limitation of basic know-how such as objective methodology of financial analysis and information base such as integrated database of financial statement of SME customers. 1-6. Management Information System (MIS) Phase II developed basic functions which are necessary for reporting under the constraint of budget. PFIs request further support such as onsite training and improvement of MIS operation manual. While there is not much complaint for operational function, misunderstanding about VPN (virtual private network) caused time loss before starting connection between ICPMU and PFIs. Most PFIs are comfortable with language of MIS (English) while CCF faces difficulty because most staffs and management is uncomfortable with English. But further consideration regarding localization of language with view to PFIs’ internal approval process is necessary. Transfer function is only one side from PFI to SBV in MIS of Phase II. Some important information such as result of OLL approval and fund allocation by SBV might require the reverse transfer function. As for the spread of MIS to non-PFIs, it is technically possible to set up the current MIS to any banks as far as there is a PC which can be connected to internet. Some of the PFIs initially face difficulty have MIS connected to internet because of internal information security guideline, which have been solved by practical approach such as deployment of independent PC which in isolated from LAN, etc.
69 1-7. Training, Manual, PR Training In Phase II, the consultants organized 10 types of training workshops and two courses of overseas study tour. The lessons from assessment by the attendants show that practical contents such as exercise and group discussion help them for understanding and being inspired for their daily mission. General Evaluation Training was planned to be implemented 16 times (days) in the initial plan, and actually conducted 24 times/days. The agenda includes introduction/implementation of SMEFP II, international practice of SME finance (credit assessment, risk management, marketing, etc.) targeting ICPMU and staffs in both headquarters and branches of 9 PFIs. In general, attendants seriously joined through all the sub-subjects. On the other hand, the lessons are the followings. There is much difference in the experience of banking practice and basic understanding among the attendants, which resulted in the wide degree of understanding of each attendant. In the exercises such as group discussion during the courses, most attendants joined quite positively in the discussion, and tried to reach to their own conclusion in good cooperation among the group. Training on Introduction/Implementation of SMEFP II Training workshop was conducted in Hanoi, HCMC and Da Nang. And MIS operation training was organized in Hanoi and HCMC. It seems that 1 day course is not enough for most attendants to fully understand the detail of reporting processes without exercise type module. Comments from PFIs of Phase I in Q&A session was quite helpful to other attendants. But minor changes from Phase I was difficult to be understood through the implementation of SMEFP II. This highlights the necessity of exercise module for reporting practice in the same way as the operation training of MIS. Training on International Practice of SME Finance The training was implemented in Hanoi and HCMC as 5 days course for each. 3 days and a half was implemented by local trainers who have practical background of finance business and 1 day and a half was by the international consultants. In general, the attendants are satisfied with the subjects and the trainers according to the survey. However, the knowledge and experience in credit assessment and risk management varies much among the attendants according to the level of practice in 9 PFIs. One of PFIs applied practice similar to Japanese banks, while most of others have much to catch up. This seems to cause gap among the achievements of the training. Most attendants know more or less about concepts in credit assessment and risk management. However, partly because of business and education nature of Vietnam, it is not easy for them to break down those concepts in their own business field. It is useful for them trainer show examples of breaking down concepts to practical level under limited information and IT infrastructure. The lessons are the followings. The materials shall be practical rather than only conceptual, and time shall be allocated more for exercise rather than lecture type. The number of attendants might be allocated to each PFI according to their needs which depend on their practical level while agenda and level of the course is informed in advance.
70 Study Tour An overseas study tour was conducted to visit and discuss with a wide range of SME finance officials and practitioners in countries at different level of economic development. The participants were provided with the chance to learn how to upgrade their SME financial policies as the economy of Vietnam evolves and faces different types of economic risks. The locations included Japan, where practice in SMEs financing including relationship banking is prominently successful, and some government institutions and financial Institutions in Korea, where the methodologies for government assistance for SMEs financing have been accelerated recently. Malaysia and Indonesia was included to show how these ASEAN developing countries have supported their SMEs which faced the financial crisis and .increasing international competition. According to the report by attendants, they particularly studied about 1) necessity to have a full awareness of the vital role of the SME sector in economic and social development of countries, as SMEs would help to create more jobs, increase people income as well as promote the people’s business spirit, especially for most of people classes with the medium and low income or the poor in the society, 2) necessity to set up the agencies and institutions with a mission dedicated for the SME management, development and support, such as Ministries and quasi ministry-level agencies, Banks for SMEs, Guarantee Fund for Credit, SMEs information centers, organizations providing services for SME business development etc, 3) necessity for setting up the suitable solutions and policies for supports and financing for the SME development, 4) necessity to promote the vital and dynamic role of Central Bank for SME support and SME development financing, as Central bank in some of the countries visited play important and dynamic role for SME development through the setting up Banks for SMEs, Guarantee Fund for Credit; providing information services, support for consultancy, technical, finance and banking training for SMEs; setting up the risk management and prevention measures in SME financing. In general, the study tour inspired the attendants for further innovation in their role and practice. Actually, in the occasion of training for international practice of SME policy, the attendants expressed their own thoughts on the issue of development of SME finance vehicle which is fitting in the context of Vietnam. As for trainings in Phase III, some PFIs hope further subjects such as marketing and training for SMEs such as feasibility study of investment project. In Phase II, ICPMU allocate fixed number of attendants to PFIs. Some PFIs hope to send more staffs to trainings, while others hope to decide attendance depending on their needs and availability of staffs.
71 Table II-1 Trainings Implemented in Phase II
Period Main training activities of the Consultants days number of attendants assessment/comments from attendants officials ICPMU PFIs 4/2007 Training workshop to introduce the SMEFP II and share some 1 Most of participants from PFIs were experiences in Phase I (20th April 2007) in Hanoi interested in the Project and would like to 4 from SBV 29 17 have further information about the PFIs selection criteria
8/2007 A training workshop on the Policy Manual and Reporting Manual 3 Most of participants cared much about the th was organized on 14th August 2008 for ICPMU staffs and on 16 Policy Manual and Reporting Manual. th and 20 August 2007 for PFIs, which was aimed at enabling However, the content related to Reporting Manual was quite difficult, participants ICPMU and PFIs to become more capable in implementing the 29 operation, reporting and monitoring in the SMEFP II. 21in HCMC need more time to study in advance in order to fully understand the content. Many staffs of new PFIs found it difficult to follow the Training. 9/2007 Two trips of overseas study tour for the executives of SBV and the Lots of achivements and expriences has staffs of ICPMU, ones in Japan and Malaysia and the second in 2 from SBV 27 been drawn out through these two trips. All Korea and Indonesia. 1 from MoF attendants found the study tours helpful
11/2007 Training workshop on the Policy Manual and Reporting Manual on 3 37 in Hanoi th th th Most of attendants can understand more the 14 (Hanoi), 16 (Da Nang) and on 19 (HCMC) so as to 50 in HCMC about the Manuals, and that helped them enhance the capacity of PFIs in SMEFP II. 33 in Danang much in preparing the first loan applications
The workshop for enhancing the capacity of ICPMU in SMEFP II 1 on the 22nd November 2007, in Hanoi. Participants were quite interested in the 25 training, however, more practical cases were strongly recommended.
4/2008 In cooperation with the Banking Training Center (BTC), the 5 st Consultants organize a 5-day training workshop (i.e. from 21 to Most of attendants found it helpful, th however, they would prefer to have 25 April 2008) in HCMC to enhance the capacity of PFIs on 575 credit assessment & appraisal and risk & loan portfolio extensive training focus on credit lending to management. SMEs only with more practical cases Training on MIS for PFIs in Hanoi (29 April, 2008) to instruct the 1 All participants were interested in the staffs at PFIs in using MIS 15 in Hanoi Training as they can practiced 5/2008 In cooperation with the Banking Training Center (BTC), the 5 Most of attendants found it helpful, Consultants organize a 5-day training workshop (i.e. from 12th to however, they would prefer to have 16th May 2008) in Hanoi to enhance the capacity of PFIs on credit 570 assessment & appraisal and risk & loan portfolio management. extensive training focus on credit lending to SMEs only with more practical cases
Training on MIS for PFIs in HCMC (16 May, 2008) to instruct the 1 All participants were interested in the 12 in HCMC staffs at PFIs in using MIS Training as they can practiced 6/2008 The Consultants organized a training workshop on 16th-18th June 3 2008 to enhance the capacity of ICPMU on credit assessment & Most of attendants found it helpful in appraisal and project management. 25 Project management module and would like to have more practice cases
The Consultant provided exercise training on credit appraisal for 1 All participants were interested in the the Pilot PFIs. 50 from CCF Training as they were provided international (in Hanoi) experiences with practical cases from the Consultant
Manual Policy Manual The consultants reviewed and formulate the Policy Manual during the period from March to September 2007. Description related to eligible sub-projects and financing structure in the original Policy Manual based on Phase I is not clear enough and allow various interpretations which might cause confusion in the practice. Therefore, the consultants add clarification and notes to define eligibility and financing structure. Also the two types of application procedure such as “preceding” and “conditional” have been specified to clarify OLL applications in terms of before/after disbursement of sub-loans. Practical explanation was disseminated during the training workshop in November.
72 Policy manual stipulates only core rules and guideline for operational practice. Details shall be clarified through Q&A between ICPMU and PFIs. But that clarification sometimes takes time and lack consistency. And clarification time to time is not necessarily disseminated through related persons among ICPMU and PFIs.
Reporting Manual The Reporting Manual clarifies: (i) the reporting process and procedures within each PFI, ICPMU and between ICPMU and PFI; (ii) the linkage between the goals of the stakeholders and Indicators; (iii) key performance indicators to monitor and report as well as to discuss the linkage diagram with ICPMU and PFIs to customize and finalize the reporting framework. Special attention was attributed to how the level of the goals of SMEFP II could be measured as key performance indicators, especially for the PFIs and SMEs need for a simpler application process. The Reporting Manual was revised and amended several time, based on the comments of the ICPMU and PFIs, which was finally completed on March 2008. Although the consultants added supplementary explanation in practical level of Policy Manual on top of reporting procedures, together with detailed notification, it may amplify the total volume and some PFIs took time to understand. PFIs use MIS while producing reporting documents. It is not so convenient for PFIs to search in necessary sections in both MIS Operation Manual and Reporting Manual. MIS Operation Manual The consultants and IT developer wrote Operation Manual of new MIS. The consultants reviewed it to ICPMU at the same time of system test implementation. But the consultant proposed to provide some other supplemental document for ICPMU and PFI. Because it was clarified that normal operation manual was not enough for them. The consultant provided this supplemental document at the training. Specific issues Most PFIs and ICPMU lack understanding of grace period. It is necessary to clarify grace period by showing some examples in manual. Some PFIs request support to development of research function of business sectors, such as research and information collection of various business sectors, utilization of those information in credit assessment and product development. Phase II did not compile Operation Manual while Reporting Manual partially covered clarification of detail of operation. This caused some problems such as difficulty of understanding Reporting Manual and delay of finalizing, which is implied by comments of training attendants and inquiries asked at ICPMU. It is better to consider revival of Operation Manual while Reporting Manual might be merged to MIS Operation Manual.
Promotion Two types of leaflets were developed, while press promotion on “VNEconomy” which is popular daily paper for business owners are implemented 3 times, while website promotion was designed for PFIs which joined Pilot Trial.. Promotion targeting directly on SMEs such as leaflets turned out to be substantially effective for motivating SMEs to consult banks for finance.
73 Table II-2 Promotion Activity in Phase II
Promotion time number of contents target major effects prints/readers PFIs Improving SME awareness on leaflet #1 Nov-07 5,000 SMEFP II information SMEs attending exhibition SMEFP II
Improving SME awareness on SMEF II information and SME PFIs leaflet #2 Aug-08 12,000 SMEFP II, providing SMEFP II support information sources SME customers of PFIs marketing tools for PFIs
readers of "VNEconomy", most of Improving SME awareness on Press #1 Jul-07 42,000 SMEFP II introduction which are business owners SMEFP II Promoting ICPMU as an executing agency and SMEFP Press #2 Jul-07 42,000 Interview with ICPMU readers of "VNEconomy", SMEs, PFIs II contribution to VN Economy
Promoting donor of SMEFP II Early State agencies, readers of Press #3 42,000 Interview with JBIC as well as other Japanese Aug 08 "VNEconomy", SMEs, PFIs support programs
Leaflets and newspaper promotion to enhance of awareness of SMEFP II was quite effective for both SMEs and PFIs. For SMEs, most of them do not have channels to access to information of financial products such as SMEFP, even general loan products of banks neither. Even SMEs using SMEFP I do not always know about SMEFP according to the SME interviews conducted during SAPROF. For PFIs, while some PFIs such as ACB have their original leaflet of SMEFP, the information is limited and other PFIs do not any. There are some cases that SME with good credit profile applied new loan only after the consultants distributed the leaflets in the JETRO trading exhibition in November 2007. Based on this experience, the consultants distributed larger brochure containing information such as SMEFP, PFIs and contacts of SME assistance and finance in 2008. Awareness among SMEs, not only for SMEFP but also for finance opportunity for SMEs in general, has much to be enhanced because banking is still unfamiliar for most of SMES and because marketing of PFIs still under development for most of PFIs according to interviews with PFIs and Q&A in the training courses on international practice of SME finance.
1-8. Executing Framework Regarding operation of ICPMU, there are some cases some miscommunication or misunderstanding of ICPMU caused delay of approval of OLL application. Further improve of operation through development of Operation Manual, Q&A methodology including consultant shall be considered for Phase III. As for fund allocation, Phase II applies rule of “first come, first served”. Although initial allocation limit was applied in order to avoid excessive concentration to specific PFIs, SOCBs with experience in Phase I took much of fund as a result. Improvement for Phase III might include consideration of non-size factor for allocation, half-year allocation together with preferential allocation for next half-year according to achievements instead of “first come, first served”.
1-9. Monitoring Scheme Most PFIs request simplified reporting, revision of reporting items base on practical views, improvement of manual structure, Replenishment balked when OLL applications concentrated in a short period, which was worsen prolonged time of preparation of necessary evidence (receipt of OLL). Improvement for Phase III might include requirement of report of expected OLL application, setting timeline for submission of OLL receipts.
74 1-10. Summary Regarding size of project, both PFIs and ICPMU enhanced capability larger size now. On the other hand, schedule management shall be strictly kept in order to address assumed economic and financial environment. As for the loan scheme, new customer for PFIs shall be promoted in order to maximize effectiveness. According to economic growth and inflation, the size of sub-loan and end borrower might be revised for upper size. Interest rate of OLL needs to be reviewed carefully because T-bill rates set for Phase II has some disadvantages such as high volatility and lack of following market situation. Open tendering of PFI selection, although preferable in general, would require some screening methods. With view of capacity of PFIs, although technical assistance might be necessary, necessary assistance now varies among PFIs, further customization might be better. Training and manuals shall be seriously improved because current operation of PFIs and ICPMU has much to be improved through more efficient reporting process with further clarifying instructions. Fund allocation might be revised so that SMEFP shall extract more effective commitment from PFIs, through some kind of incentive scheme.
75 2. Review of Loan Applications and Disbursements This section will review effectiveness of OLL in the previous phases based on observed tendencies from data accumulated in MIS. This is expected to support hypothesis for improvement suggested in previous sections based on public statistics and anecdotal information. 2-1. OLL Disbursement and Repayment OLL Disbursement (Total for All PFIs) For Phase II, the On-Lending Loans have been approved from the 15th of November, 2007. Since then, there were 228 OLLs approved until the 23rd of July, 2008, the date of when this section was drafted. Many disbursements of OLL are made on the same or the next day of the date approved. The total amount approved of these loans is 751,047,250,000 VND, which is approximately 5 billion JPY., or more than 80% of the total loan amount of the scheduled loan amount from JBIC for SMEFP II. The average size of the OLL contract amount is 3.5 billion VND and the median size is 2.1 billion VND (approximately, 13 million JPY). The halfway point of the 6 billion JPY SMEFP II (3 billion JPY, or around 480 billion VND) was reached by the middle of March, or only 4 months from the date of the first approved OLL. This was a very fast disbursement, compared to the OLL disbursement for Phase I, which took years to be disbursed.
bil.VND 800
700
600
500
400
300
200
100
0 15/11/2007 13/12/2007 10/01/2008 07/02/2008 06/03/2008 03/04/2008 01/05/2008 29/05/2008 26/06/2008 24/07/2008
Figure II-1 OLL Disbursements (by approved date)
Break Down of OLL Disbursement by PFI (as of July 23rd 2008) The amount of OLL approved by each PFI is quite diversified. ICB (Vietinbank) leads the PFIs with 293 billion VND or 37% of the OLL amount approved, followed by BIDV (136 bil.VND, or 17%).
76 (Billion VND) (Number of Loans) 300 293 60
250 50
200 40
150 136 30
100 20
71 68 58 53 48 47 50 10
14
0 0 ICB BIDV HDB TCB CCF EAB STB ACB MHB
Figure II-2 OLL Contract Amount and Number of OLLs by PFI These 2 banks have more than half of the total amount of OLL approved. The top 2 are followed by HDB (9%) and TCB (9%), and CCF, EAB, STB, ACB which have about the same share (6-7%). MHB has the smallest share, at 2%.
ICB BIDV HDB TCB CCF EAB STB ACB MHB 37% 17% 9% 9% 7% 7% 6% 6% 2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Figure II-3 Share of OLL Amount Contracted by Each PFI In terms of number of OLLs or number of projects financed by PFIs, CCF has been a very active player with 47 projects financed, or about 21% of the total number of OLLs approved during the studies period. This ranks CCF as the number 2 player, just following Vietinbank (ICB)’s 59 loans or 26% of the total number of OLLs. The difference in the ranking of OLL amount and number of loans show that each PFI has a different loan size. While the average OLL loan amount for all PFIs is about 3.5 billion VND, CCF average OLL size was 1.2 billion VND or about 1/3 of the average of all PFIs. Although Vietinbank had the largest amount of loans, the average size of its loans was just below 5 billion VND, and was not greatly larger than the PFI average, and far smaller than the average at HDB (8.9 billion VND) and smaller than the average at BIDV (5.2 billion).
77 Table II-3 OLL Disbursement Achievements by PFIs PFI-ID Amount (VND) # of OLLs Average amount(VND, times) ICB 293,074,000,000 37% 59 26% 4,967,355,932 1.4 BIDV 136,447,000,000 17% 26 11% 5,247,961,538 1.5 HDB 71,125,000,000 9% 8 4% 8,890,625,000 2.6 TCB 67,983,000,000 9% 19 8% 3,578,052,632 1.0 CCF 57,973,500,000 7% 47 21% 1,233,478,723 0.4 EAB 52,756,000,000 7% 21 9% 2,512,190,476 0.7 STB 48,172,500,000 6% 19 8% 2,535,394,737 0.7 ACB 46,533,000,000 6% 20 9% 2,326,650,000 0.7 MHB 14,420,250,000 2% 9 4% 1,602,250,000 0.5 Total 788,484,250,000 100% 228 100% 3,458,264,254 1.0 As will be further described below, PFI’s capacity for lending differs not only in terms of the loan amount, but also in terms of their customer base, as will be evidenced in the geographic, industrial segments. Therefore, if SMEFP III wishes to target some industry or geographic area, the PFI selection criteria should also be designed so that PFIs which has a good coverage in the targeted industry and region should be included as a PFI.
Repayment For Phase I, there has only been 1 or 2 cases of arrears among of the sub-loans disbursed by PFIs. Although this may show tight control on the credit assessment by the PFIs, interviews with the PFIs suggested that since JBIC funds are limited, PFIs are using the OLL for their relatively good customers, not taking much to lend for SMEs that have difficulty in accessing long term loans. For Phase II, the lending has just begun, and as most sub-loans have grace periods, there has been no sub-loan in arrear, according to the recent semi-annual report as of end of June, 2008. The repayment amount for the On-lending loan, as of June 2008, was around 2% of the loan disbursed, approximately in line with the average loan maturity of 5 years. At this point, there doesn’t seem to be any difference among PFIs related to repayment.
78 2-2. Characteristics of SME Borrower Size Distribution of SMEs by Number of Employees The sub-loans have been provided to SMEs, mostly with the size of 50 persons or less which accounted for more than 60% of the beneficiary SMEs. 90% of the SMEs were under 150 persons and 95% of the SMEs were SMEs with employees less than 200 persons.
Number of SMEs (%) 100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 0 50 100 150 200 250 300 350N 400umber of 450 employees 500
Figure II-4 Distribution of SMEs by Employee Size (accumulative)
50
45 44
40 36 35
30
25 25 22
20 18 18
15 11 10 8 8 5 5 44 4 5 3 2 2 2 2 1 0 -10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 200 250 300 500 500-
Figure II-5 Distribution of SMEs by Employee Size
Among the PFIs, EAB and BIDV tend to lend to larger size SMEs, while MHB, CCF and HDB had a tendency to lend to smaller size SMEs, showing the difference of size of PFI’s main customers.
79
（Persons） 140
120
100
80
60
40
20
0 ACB BIDV CCF EAB HDB ICB MHB STB TCB Total
Figure II-6 SME’s Average Number of Employee by PFI
Table II-4 Borrower SMEs with More Than 100 Employees
Employ Agriculture, Construction, Printing, ment Manufacturing Transportation Forestry, Mining Total Engineering Publishing Size Fishery All PFIs 62 38 85 15 3 1 224 100+ 20 6 5 3 1 1 37 200+ 7 1 1 1 0 0 10 100+ 9% 3% 2% 1% 0% 0% 17% 200+ 3% 0% 0% 0% 0% 0% 4%
Large sized SMEs were found in the manufacturing industry. If the definition of SMEs were changed with Decree 90 as described in draft in the earlier chapter, Transportation industry may be affected as Ph. II had 5 companies over 100 employees in this sector. However, if we also apply the 10 billion VND registered capital ceiling to these companies, only 1 company (less than 0.5%) will be disqualified as a SME under the new definition. Therefore, it seems safe to conclude that the impact of the new definition of SME under Decree 90 will be quite limited.
Size Distribution of SMEs by Registered Capital The average size of registered capital of the SME borrowers were 7.6 billion VND, but the majority of SMEs had registered capital in the range of 1 billion-10 billion VND.
80 30%
25%
20%
15%
10%
5%
0% -1,000 -3,000 -5,000 -10,000 10,001- Registred Capital (mil. VND)
Figure II-7 Distribution of SMEs’ Registered Capital
PFIs were showing quite difference in the size of their customers for SMEFP II. HDB showed their focus on the higher end and MHB, STB, CCF showing their strength in the smaller end of the distribution, targeting SMEs with registered capital about half the size of the total average.
Regis ter Capital (mil, VND) 49,333 50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000 11,851
10,000 7,820 7,585 7,330 7,561 4,949 3,904 5,000 2,655 3,548
0 ACB BIDV CCF EAB HDB ICB MHB STB TCB Total
Figure II-8 Average Size of SMEs’ Registered Capital
Distribution of SMEs by Status of Company Registration Of the SME borrowers, 60% were limited liabilities companies, 30% were Joint Stock companies (JSC). HDB, which is servicing SMEs with large registered capital, is actually focusing on Joint stock companies, with half of the SMEFP borrowers registered as JSCs. TCB and BIDV are following with 40% of their borrowers registered as JSCs, while the PFIs which had borrowers with small registered capital, STB and CCF, have a low share of JSC borrowers and 20% or more of their customers were registered as “entrepreneurs”.
81 100%
90% Entrepreneurs / "Private 80% Enterprises" 50% 70% 62% 53% 68% Partnership 70% 62% Enterprise 60% 60%
50% 53% Limited 53% 40% 56% Liability Co.
30% 50% 42% Joint Stock 20% 38% Co. 30% 33% 32% 30% 21% 10% 16% 11% 0% ACB BIDV CCF EAB HDB ICB MHB STB TCB Total
Figure II-9 Status of Company Registration (by PFI)
Distribution of SMEs by Sharehold Status All of the SMEs were 100% Vietnamese private companies, except for 1 company which had a State minor ownership. SMEs with minor ownership by SOE or foreign JSC are eligible, but may be larger in size to be worth the investment in ownership, or with such backing, may not have any trouble borrowing from the PFIs
Multiple SMEFP Users During phase 1, 18 SMEs used SMEFP more than once, but so far, during Phase II, there has been only one SME which used SMEFP more than once.
2-3. Geographic Distribution Most of the amount of OLLs were allocated around the Red River Delta and North West area. The heavy allocated provinces were Hải Phòng, Hồ Chí Minh city, Thanh Hóa, Bắc Ninh, Hải Dương. However, PFIs showed their difference in their geographical network where most of the PFIs allocated most of their loans in the north (typically for Vietinbank), while Sacombank and ACB showed their strength in the southern part of Vietnam.
82 South East 9%
Central Highlands 10%
Red River Delta 41%
Mekong River Delta 13%
North West 27% Figure II-10 sub-Loan Amount by Each SME’s Location (Region)
100%
90%
80%
70%
60% North West Red River Delta 50% Central Highlands Mekong River Delta 40% South East
30%
20%
10%
0% ACB BIDV CCF EAB HDB ICB MHB STB TCB Total
Figure II-11 PFI’s sub-Loan Amount by Each SME’s Location (Region) The distribution pattern is different from Phase I, as Phase I originally limited the regions, and had HCMC as the largest user of the Phase I loans. However, the rise of the Ph. II loans in the Hải Phòng area shows its growing importance in the economy.
83 Hải Phòng 10.9%
Hồ Chí Minh city 8.4% Thanh Hóa 7.1%
Bắc Ninh 7.1%
Hải Dương 6.8% Nam Định 5.8%
Hà Nội 5.5% Thái Bình 5.2%
Long An 4.8%
Hưng Yên 4.7% Hà Tây 4.1%
Quảng Ninh 3.7%
Quảng Ngãi 3.1% Vĩnh Phúc 2.5%
Bà Rịa - Vũng Tàu 2.1%
Phú Yên 1.9% Bình Phước 1.8%
Phú Thọ 1.8% Đắk Lắk 1.5%
Cần Thơ 1.4% Hòa Bình 1.2% Quảng Bình 1.1%
Nghệ An 1.1%
Cao Bằng 1.0% Bình Dương 0.9%
An Giang 0.8%
Bình Định 0.6% Ninh Bình 0.5%
Khánh Hòa 0.5%
Kiên Giang 0.4% Quảng Nam 0.4%
Gia La i 0.4% Đồng Nai 0.4%
Cà Mau 0.2%
Đà Nẵng 0.1% Lào Cai 0.1% 0% 2% 4% 6% 8% 10% 12% Figure II-12 sub-Loan Amount by Each SME’s Location (Province)
2-4. Distribution of Invested Industrial Sector The largest industrial sector invested was manufacturing, with more than 40% of all industries, followed by Transportation57. More than 80% of the sub-loans are provided to the manufacturing and Transportation sectors. These industries were followed by Construction/Engineering and Agriculture/Forestry/Fishery.
57 There may be some overlap between the two industries, since, many transportation companies provide some repair services for vehicles owned by other companies and individuals, which could be classified as repair services of machinery under the manufacturing sector.
84 Public utilities, Mining Distribution, Printing, Publishing Infrastructure 0.4% Warehousing 0.8% 0.7% 0.1% Wholesale, Retail Healthcare, 1.3% Agriculture, Education, Training Forestry, Fishery 0.0% 4.5%
Construction, Engineering 7.9%
Manufacturing 44.1%
Transportation 40.3%
Figure II-13 sub-Loan Amount by Each SME’s Invested Business Sector Most PFIs followed a similar pattern as the whole, but CCF showed a clear bias towards lending to the construction industry and MHB towards transportation. These two PFIs therefore tend not to lend to the manufacturing industry.
100%
90%
80%
70%
Distribution, Warehousing 60% Healthcare, Education, Training Public utilities, Infrastructure Mining Printing, Publishing 50% Import-Export Trading Other Wholesale, Retail Agriculture, Forestry, Fishery 40% Construction, Engineering Transportation Manufacturing 30%
20%
10%
0% ACB BIDV CCF EAB HDB ICB MHB STB TCB Total Figure II-14 PFI’s sub-Loan Amount by Each SME’s Business Sector
85 Project Cost Among the 200 projects that have been analyzed58, 72% of the eligible portion of the project cost was used for machinery, vehicle and other equipments. A quarter of the cost was allocated for buildings. The total project cost was about twice the size of the OLL amount, as large projects usually include investment in real estate which is not eligible.
Working capital; 3%
Buildings (incl. plant/factor y building); 25%
Machinery, equipment, vehicles, etc.; 72%
Figure II-15 sub-Project Costs
Machinery, equipment and vehicles was the major cost of the projects for all PFIs, but Techombank, CCF, STB and MHB has a higher share of these compared to other PFIs.
100% Working 90% capital 80% Buildings (incl. 70% plant/factory 60% building) 50% Machinery, 40% equipment, vehicles, etc. 30% 20% 10% 0% ACB BIDV CCF EAB HDB ICB MHB STB TCB
Figure II-16 sub-Project Costs by PFI
58 Within the 228 OLL loans analyzed here, 200 had consistent reporting of the sub-project cost and the funding of the project costs.
86 The objective of financing show a different picture, by breaking down the “Machinery, equipment and vehicles” into "Machinery or equipment” and “Vehicles”. Here, the objective of most number of projects was for Vehicles at 42%, while machinery is at 24%.
Machinery or Equipment; 24%
Vehicles; 42%
Building for Plant/Factory; Other 32% Building; 2%
Figure II-17 SME’s Financing Objectives
HDB and BIDV’s customers were slightly different from other PFIs’, as most of them used the loans for buildings, plant/factory.
100%
90%
80%
70% Vehicles
60% Other Building
50% Building for Plant/Factory 40% Machinery or Equipment 30%
20%
10%
0% ACB BIDV CCF EAB HDB ICB MHB STB TCB Total
Figure II-18 SME’s Financing Objectives by PFIs
87 Funding for sub-Project The project cost was mostly funded by the OLL from JBIC (46%), followed by the SME borrowers’ own fund, which accounted for 39% of the project costs, while the fund from PFI was limited to only 16%. The structure is almost the same among PFIs.
SME Self- Finance; OLL; 45.8% 38.5%
PFI; 15.7%
Figure II-19 sub-Project Planned Financing Sources
The financing structure is almost the same with all PFIs. Although PFI may require a different share of SME’s own capital depending on the credit risk of the borrower, PFIs have been applying for OLL amount close to its upper limit (75% of sub-loan amount).
Table II-4 sub-Project Planned Financing Sources by PFI
Project Cost Self- Sub-Loan (SL) PFI (PC) Finance PFI/PC OLL/PC OLL/SL ACB 100% 40% 60% 16% 44% 73% BIDV 100% 31% 69% 18% 51% 74% CCF 100% 43% 57% 14% 43% 75% EAB 100% 32% 68% 18% 50% 73% HDB 100% 27% 73% 19% 54% 74% ICB 100% 43% 57% 14% 43% 75% MHB 100% 31% 69% 18% 52% 74% STB 100% 36% 64% 16% 48% 75% TCB 100% 46% 54% 14% 41% 75% Total 100% 39% 61% 16% 46% 74%
88 2-5. Characteristics of Loan Product Size of OLL The average size of the OLL contract amount is 3.5 billion VND and the median size is 2.1 billion VND (approximately, 13 million JPY). The minimum and maximum size of OLL loan was 90 million VND and 15 billion VND (or, about 600 thousand JPY to 100 million JPY) In terms of OLL amount, half of the total loan amount was OLL with loan amount under 7.5 billion VND.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 02 4 6 8 10 12 14 16
Figure II-20 Accumulated OLL Amount by OLL Amount Size (bil. VND)
The average size of a Project is 7.2 billion VND, of which 2.8 billion is financed by SME and 4.4 billion by sub-loans, of which On-lending loan accounts for 3.3 billion VND. The average size of project differed among PFIs, where HDB focused on larger projects and STB and CCF focusing on the lower end. Table II-5 Average Size of Project Cost and Financing (mil. VND) Project Self- Sub-Loan # of PFI Cost Finance PFI OLL companies ACB 4,173 1,682 2,491 660 1,831 14 BIDV 10,225 3,137 7,088 1,863 5,225 26 CCF 2,760 1,175 1,585 398 1,188 43 EAB 4,077 1,315 2,762 741 2,022 20 HDB 14,899 4,054 10,846 2,828 8,018 7 ICB 11,610 4,945 6,665 1,668 4,997 55 MHB 3,095 944 2,151 549 1,602 9 STB 2,690 965 1,724 431 1,293 12 TCB 7,803 3,575 4,228 1,057 3,171 16 Total 7,190 2,770 4,420 1,130 3,290 202
89 Maturity of OLL The maturity of the OLL is centered around 3-7 years, with a peak and average of 5 years. More than 1/3 of all OLL has a maturity between 49-60 months.
40%
35%
30%
25%
20%
15%
10%
5%
0% 2 3 4 5 6 7 8 9 10
Figure II-21 Distribution of OLL by Maturity (Years)
(months) 90
80
70
60
50
40
30
20
10
0 ACB BIDV CCF EAB HDB ICB MHB STB TCB Total
Figure II-22 Average OLL Maturity by PFIs
90 Interest Rate Range and Average The sub-loan interest rate is centered around 13%. The average interest rate for sub-loans is 13.4%, but as inflation and deposit rates are rising and monetary policy tightening, interest rate is on the rise, and recent rates are over 20%.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 7 121722 Interest rate(%) Figure II-23 Distribution of sub-Loans by Interest Rate
22
20
18
16
14
12
10
8 15/11/2 29/11/2 13/12/2 27/12/2 10/01/2 24/01/2 07/02/2 21/02/2 06/03/2 20/03/2 03/04/2 17/04/2 01/05/2 15/05/2 29/05/2 12/06/2 26/06/2 10/07/2 24/07/2 007 007 007 007 008 008 008 008 008 008 008 008 008 008 008 008 008 008 008 Approved Date (Note) Here, the sub-loan Interest Rates are the average of the interest rates as of the day of sub-loan contract date, and shown on the OLL approved dates. If there are several sub-loans on the same day of approval, the Interest Rate would be the simple average of all of such sub-loan's interest rates. Figure II-24 Trend of sub-Loans Interest Rate (%)
91
Among the PFIs Vietinbank’s interest rate was the lowest, and Sacombank and CCF were among the highest. This can be explained by the timing of applications. The early starter Vietinbank had many early applicants which tend have a lower rate, while CCF which were new to SMEFP and had some internal issues, had started much later than CCF and hence have many late applicants which tend to have a higher interest rate.
Total
TCB
STB
MHB
ICB
HDB
EAB
CCF
BIDV
ACB
0 2 4 6 8 10 12 14 16 Interest rate (%) Figure II-25 Average sub-Loans Interest Rate (average of sub-loans on day of approval) by PFIs
92 3. Assessment of SMEFP II
This section will analyze the fact findings obtained in the previous section 2 with comprehensive views such as relevance, effectiveness, efficiency, impact, and sustainability in order to clarify implications for Phase III.
3-1. Relevance The objective of the SMEFP II is stated in the JBIC Loan Agreement for SMEFP II as “to support the development of SMEs by the provision of medium and long-term financing through the PFIs and to enhance the capacity for SME financing by providing technical assistance to SBV and PFIs. In doing so, the SMEFP II will contribute to the economic growth of Vietnam through the promotion of SME development and improvement of capacity of banking sector for SME financing.” These two themes, supporting the development of SMEs through provision of medium and long term financing through PFIs and the capacity building of staff of SBV and PFIs for SME financing are identified as very important issues at the current stage of the Vietnamese economic development. 3-1-1. Government Policy for SME Development Vietnam became a member of WTO in January 2007, and the Socio Economic Development Plan for 2006-2010 is expecting annual economic growth of 7.5 ~ 8.5% during the 5 year period. The number of private enterprises reached 123,392 in 2006 and annual increase of 17% from the previous year, and of this 121,875 are private SMEs. The private sector contributes 45.90% of GDP in 2007. The proportion of employees in private sector is 87.52% in 2007. Private sector or private SMEs are playing a very important role for the Vietnam economy. The Vietnam Government issued Decree 90/2001/ND-CP on Support for Development of Small- and Medium-sized Enterprises in 2001, and this decree contributed much for the development of SMEs. And the Government issued Decision No. 236/2006/QD-TTg on Approval of the 5 Year SME Development Plan 2006-2010 on October 23, 2006, which cites basic principles guiding the development of SME sector and describe the tasks and main actions to be taken with guidelines for the plan implementation by the central government level and by the local government level during the 5 years of 2006-2010 as detailed in Section 1-2 above. 3-1-2. SMEs Need Medium to Long Term Financing Many SMEs are trying to expand their businesses and trying to increase their production capacity or introduce more advanced production facilities and need medium to long term loans from banks for purchasing machinery and equipment. The demand of SMEs for medium to long term loans is very strong, but it cannot be easily satisfied by commercial banks, because commercial banks lack medium to long term funding. (Section 3-1) 3-1-3. Banks Need SME Finance Know-how Under the circumstances that the number and the weight of the SMEs in the Vietnam economy is increasing, commercial banks, both SOCBs and JSBs are much more active in SME financing compared to a few years ago. However, from various factors such as an impression that SME financing is relatively high risks involved or the collaterals of the machinery are not easy to handle, the staffs of commercial banks tend to stick to a traditional banking style relying on collateral of real estates. To promote SME financing, it is very necessary to give more knowledge to credit staffs of commercial banks on SME financing and international lending practices.
93 3-1-4. Needs for Medium and Long Term funds The commercial banks have deposits from their customers, but because of various uncertainty, customers prefer short term deposits of less than 1 year. Therefore, banks lend only short term loans, and long-term loans are very limited. Therefore, SMEs have a difficulty to borrow long-term loans from banks. Commercial banks now show a keen interest toward SMEFP as a source for long-term funds. 3-1-5. Japan Vietnam Joint Initiative Japanese Government is discussing with Vietnam Government on Japan Vietnam Joint Initiative and for its action plan, Japanese side wish to promote the development of supporting industry in Vietnam. In this context, Japanese side is expecting that SMEFP III will contribute not only the development of SMEs but also for the development of supporting industry.
3-2. Effectiveness 3-2-1. Performance of SMEFP II According to the Loan Agreement for the SMEFP II, the loan fund of the SMEFP II was expected to be disbursed in 3 years from 2nd quarter of 2006 up to the 1st quarter of 2009, and the annual disbursement was estimated approximately 2 billion yen per year59. The actual loan disbursement to PFIs started from November 15, 2007. The delay was caused by a delay of employment of the consultant at the initial stage. However, once OLL agreement was completed in November 2007, the pace of loan disbursement progressed very fast and 5,267 million yen of the total 6,000 million yen was disbursed during November 2007 and June 2008, and the remaining 733 million yen is expected to be fully disbursed to PFIs by the end of August, 2008. The time spent for whole disbursement will be as short as 10 months. This is not only because PFIs are lacking and need medium and long-term fund, but also, it is attributable to the fact that it was just in the midst of tight monetary policy by the State Bank of Vietnam since early 2008, while SMEs kept bullish investment plan and strong demand for finance to increase their production facility, and PFIs enthusiastically applied this SMEFP II loan to respond to the requests of SMEs. The SMEFP II highly contributed to materializing the investments of SMEs under the economic and financial environment which tends to put discouraging impact on private business sector, especially on SMEs activities through credit crunch. Besides, most of the funds disbursed can be recognized as spent for up-scaling the operation capacity, which is supposed to partially mitigate inflation pressure in the middle term. 3-2-2. Comparison to SMEFP I SMEFP I was 4,000 million yen and the fund is allocated to 4 PFIs. The loan disbursement of Phase I to PFIs started in August 2002, and the disbursement of the first generation loan of 4,000 million yen continued up to the middle of 2005, therefore, it took about 3 years for the full disbursement. Compared to this, disbursement of 6,000 million yen for Phase II was in 10 months and very quick. The reasons which caused this difference are considered as follows: In Phase I, PFIs are 4, and funds are allocated to PFIs beforehand as “exclusive availability”. On the other hand, in Phase II, the number of PFIs increased to 9, and funds are available for PFIs on “first come, first served” basis with competition. In Phase I, SOCBs (BIDV and ICB), which had been allocated with larger fund, were not so active in SME lending at the initial time of the project, while their major loan customers were SOEs. It was reported that SOCBs lack incentive to expand SME lending. Generally it was a time that many SMEs are still lacking history, not much developed, and many banks considered SME financing very risky lending without enough collateral.
59 JBIC Loan Agreement for SMEFP II dated March 31, 2005, Schedule 1, Section 2 Estimated annual fund requirement
94 However, there occurred much change since the starting time of Phase I, and SMEs in general have stronger and predictable business base under the SME development policy by the Government, and banks are now showing more aggressive attitude toward SME lending compared to the Phase I time because most banks try to find core business in the field of retail and SME banking rather than traditional field of banking for SOEs under the process of SOEs reform policy.
3-3. Efficiency This refers to the efficiency with which JBIC loan fund is delivered to the end-borrower SMEs. In other words, ICPMU and PFIs are well working to deliver the JBIC loan fund to the end-borrower SMEs, and the Policy Manual, Reporting Manual and MIS is suitable for needs of the stakeholders such as ICPMU, PFIs and SMEs. As explained in the previous section, 5,267 million yen of 6,000 million yen was disbursed from JBIC to SBV within 8 months since the initial lending to PFI followed by OLLs from SBV to SMEs and in turn the funds are delivered to the end borrowers. 4 PFIs which experienced the Phase I are quick to start use of this SMEFP II funds, while banks without previous experience took some time to get used to this lending scheme. Still, those new comers, after a few months experience which seem to be enough to disseminate necessary information and implement internal trainings among the branches, already developed their own comfortable procedures by now. Although some PFIs had some misunderstanding on the explanation in the manuals, such as eligibility of sub-projects of which working capital exceeds 20% of total eligible costs, most cases have already been resolved after clarification by ICPMU. The economic situation of tight monetary policy squeezed liquid funds and interest rates are raised. Although such economic and financial conditions apparently accelerated the use of this program, careful eligibility check in accordance with the manuals would have brought significant benefits onto Vietnamese economy by allowing right investments to be materialized financed by OLLs. The staffs of ICPMU are mostly newly assigned, as those who experienced Phase I are shifted to other positions. Therefore it took some time for the new staffs to get experienced at the start of Phase II, but after the start of on-lending loans to PFIs, they have already well experienced, and working well now. Policy Manual and Reporting Manual are well prepared, but they still need improvement for easy understanding, especially for new comers, and need some more practical examples to avoid misunderstanding. Besides, delay of issuance of Reporting Manual caused some inefficiency for the initial reporting cycle in Phase II. This implies necessity of further close discussion between executing side including the consultant and PFIs well in advance the drafting of the manuals.
3-4. Impact 3-4-1. Impact on Medium to Long Term Funding The JBIC loan is acting as a source of medium to long-term fund for the PFIs. Because of the regulations on bank, banks can utilize only up to 20-25% of short term funds (deposit mobilization) for medium to long- term loans. In the interviews with PFIs of the Project, the Study team found that PFIs are highly evaluating the provision of the medium to long- term funds by the SMEFP II. In addition, in an interview with the Deputy Director of the SBV, Banks and Non-bank Credit Institutions Department, he commented that the SMEFP II is contributing medium to long-term funding of PFIs and the Program is very good.
95 3-4-2. Impact of SME Financing Know-how Transfer Currently PFIs are active in SME financing, but bank staffs are not necessarily well trained for SME financing. SMEFP II consultant arranged and conducted several training seminars and workshops for PFI staffs on introduction and procedure of SMEFP II and on SME financing strategy including credit risk evaluation, credit risk management, marketing, monitoring, and taking the financed assets as collateral. And at the seminars and workshops consultant put emphasis on the importance of SME support through providing SME advisory services and assist business matching to enhance the capability of SME customers. PFIs comment that these seminars and workshops are very informative, but many PFIs want more training seminars and workshops, so that more staffs will get training opportunities. It should be noted that such training program for PFI staffs should be continued to enhance the capacity of PFIs for SME financing.
3-4-3. Impact on SMEs’ Access to Medium to Long Term Financing The SMEFP I and II have provided SMEs with medium to long-term financing opportunity. Especially under the current situation of a very strict tight money policy, SMEs are facing much difficulty to get finance not only for medium to long-term loan, but also for short term loan from PFIs. This loan program enabled SMEs production facility investment during this market condition. The Study team conducted interviews with 5 SMEs who are sub-borrowers or prospective sub-borrowers of the SMEFP II. One of them disclosed a following story; In the JETRO supporting industry exhibition in November 2007, the SME received a brochure explaining SMEFP II which was delivered by SMEFP II consultants to local SME attendants. The SME could not be successful in get financing until the SME brought the brochure to dealing PFI. The SME highly appraised the program. However, the SME’s access to medium to long-term finance is still limited. Majority of SMEs do not know the program because PFIs propose extending SMEFP II only to their good customers with limited availability of the loan. According to some PFIs, the interest rate of sub-loans extended to SMEs had been 3 % per year lower than normal loans before March 2008, and the favorable gap expanded as much as 5% after March 2008 when tight money policy started to take effect. To expand access to more SMEs or outreach to SMEs which have difficulty to access to medium to long-term financing, it is necessary to make the program bigger size than the current one, to give incentive to PFIs for dealing with new customers, to promote the public awareness so that SMEs apply to SMEFP by themselves through various dissemination means. Efforts made in SMEFP II in dissemination of SMEFP should be continued through PFIs’ marketing capacity and increase of marketing channels, including cooperation with business association. Methodologies of focus can be broken down to “strict requirement” and “incentive”. Strict requirement is to confirm eligibility of sub-projects and end-borrowers in accordance with hard evidence such as public notarization at window of borrowing. This approach is concerned to substantially impose difficult operation and might discourage loan applications. Incentive is to provide privileged conditions to PFIs based on favorable results achieved in a certain period. This incentive method, although it also requires some evidence, it can be evaluated at post-lending, which affects less badly towards borrowing application. Considering difficulty of strict definition and operation, strict requirement is not suitable because that shall have direct influences on financing availability of SMEs.
96 Incentive methodology can be broken down to “fund allocation or/and monitoring criteria” and “preferred conditions of OLL”. Among these two options, allocation or/and monitoring criteria is easier in terms of operation, monitoring and required MIS function. Table II-6 Focus and Methodology of Promotion
Assumed Focus Methodology
Strict Requirement Incentive for the Target Incentive
Recommmended Tems such as Lower sub-loan Interest Rates, Strict Requirement Longer-maturity, Collateral of Financed Property Incentive
Table II-7 Comparison of Types of Incentive
Type of Incentives Pros and Cons
Preferred Condition of OLL More Burden for MIS Functions and Reporting Procedures
Fund Allocation and/ or Monitoring (re-selection) More efficient (this can be included existent Criteria of PFIs re-selection procedure)
3-5. Sustainability In order to assess sustainability of the SMEFP II, the necessity of the project in Vietnam, the capability of PFIs and the ICPMU as the executing agency for SMEFP II need to be examined. Phase I was implemented as a pilot project and Phase II was introduced with various improvements from the experience of Phase I. As explained in Section 3-1, with the SME development policy by the Government, new SMEs will be born, and SMEs will increase in number, expand, and be modernized. And SMEs demand for medium to long-term fund will continue to be strong with their wish for additional and/or more advanced production facilities. In Vietnam, commercial banks, SOCBs and JSBs are in a severe competition for their survival, but the 9 PFIs selected for SMEFP II are all financially sound and are stronger banks. However, even such banks do not have strong base of medium to long-term funds. Neither corporate nor individual depositors feel comfortable in putting money at medium and long-term deposits. It is true that 20 to 25% of short term deposit is allowed to use for long term lending, but banking regulation on liquidity ratio is very severe and banks cannot use short term fund for long term purpose exceeding this limit. Therefore, the long term funds such as SMEFP are very valuable for commercial banks. Although interview with 9 PFIs revealed that some PFIs could not fully utilize branch channels in the first few months, internal coordination among each PFI turned out to bring involvement in broader branch networks, which implies sustainability of continuous improvement in the capability of PFIs. Regarding sustainability of executing agency, although the SBV is under reform discussion, the SBV will keep the role of banking supervision and of executing function until 2020 according to the new draft SBV Law,.
97 3-6. Specific Impact Indicators for SMEFP II The following “Operation and effect indicators” were defined in Appendix 8 of the Minute of Discussion on SMEFP II between JBIC and Government of Vietnam (October 22, 2004). According to the JBIC Loan Agreement No. VNXII-5, the completion of the Project was expected to be completed in April of 2009, under a schedule of initial disbursement of the loan in 2006. In other words, it assumed that the completion report could cover a time period of at least 3-4 years. However, the completion of the project is expected to be in August of 2008, or only 9 months from the first On-lending Loans approval in November 2007. Hence, the impact period of SMEFP II loans to SME projects in this report is less than a single fiscal year, which is too short to observe any major impact from the SMEFP II loan itself. Therefore the indicators are collected for future reference and by an ad-hoc monitoring survey of the PFIs conducted by ICPMU. For the PFIs that have submitted their ad-hoc reports, the following results have been obtained.
Table II-8 Operation and Effect Indicators60 Items Current figures Current at Note at MD FY-2007 Sales of beneficiary SMEs N/A 818 2007 annual sales of (bil. VND) beneficiary SMEs at mid-2008
Profit of beneficiary SMEs N/A 48 2007 annual sales of (bil. VND) beneficiary SMEs at mid-2008
Ratio of loan amount in arrear in N/A 0% for the SME SLs at total sub-loan outstanding (%) mid-2008
Ratio of number of sub-loans in N/A 0% for the SME SLs at arrear in total number of sub-loans mid-2008 (%)
Total loan outstanding of PFIs to JS 7,989 134,551 As of year end of 2007. & Limited Company (bil. VND) Mid-2008 figures are reported as 171,794, or a 28% increase within 6 months. The ratio of lending to SMEs in 43% 64% As of year end of 2007. total loan outstanding of PFIs to JS Mid-2008 figures are and Limited Company (%) reported as 65%
The State Bank of Vietnam conducted an ad-hoc survey for Mid-2008 which revealed that the total loan outstanding of PFIs to JS & Limited Company for Phase II has exceeded the 2007 year-end figures by 28%, despite the tightening of the monetary policy in Vietnam.
60 Based on response to SBV’s ad-hoc survey on PFIs. Sales and Profit of beneficiary SMEs have been submitted by 3 PFIs, for part of the SMEs to show a lower bound. Arrear data were sent in by 9 PFIs. Total loan outstanding of PFIs to JS & Limited Company and the ratio of lending to SMEs was submitted by 6 PFIs, while others declined to submit the data due to their limitation of classification of their loan records.
98 Moreover, the ratio of lending to SMEs in total loan outstanding of PFIs to JS and Limited Company surpassed the level of 43% at the time of the MD, and was 64% at year-end 2007. The mid-2008 ad-hoc report revealed that this SME lending ratio has further increased and is standing at 65%. This shows that lending to SME is no longer sub-market in corporate lending in Vietnam. Rather, it has become the major market in corporate lending and is still growing in its presence.
3-7. Specific Impact Indicators on Socio-Economic Status 3-7-1. Evaluation of SME’s Accessibility of Finance Access by Industry Sector Compared to the national distribution of SMEs among the industrial sectors, SMEFPs have a tendency to be accessed by the manufacturing and transportation sectors, where the latter is far more accessed in Phase II compared to Phase I. This may be attributed to the growing demand of automobiles for goods and personnel transportation, but also to the fact that the practice of accepting automobiles as collateral is easier than other assets, since automobiles are registered and have a liquid secondary market.
70%
2006 GSO <300 employees
60% Ph. I Ph. II
50%
40%
30%
20%
10%
0% Wholesale, Manufacturing Construction, Transportation Public utilities, Agriculture, Printing, Mining Retail Engineering Infrastructure Forestry, Publishing Fishery
Figure II-26 Distribution of SMEs in Industrial Sectors
Access by Geographic Region During Phase I, the loans were initially limited to four major cities, Hanoi, Hai Phong, DaNang, and HCMC. As a result, the Phase I loans were allocated in relation with the share of SMEs in those provinces.
99 . Figure II-27 Distribution of SMEs in Four Major Provinces As there was no geographic restriction for Phase II, the loans was distributed to provinces throughout Vietnam and are less concentrated in the major provinces compared to Ph. I. However, compared to all SMEs in Vietnam (enterprises with less than 300 employees in the GSO statistics) SMEFP has a tendency to provide a higher share of loans to the Hai Phong province, where many manufacturing companies are located. Although the loans to Hanoi seems to be decreased in share, the provinces surrounding Hanoi (such as Hải Dương, Bắc Ninh, Hưng Yên, Hà Tây, Vĩnh Phúc) had a higher share than the general SME distribution. For example, for Hải Dương, Bắc Ninh, Hưng Yên, the SMEFP-II share was 7%, 5% and 4%, where the general SME distribution shares in these provinces were only 1%. This indicates that the SMEs in the larger Hanoi area may had better access to SMEFP-II more than the general SME distribution would suggest.
30%
2006 GSO <300 employees SMEFP-II SMEs 25%
20%
15%
10%
5%
0% Hà Nội Hải Phòng Đà Nẵng Hồ Chí Minh city
Figure II-28 Distribution of SMEs in Four Major Provinces for Ph. II
Access by Employee Size As for the employee size, the SMEFP-I had provided loans to larger SMEs around 50-200 persons, compared to the national average. SMEFP-II provided loans to smaller SMEs, in the range of 10-50 person size.
100 60% 2006 GSO <300 employees Ph. I Ph. II 50%
40%
30%
20%
10%
0% From 1 to 9 From 10 to 49 From 50 to 199 From 200 to 299 From 300 - (persons)
Figure II-29 Distribution of SMEs by Employee Size
Access by Registered Capital Size The size of beneficiary SMEs is 1-10 billion VND in registered capital. Ph.II seems to be concentrated towards the small to middle end of this range, with registered capital size of only 1-5 billion, while Ph.I provided a higher share of its loans to SMEs with larger registered capital (over 5 billion VND) and to the smallest segment (under 1 billion VND) than Ph.II.
30%
Ph.I Ph.II
25%
20%
15%
10%
5%
0% -1,000 -3,000 -5,000 -10,000 10,001- Regis ter Capital (mil. VND) Figure II-30 Distribution of SMEs by Registered Capital Size (mil. VND)
Access by Enterprise Type SMEFP loans have been provided mainly to Joint Stock Co.s and Limited Co.s. As more companies are taking the form of joint stock companies in Vietnam, SMEFP has allocated a larger portion of its loans to this type of company.
101 80% 2006 GSO <300 employees 70% Ph. I Ph. II 60%
50%
40%
30%
20%
10%
0% Entrepreneurs/"Private Joint Stock Co. Limited Liability Co. Partnership Enterprise Enterprises"
Figure II-31 Distribution of SMEs by Type of Enterprise Registration
Access by Loan Amount The average amount of OLL for Ph.II was 3.5 billion VND which has increased from the average amount of Ph.I (2 billion VND). The size differs among the investment objective as shown below and also by the PFIs as mentioned in the previous section. The largest average amount of OLL is required for Plant/Factory Building, followed by machinery/equipment. Investment in Vehicles required the lowest OLL amount and is about half the size of the factory building projects.
(bil. VND) 5 4.8
4 3.7 3.5
3 2.6 2.3 2.0 2
1
0 Building for Machinery or Other Building Vehicles All Projects of (Reference Plant/Factory Equipment SMEFPII SMEFP-I)
Figure II-32 Average Amount of On-lending Loans (by Project Objective)
Access by 1st Time Long Term Loan Borrowers In terms of SMEs access to medium and long-term loans (maturity of 1 year or more), 2/3rds of the SMEFP-II loans were provided to SMEs who have never borrowed a medium and long-term loan before. This implies that SMEFP-II has been providing access to medium and long term loans for SMEs who may have difficulties in borrowing a long term loans.
102 However, the accessibility of the loans differs among the PFIs. CCF, which focuses on smaller loans to a large number of SMEs have been the top provider of access to long term loans for SMEs who have never experienced one before. (or perhaps CCF may not been active in providing long term loans, before). ACB and MHB are also focusing on first time long term loan borrowers, using the JBIC OLL. On the other hand, DAB is allocating only 5% of its JBIC loans to first time borrowers of long term loans. This raises a concern, whether PFIs should be allowed to allocate most of JBIC funds to customers who already have access to long term loans, or should they be directed to focus on providing access to SMEs who have difficulty in access to long term loans, or not.
Table II-9 1st Time Long Term Loan Borrowers # of 1st long term # of beneficiary Access ratio loan borrowers SMEs by (a/b) (SMEFPII) (a) SMEFPII (b)
Total 154 220 70%
Asia Commercial Bank 20 20 100% (ACB) Bank for Investment and Development of Vietnam 25 25 100% (BIDV) Central People’s Credit 37 37 100% Fund (CCF)
Mekong Housing Bank 16 16 100% (MHB) Vietnam Bank for Industry and Trade (Vietinbank/ 40 60 67% Incombank) Sai Gon Thuong Tin Commercial Joint Stock 81553% Bank (Sacombank) Ho Chi Minh City Housing Development Commercial 2729% Joint Stock Bank (HDB) Vietnam Technological and Commercial Joint Stock 51926% Bank (Techcombank) Dong A Bank (DAB/ Eastern Asian Commercial 1215% Bank)
3-7-2. Impact on the Growth of Beneficiary SMEs Qualitative Impact The SMEs that received loans under SMEFP-I generally recorded substantial increases in sales and profit (after tax) by approximately 70%. The number of employees increased by approximately 25% from time of investment. However, data from a commercial bank shows that the extent of growth of
103 SMEs varies and depends on banks, and especially, on the maturity of the loan they provide. Longer maturity projects may result in short term down turn of profits.
Although Phase II does not provide enough observation period yet in terms of statistical assessment, interviews with about ten of the SMEFP-II beneficiary SMEs revealed the impact of JBIC loans on their growth mechanism:
• JBIC loans enhances SMEs availability of mid-long term loans, since PFIs have a tendency to limit the use of long term lending, due to shortage of PFI’s long term funding. (One SME owner mentioned that he had been denied of a 5 year loan from a PFI, but once he showed the SMEFP-II brochure, the branch staff helped him apply for a JBIC loan, which was approved, eventually)
• JBIC loans are usually provided with a lower interest rate to the borrower, and hence improve the profitability of the investment project and the profitability and equity capital of the company and will enable the company to borrow from the banks more easily with higher credibility (otherwise, need to borrower at higher rate from banks and relatives).
• This profitability margin also enhances the feasibility to invest in more expensive, but higher quality equipment and hence, provides direct access to a higher level of technology and to sophisticated multinational large customers requiring higher quality products than the local customers.
• This large scale or upgrade investment allows the SME to increase its production capacity (and total assets), its sales and its profits (which may reduce borrowing by early repayment) and allows the SME to take larger and higher quality orders from new large customers, hence enhances the production capacity, not only the capacity of the SME itself, but the capacity of its trading partner.
• JBIC loan is a large size long term loan and hence stabilizes the finance of the investment project. Otherwise the SME owner has to make small amount of loans from many relatives and friends, which is not only time consuming, but also risky since the lender (relative) may request repayment anytime.
• The benefit (of the above) is to allow the borrower to focus on the business, not on borrowing and repaying, nor on cash flow management. As the SME owners are usually not very efficient on the finance of the business, the time lost for in-efficient financing could have a critical negative impact on the decision making of the SME, when attention of the owner is most needed to cope at high speed growth and fast business environment change. In other words, JBIC loans seems to have a positive impact on risk reduction of the investment project.
61 • Although the growth of the company will enable it to employ more staff , the productivity increase gained by using better equipment and robots may reduce the number of workers in the previous work process. The high fixed cost investment also may induce the managers to limit the personnel expenses and training costs for new recruits. This raises a concern over the eligible size of SME. SMEs which are relying on a low labor cost to perform labor intensive production, may require a larger size of employees to stay eligible, but the further advanced SMEs may not rely on labor, or may even cut down on the labor force, when they reach a level of using high tech machinery. The discussion on the eligible size on SME should take note on which level of technology should be targeted.
61 This may include low-end jobs, such as security guards at new and larger factories and drivers for out of the city relocation, and also high end jobs, such as CNC machine operators, designers and international marketing staff.
104 Quantitative Impact One method to evaluate the impact of long term loans, such as SMEFP sub-loans, on the growth of SMEs, is to observe the difference in the growth rates of SMEs that borrowed a long term loan and of the growth rates of SMEs that did not borrow such loans, within a same period. Here, the SAPROF team asked cooperating PFIs to submit the following financial data of 2007 from a random sample of their SME customers, which they can trace back to 2004. To extract the impact of the long term loans, we have obtained SME samples which have borrowed a long term loan during the year 2004 (which some were SMEFP Ph.1 Loans) and SME samples which never borrowed a long term loan during and after 2004. The following are the averages of growth rates of the two types of SMEs, measured by their net sales, profits, capital, and labor force. The SMEs that borrowed a long term loan has enjoyed a growth rate 20% higher per year, in terms of Sales and Capital, than the SMEs that did not borrow a long term loan. The borrowers’ growth rate of the number of employees was 6% higher, but the growth of profits was 12% lower than the non-borrowers. Table II-10 Impact of Long Term Loans
Average of Annual Change Rates (from 2004 to 2007)
Own Equity Labour Size Net Sales Profit before (# of full-time Capital (accounting (Revenue) Tax employees at year capital or net worth) end) borrowed a long term loan during 25% 33% 21% 13% SMEs 2004 which Never borrowed a long term loan 3% 45% 2% 7% after 31/12/2003
Source: Vietinbank Notes: Comparison of 10 SMEs which borrowed a long term loan during the year of 2004 and 10 SMEs which never borrowed a long term loan during 2004 and after.
From these results, we can easily assume the following:
• Long term loans enables SME borrowers to grow faster in terms of Sales and Capital (e.g. through its investments in productivity enhancing equipment)
• Long term loans may not have a strong impact on labor (as the capital investment may enhance labor productivity, but reduces necessary labor input, or production grows faster than the SME can manage to sell.)
• Long term loans may have a negative impact on profits during the time SME needs to pay back the loan with interest cost and depreciate the invested capital.
To further evaluate the effects of medium and long-term loans, more quantitatively, we have obtained annual financial data of a sample of beneficiary SMEs from some of the PFIs, and applied a simple, elasticity model: ln(Y) = a + b * ln(X) According to this model, the impact of JBIC’s mid-long term loans (X) on the sales, profits, fixed assets, labour (Y) is estimated as follows:
105 Table II-11 Impact of Mid-Long Term Loans
Elasticity R
Net Sales (Revenue) 0.8 0.68
Profit after Tax 0.9 0.78
Labour Size (# of employees) 0.5 0.67
Fixed Assets 1.0 0.76 Source: 2007 financial data from a sample62 of beneficiary SMEs
The elasticity co-efficient shows that doubling the size of mid-long term loans will increase fixed assets by almost the same amount, increase sales by 80%, improve profits by 90%, and increase employees by 50%.
This is in line with the qualitative hearing above; SMEFP loan will have a direct impact on factory and equipment investment, which will increase sales, but more likely improve profits of the SME which strengthens the financial credibility and products of SMEs. The impact on employment is positive, but may be the weakest among the impacts on the above indicators.
3-8. Specific Impact Indicators on Japan Cases of Increased Business with Japanese Partner Due to SMEFP Loan All of the interviewed companies had no direct business relationship with Japanese companies. However, the mechanical parts suppliers of motorbikes were supplying bolts and nuts, mufflers, plastic handles, metal and plastic covers, wheels (rubber tires, rim and spokes) to Honda’s direct supplier, and can be considered as Honda’s supplier at the second (grandchild or sub-sub-supplier) level. Moreover, before these companies start trading with Honda’s first level supplier, they will be scrutinized in terms of management and technological capacity, by Honda and/or their first level supplier. They have to pass 5 levels of testing to be considered as a candidate, sub-sub-supplier. 1. Honda will seek suppliers and ask them to send company profile/overview 2. Interesting firms will be asked to send in their Organization structure, customers, management system, etc. 3. For interesting firms, Honda will send in Honda’s own staff/expert to check supplier, on-site 4. For interesting firms, Honda will send spare parts sample and ask the firm their quotation, 5. For interesting firms, Honda will send in their team and work in detail of the pilot test order and will ask sample production.
Honda will send small pilot/trial batch orders 3 times, but requires detailed reports on the production process.
• production stage how many seconds it takes, • QC system or quality,
62 Here we have used 12 samples from TCB, SCB, and HDB.
106 • discuss problems and solutions, if NG (non-gradable), etc.
During the testing period, they may receive some advice or training, or be dropped out from the evaluation process. When they enter an official contract as a sub-sub-supplier, they will receive real-time, on-site advice whenever a production problem or a monitoring alarm has switched on.
This process of testing and on-site problem solving by Japanese manufacturing companies enhances the production quality level of Vietnamese companies in the Supply Industry.
Japanese Partner’s Evaluation of Increased Business with SMEFP Borrower Japanese manufacturers in Vietnam are trying to increase their local contents to increase their cost competitiveness and strengthen their supply chain, by introducing competition in the local supply network. However, Japanese companies are fully aware that there are not many Vietnamese companies that can meet their quality standards, and are constantly in search of local suppliers who are capable of producing quality products at competitive prices. So far, Japanese companies have been increasing their purchase from their local suppliers, but are doing so only with companies that can keep up with their growing demand for higher quality level and cost levels. One Japanese manufacturer commented that since there is a constant need to find or replace a local supplier, any activities from JBIC that can enhance the “window of opportunity” to find such local supplier would be appreciated.
3-9. Recommendations for the Evaluation and Analysis of Phase III Project Effects Implications for Improvements on Evaluation Since the impact analysis takes time, it is recommended that the monitoring the SMEs should be done not on an ad-hoc basis, but on a compulsory basis and announced to PFIs as such.
Draft of Indicators to Assure Effective Implementation of Phase 3 Should the loans be directed to a specific industry, the industry classification should be further clarified. From the SME access evaluation, it may be necessary to introduce incentives based on the monitoring of 1st time long term loan borrowers and hence, the share of financed assets used as collateral to ensure financing to these first time borrowers.
Implications for “Environmental Effect” Indicator Monitoring and introducing incentives for SMEs which acquired some environmental certificate may be necessary.
107 4. Conclusion
Disbursement of SMEFP has been completed, and especially Phase II has been disbursed within a year, which showed strong demand for long term financing, both from SMEs and from PFIs, that lack long term funding. However, we may further increase the impact of SMEFP by taking time to focus on loans that can expect stronger impacts.
• For example, 30% of SMEFP-II loans went to SMEs which have borrowed long term loans before, and there are many incidents of lending multiple times to the same company, during Ph.1 & 2.
• Moreover, while 40% of the total number of SMEFP-II loans was used for automobile financing, which are easy to finance due to the easiness of granting security, and only 20% of the loans are made for SMEs in the manufacturing sector, which implies a smaller than 20% share for the Supporting Industry. The above implies that PFIs may be lending to SMEs that already have easy access to loans, and it may require some incentives to lend to business sectors where improvements are necessary for the long term growth of Vietnam. Therefore, the design of Phase III should take the following into account:
• In order to enhance PFIs’ lending to SMEs that have difficulty in access to finance, it should be made clear to PFIs that SMEFP should be used to help SMEs that have a bankable project, but also have difficulty in finance, and hence, SBV should select and monitor PFIs under this policy.
• In order to improve the production capacity and technology of Vietnam’s SMEs, SMEFP-III may adopt a policy and incentive system that prioritizes loans to factory equipment/machines that enhances productivity and precision over loans to automobiles/trucks that are easy to finance. Likewise, SMEFP-III may prioritize the business sectors that Vietnam and Japan has agreed upon as the Supporting Industry over other industries.
108 III. Execution Plan of SMEFP Phase III
Chapter III “Execution Plan of SMEFP Phase III” will propose execution plan of SMEFP III. Section 3-1 will first discuss the target and objective of Phase III based on fact findings in Chapter I and II as a blueprint of Phase III, then propose the scope such as loan scheme, TA and Promotion. Section 3-2 will recommend plan of cost and funding, the section 3-3 will recommend schedule in accordance with the recommended scope. Section 3-4 will recommend framework of operation and management of Phase III, and section 3-5 will propose monitoring indicators based on the recommended objectives. In order to smooth start, section 3-6 will present expected types of sub-projects based on analysis of data and latest interviews. Section 3-7 will discuss on linkage with relevant entities to enhance sub-projects and finance of sub-borrowers for further strengthening of competitiveness of Vietnam economy through SME finance.
1. Scope of SMEFP Phase III
1-1. Target and Objective of SMEFP III
1-1-1. Challenges from Economic and Financial Environment Vietnamese economy has enjoyed high growth thanks to acceleration of market mechanism and capital inflows such as FDI which substantially increased in 2007. However, fast increasing imports, especially intermediary goods, caused further deterioration of trade/current deficit, while expected enhancement of productivity and competitiveness of industries have not yet been fully materialized.
70.0 1,400,000
60.0 1,200,000
50.0 1,000,000
40.0 800,000
30.0 600,000 billion USD billion VND billion 20.0 400,000
10.0 200,000
0.0 0 1995199619971998199920002001200220032004200520062007
FDI (USD) Export (USD) Import (USD) import of capital goods (USD) GDP (current,VND ) Investment of GDP(VND)
Source: GSO Figure III-1 GDP, FDI and Trade Development
In 2008, appreciation of commodities in the global market and substantial inflation of domestic CPI accelerated expectation of inflation, which caused further increase in imports with speculation for
109 higher price of intermediary goods and depreciation of VND. As a result, strong tightening of monetary policy hit on funding capability of commercial banks which lack stable retail customer base. Under tight monetary policy, prominent project of SMEs which will enhance competitiveness of industry shall be supported by SMEFP. Furthermore, in middle term view, financial support shall step up to anther stage which supports industrial policy aiming at overcoming challenges of dependence on imports among industrial sectors, on top of the objectives to support finance capability being still vulnerable to economic shocks and credit ability of commercial banks. Thus, SMEFP might coordinate with Vietnam-Japan Joint Initiative and planned Action Plan for Promotion of Supporting Industry which is under development with strong support by Japanese business and assistance entities.
250,000
Agriculture and forestry
200,000 Fishing
Mining and quarrying 150,000
Manufacturing billion VND
100,000 Electricity, gas and water supply
Construction
50,000 Wholesale and retail trade; repair of motor vehicles, motor cycles and personal and household goods
0
1995 1997 1999 2001 2003 2005 2007
Source: GSO
Figure III-2 Manufacturing Leading Economic Growth in GDP
110 million USD million USD Machinery, apparatus and parts 3,500 14,000 for textile, garment
Machinery, apparatus and parts for leather, footw ear 3,000 12,000 petroleum oils, etc.(right scale) Machinery, apparatus and parts for paper or paperboard industry
2,500 10,000 Machinery, apparatus and parts for plastic industry Electronic parts Machinery, apparatus and parts for construction 2,000 8,000 Machinery, apparatus and parts for cement production
1,500 6,000 Machinery, apparatus and parts Iron, steel (right scale) for telecommunication
Machinery, apparatus and parts for manufacture of food or drink 1,000 4,000
Electronic parts (including Machinery, etc. for television parts), computers and telecomunication their parts 500 2,000 Petroleum oils, refined product
Iron, steel 0 0 2000 2001 2002 2003 2004 2005 2006 2007
Source: GSO Figure III-3 Imports of Intermediary Goods Highly Increased
1-1-2. Outreach for SMEs
SMEs in General (1)Necessity to support SME finance under difficult economic environment According to assessment and remained difficulties of Phase II, Phase III might focus sub-projects which would not have been materialized without SMEFP and that shall promote productivity of industries by efficient usage of limited liquidity and credit. In this regard, sub-project with application initiated by SMEs shall be promoted. Under credit limit of 30% annual growth imposed by the government/SBV, risk of credit crunch on SME finance can not be neglected. Although there is not reasonable evidence showing increase of bankruptcy of SMEs up to now, this is partly because cash payment is business practice. Moreover, there is assessment that there are increasing of “missing SMEs” rather than bankruptcy or closing because of difficult procedures. According to GSO, banking system has spent 2/3 of its 30% growth limit of credit in this year, which implies impacts of tight credit may loom in the rest of 2008. Although tight monetary policy and credit limit is countermeasure against the preceding credit growth which partly triggered tremendous inflation, significant portion of the preceding credit growth were considered as speculative investment such as real estate, stock, and commodities by non-SMEs, which were not relevant to sound real business investment by SMEs (Box I 1 Credit for Speculative Investment ). In this regard, credit retreat might cut more or less finance allocated to sound business investment by SMEs, because banks shall concern to trigger default of larger amount lending for non-SMEs which indulged in such speculative investment and shall avoid quick collection from the
111 lending which supported such speculative investment, as observed in credit crunch for SMEs after the crush of “bubble economy” in Japan. However, the growth of Vietnam’s economy has been supported by the growth of its production capacity, as evidenced by the growth of Gross fixed capital formation. As Vietnam’s production capacity has been and further needs to be upgraded, the share of GDP allocated to fixed capital formation has been increasing and fixed capital formation in current prices has been growing at the annual rate of 15-17% during the past 5 years.
(%) 40
35
30
25
20
15
10
5
0 1995 1997 1999 2001 2003 2005 2007
Source: GSO Figure III-4 Gross Fixed Capital Formation / GDP (current prices)
112 Box III-1 Credit for Speculative Investment High growth of credit since last year was partially caused by the increase of credit used for speculative investment by non-SME enterprises which invested in assets such as land, equity and commodities. Land price has been soaring in Vietnam, as real estate was easily financed by bank loans as real estate was the standard collateral for loans. In June 2008, the State Bank is closely monitoring lending for real estate investment as part of their plans to further tighten the monetary policy (Viet Nam News). The outstanding loan for real estate purchase in April 2008 was about 135,000 billion VND, making up 10.8% of the total outstanding loan of the banking system (http://vietnamnet.vn/kinhte/2008/08/796587/). Stock lending has been quite popular in Vietnam when the Stock market was booming with new privatizing SOEs. According to Viet Nam News, at the end of 2006, outstanding loans for securities trading increased three times over the previous year and accounted approximately for 3 per cent of bankers’ total outstanding loans. Commodities such as steel, which is traded internationally, has been a target of speculation by steel companies in Vietnam. For example, steel mills invested in profuse quantities of ingot steel, as they feared ingot steel price increases, and imported ingot steel in the first quarter of 2008, twice as much as they did a year before. However, domestic demand decreased and now steel producers are trying to export some of the excessive steel ingot they have imported based on their speculation on price. Vietnamese steel companies are also trying to export excessive steel plates which they imported in big quantities which they can no longer sell in the domestic market. The situation has also been accentuated by the scrap steel importers who also speculated on the scrap price and could not sell back to the international scrap market. This kind of speculative inventory investment could be justified as long as the price increase of the commodity of inventory was higher than the cost to borrow, which seems to be quite common during 2007 and early 2008. Source: Viet Nam News (02-06-2007), (20-06-2008) VietNamNet Bridge, 14/05/2008 http://english.vietnamnet.vn/biz/2008/05/783070/
(2) View of the investment by manufacturing SMEs under the difficult economic environment Vietnam Government decreased its forecast of real GDP growth for 2008 from 7.0% to 6/7%, and announced the forecast of further slowdown 6.0 to 6.5% for 2009 on 2nd November. This section will review investment by manufacturing SMEs for coming years with consideration of macro economy, inflation, and monetary policy and capital resource. The GDP growth highly depends on household consumption, fixed capital formation, and export. The pickup of domestic demand such as household consumption and fixed capital formation in 2007 was offset by increase of import.
113 30% GDP Volume 1994 Prices
20% Gross Domestic Product (GDP)
Cont. 10% Househ.Cons.Expend.,incl.NPISH s Cont. Government Consumption 0% Expend.
4 5 7 8 0 1 3 6 8 99 99 00 00 004 00 007 199 1 1996 199 1 1999 200 2 2002 2 2 2005 2 2 200 Comt. Gross Fixed Capital Formation -10% annual growth, contribution growth, annual Cont. Exports of Goods and Services -20% Cont. Imports of Goods and Services (-)
-30%
Source: IMF, IFS Figure III-5 Contribution to GDP Growth by Demand Items
60%
50%
Gross Domestic Product (GDP) 40% Househ.Cons.Expend.,incl.NPISH s 30% Gross Fixed Capital Formation
annual growth annual 20% Exports of Goods and Services
10%
0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: IMF, IFS Figure III-6 Annual Growth by Demand Items
The minimum growth of fixed capital investment observed since 1995 was 5.4% in 1999 affected by so-called Asian Financial Crisis, while minimum growth of exports was 8.2 % in 2001. Retail sales (nominal base) seem to keep momentum until September of 2008, while high inflation shall depress real growth of household consumption. Moreover, tightening policy and steep slowdown of external demand caused by global financial crisis shall depress economic growth into 2009 as the government forecasted.
114 800,000 700,000 600,000 2004 500,000 2005 400,000 2006 300,000 2007 billion VND 200,000 2008 100,000 0 Jul Apr Jan Feb Mar Jun Aug Sep Oct May Nov Dec
Source: CEIC Figure III-7 Retail Sales
Looking at capital flow, substantial deterioration of current account deficit was observed in 2007 with main factor of increase of trade deficit. The current deficit was well compensated by highlighted increase of direct and portfolio investment.
8000
6000
4000
2000
0 Current Account, n.i.e. Trade Balance -2000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Dir. Invest. in Rep. Econ., n.i.e. Portfolio Investment
million USD million -4000 Other Investment
-6000
-8000
-10000
-12000
Source: IMF, IFS Figure III-8 Balance of Payment
Inflow of portfolio investment will be decreased to large extent as backlash of preceding increase, and in accordance with expected decreased of current account deficit in 2008 and 2009. This is expected to dump domestic investment because recent high growth of fixed capital formation seemed to be accelerated by huge capital inflow.
115 450,000 40%
400,000 35% 350,000 30% 300,000 Gross Fixed Capital Formation 25% 250,000 FDI 200,000 20% Financial Account, n.i.e.
billion VND 150,000 15% growth annual Growth of Gross Fixed Capital 100,000 Formation 10% 50,000 5% 0
0 8 994 996 02 004 006 (50,000)1 1 1998 200 20 2 2 200 0%
Source: IMF, IFS Figure III-9 Domestic Investment and Capital Inflow (Balance of Payment)
Looking at economic growth by business sector, manufacturing sector contributes and supports stably economic growth, including the period of slowdown from 1999 to 2001, while other major sectors show larger volatility. This may imply sustaining investment needs in the coming years although the speed shall be decreased significantly.
Other sectors 20%
18% Finance and credit 16%
14% Transport, storage and 12% communications
10% Wholesale and retail trade; repair of motor vehicles, 8% motor cycles and personal and household goods
annual growth, contribution growth, annual 6% Construction
4%
2% Electricity, gas and water supply
0%
7 8 3 4 5 0 995 996 001 002 0 008 1 1 199 199 1999 2000 2 2 2 200 200 2006 2007 2 Manufacturing
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 average STD STD/ average Agriculture and forestry 4.5% 1.8% 3.4% 2.1% 1.1% 0.1% 1.9% 2.1% 2.3% 2.0% 2.1% 2.6% 2.2% 1.1% 0.49 Fishing 1.4% 0.1% 0.5% 0.3% 0.6% 0.7% 0.5% 0.7% 0.5% 0.8% 0.6% 0.8% 0.6% 0.3% 0.48 Mining and quarrying 1.9% 1.6% 1.4% 2.6% 2.2% 0.4% 0.4% 2.1% 2.5% 2.3% 1.3% 1.2% 1.7% 0.8% 0.45 Manufacturing 3.0% 3.8% 3.3% 2.5% 2.8% 3.0% 3.1% 2.8% 3.3% 3.9% 4.0% 3.9% 3.3% 0.5% 0.15 Electricity, gas and water supply 0.8% 0.8% 0.6% 0.4% 0.6% 0.5% 0.5% 0.8% 0.5% 0.5% 0.5% 0.7% 0.6% 0.1% 0.24 Construction 0.9% 1.0% 0.1% 0.3% 0.5% 1.0% 0.8% 1.0% 1.2% 1.2% 1.3% 1.6% 0.9% 0.4% 0.49 Wholesale and retail trade; repair of motor vehicles, motor cycles and personal and household goods 2.5% 2.1% 2.2% 1.0% 0.9% 1.1% 1.6% 1.4% 2.2% 2.3% 2.3% 2.4% 1.8% 0.6% 0.32 Transport, storage and communications 0.6% 0.7% 0.5% 0.4% 0.4% 0.5% 0.3% 0.7% 0.9% 0.9% 0.9% 0.7% 0.6% 0.2% 0.31 Finance and credit 0.2% 0.1% 0.3% 0.3% 0.2% 0.1% 0.2% 0.2% 0.3% 0.3% 0.3% 0.3% 0.2% 0.1% 0.32 Other sectors 3.2% 3.1% 2.9% 0.9% 1.2% 1.6% 2.0% 2.7% 2.8% 3.1% 2.7% 3.3% 2.5% 0.8% 0.33 Whole economy 18.8% 15.3% 15.1% 10.8% 10.4% 9.0% 11.3% 14.5% 16.6% 17.3% 16.1% 17.4% 14.4% 3.2% 0.22 Source: IMF, IFS Notes: STD is standard deviation Figure III-10 Contribution to Nominal GDP Growth by Business Sectors
116
The investment of SMEs highly depends on financial capability of commercial banks. The overall credit demand was promoted by speculative investment since later 2007 as discussed earlier. Money and credit growth accommodated such demand partly because of increase of base money and of increased money multiplier.
70% 4.5
60% 4
Growth of Domestic Credit 3.5 50% Growth of Money plus Quasi- 3 40% Money Lending Rate 2.5 30% Increase of Consumer Prices
2 multiple annual growth 20% Growth of Reserve Money 1.5
10% Multiplier 1
0% 0.5
-10% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 0
Source: IMF, IFS Notes: Multiplier = (Money + Quasi-Money) / Reserve money (including circulated currency, i.e., Base Money) Figure III-11 Monetary Growth and Interest Rate
SBV corrected the preceding accommodative policy and tightened monetary policy in terms of interest rate and liquidity since spring of 2008 as described before. This tightening quickly had impact on monthly CPI increase which decreased 0.2 % in October. At the same time, however, concern of credit crunch for SMEs looms. SBV reported that NPL ratio has increased by 1 % point from the end of 2007, in which NPL ratio for SMEs stayed at 3.64%. VCCI reported, however, 74% of surveyed SMEs suffer from high interest rate. Moreover, the chairman of the Vietnam Association of Small and Medium-sized Enterprises estimated 20% of total SMEs may face bankruptcy or acquisition (source: Vietnam Financial Review). Facing economic slowdown assured by the policy coordination by the government as a whole, leveling off in inflation, and serious concern of credit crunch, SBV turned to easing. SBV announced decrease of policy rate on 20th October and 3rd November by 1 % point for each, 2 % points as total. On 20th October, as for easing of liquidity, SVB increased reserve deposit interest rate from 5% to 10%. And SBV released 20.3 trillion VND compulsory holding of government bonds imposed on banks since March 2008 as well. The 20.3 trillion VND is equivalent of 6.3% of reserve money as of the end of 2007. On 3rd November, SBV decreased compulsory reserve ratio against deposits less than 12 months from 11% to 10%.
117 Many commercial banks already started to decrease the lending rates and some banks allocate special funds for SMEs.
25.00
20.00
15.00 Ceiling of lending
10.00 annual rate, %
Base Rate
5.00
0.00 J-08 J-07 J-06 J-05 J-04 N-08 N-07 N-06 N-05 N-04 M-08 M-07 M-06 M-05 M-04
Source: IMF, IFS, SBV Figure III-12 Policy Interest Rate
(3) Conclusion As discussed above, the tightened monetary policy already showed expected effect and the monetary policy turned to easing in rapid succession. Considering mitigated credit tightening by commercial banks, continuous inflow of FDI and ODA, investment by manufacturing SMEs can well meet assumed investment growth, 7.93 % annually for coming three years in nominal base, discussed in the section “3-2-1-1. Simulation of Finance Needs from Supporting Industry”.
Supporting Industry MOIT stipulates supporting industry as 5 major industries shown in the table below in Master Plan of Supporting Industry in 2007.
118
Table III-1 Liability of Supporting Industry (billion VND) 2004 2005 2006 Total 94,434 112,024 128,696 annual growth 19% 15% Electronics, informatics, D31. Manufacture Of Electrical Machinery 11,332 15,727 19,818 telecom And Apparatus N.e.c. 39% 26% D32. Manufacture Of Radio, Television And 6,206 7,610 10,580 Communication Equipment 23% 39% Textile & garment D17. Manufacture Of Textiles 27,143 33,376 33,066 23% -1% D18. Manufacture Of Wearing Apparel; 14,555 16,424 20,543 Dressing And Dyeing Of Fur 13% 25% Leather & footwear D19. Tanning And Dressing Of Leather; 20,463 21,672 22,824 manufacturing manufacture of leather products. 6% 5% Mechanical manufacturing D29. Manufacture Of Machinery And 6,469 7,738 9,920 Equipment N.e.c. 20% 28% Production and assembling of D34. Manufacture Of Motor Vehicles, Trailers 8,267 9,478 11,945 motor vehicles And Semi trailers 15% 26% Source: GSO
Among the five industrial groups, “Electronics, informatics, telecom”, “Mechanical manufacturing”, and “Production of assembling of motor vehicles” shows stronger appetite for debt finance. These sectors are also crucial for competitiveness of Vietnam economy. Supporting SMEs, especially being in transition of becoming partners of Japanese FDI enterprises, often face difficulty of finance for new expensive machinery because of information opaqueness caused by order process of FDI enterprise. These projects might be supported by SMEFP III.
“Tier I” Enterprises According to interviews with PFIs and SMEs, and discussion with Japanese FDI enterprises in Vietnam, enterprises trading directly with FDIs such as Japanese Honda and Canon tend to be easily over the operation size to be designated as SME (see Chapter I). This kind of “Tier I” enterprises can bridge the gap between FDIs and local supporting SMEs because they can closely cooperate with local SMEs and mitigate the information opaqueness. Thus, support for “Tier I” enterprises might be alternative way to promote supporting SMEs in Vietnam. SMEFP III might spotlight this sector as a pilot project so that effectiveness can be enhanced in a couple of years.
1-1-3. Objective of SMEFP III
Objective of SMEFP III shall be the following based on the previous assessment and argument.
a) Promote SMEs to materialize investment projects through long-term finance, technical assistance for PFIs, and promotion of awareness of SMEs to become further bankable.
119 b) Promote industrial competitiveness through long-term finance, technical assistance to improve credit assessment for industrial sectors, and development of infrastructure to mitigate information opaqueness in business risk of the supporting industry. c) As a part of the 2nd objective b), implement trial to evaluate alternative approach to support larger enterprises to enhance business partnership between local supporting SMEs and FDI enterprises such as Japanese manufacturing.
1-2. Loan Scheme
1-2-1. Eligible sub-Project and Target
Invested Business Sectors A) Sectors in accordance with the List of Eligible invested Business Sectors stipulated in Annex III of Policy Manual of Phase II. B) Sectors of Supporting Industries in the Master Plan of MOIT: a) Electronics, informatics, telecom, b) Textile & garment, c) Leather & foot ware manufacturing, d) Mechanical manufacturing, e) Production and assembling of motor vehicles Sector B) shall be promoted by incentive discussed in section 3-1-1-2 and 3-1-1-4.
Purpose of Investment: (a) Eligible investments for financing under SMEFP III are: (i) Plant and machinery including the building related to the investment; and (ii) Initial working capital associated with the above-mentioned investment and the maximum initial working capital should not exceed 20% of total sub-project cost.
(b) Items not eligible for financing in Phase II are as shown below. Among these items, the Consultant recommends to abolish the item of “Tax and duties” because tax and duties are difficult to calculate for SMEs. (i) General administration expenses; (ii) Taxes and duties; (iii)Purchase of land and other real property; (iv) Compensation; and (v) Other indirect items.
1-2-2. Eligible end-borrowers
Sub-loans will be granted to SMEs which meet all of the following requirements.
120 Legal status and form: A judicial entity duly established and registered under the Law on Enterprise of 1999 or 2005; that is, either one of the following, but which Vietnamese non-state sector owns 50% or more of charter capital; (i) joint stock company/share-holding company, or (ii) limited liability company, or (iii) partnership/partnership enterprises, or (iv) sole proprietorship/entrepreneurs/"private enterprise"
Size: Size shall be consistent with SMEs defined in Decree 90 which is planned to be revised in 2008, and established under Law on Enterprise.
Exemption for “Tier I” Enterprises: If sub-projects belong to business sectors such as a) Electronics, informatics, telecom, d) Mechanical manufacturing, e) Production and assembling of motor vehicles among the sectors of Supporting Industry, and the end-borrower is business partner (supplier of Japanese FDIs, or sub-supplier of Japanese FDIs), then the restriction of the size is exempted
SME Supporting Industry
① Tier I enterprises ② ③
①：SMEs as defined by Vietnam Law (Decree 90) ②：SMEs classified as Tier I ③：Classified as Tier I, but not SME (eligible size restriction exempted)
Figure III-13 Classification of SME, Supporting Industry and Tier I
1-2-3. Terms of sub-Loan and OLL
Limit of sub-Loan Size: The consultants recommend limit of sub-loan size might be increased from 20 billion VND to 25 billion VND because of the followings;
121 Average project size in Phase II increased 1.3 times as compared with Phase I As of June 2008, CPI increased 50% since December 2004.
Table III-2 Statistics Value of Disbursement
Statistics of Phase II
Projected Costs Planned Financing Self-Finance Sub loan Financing from Financing from OLL leverage Leverage PFI (Project (Project costs/OLL cost/Sub- ) loa) Average 8,011 7,730 3,065 4,665 1,193 3,472 2.31 1.72 Median 4,727 4,695 1,644 2,995 750 2,136 2.21 1.58 Mode 10,000 3,636 5,000 2,000 500 1,500 6.67 5.00 Standard deviation 8,475 7,978 4,256 4,713 1,211 3,514 NA NA kurtosis 4.948 3.821 16.023 1.064 1.427 1.027 NA NA Skewness 1.858 1.699 3.448 1.334 1.396 1.326 NA NA Min 190 190 53 120 30 90 2.11 1.58 Max 51,760 46,158 30,524 20,000 5,760 15,000 3.45 2.59 Sum 1,810,589 1,746,993 692,632 1,054,361 269,655 784,706 2.31 1.72 Nember of samples 226 226 226 226 226 226 NA NA Statistics of Phase I
Projected Costs Planned Financing Self-Finance Sub loan Financing from Financing from OLL leverage Leverage PFI (Project (Project costs/OLL cost/Sub- ) loa) Average 5,800 5,800 2,330 3,470 1,216 2,254 2.57 1.67 Median 3,439 3,439 1,120 2,000 708 1,355 2.54 1.72 Mode 3,000 3,000 1,000 1,500 400 1,000 3.00 2.00 Standard deviation 6,181 6,181 3,047 3,602 1,352 2,405 NA NA kurtosis 3.950 3.950 7.853 4.212 5.443 5.919 NA NA Skewness 1.886 1.886 2.562 1.898 2.124 2.130 NA NA Min 300 300 55 150 60 88 3.41 2.00 Max 35,241 35,241 19,480 20,000 8,216 15,300 2.30 1.76 Sum 2,551,809 2,551,809 1,025,132 1,526,678 534,931 991,746 2.57 1.67 Nember of samples 440 440 440 440 440 440 NA NA Phase II/Phase I
Projected Costs Planned Financing Self-Finance Sub loan Financing from Financing from OLL leverage Leverage PFI (Project (Project costs/OLL cost/Sub- ) loa) Average 1.381 1.333 1.315 1.345 0.981 1.540 0.90 1.49 Median 1.375 1.365 1.467 1.497 1.059 1.576 0.87 1.57 Mode 3.333 1.212 5.000 1.333 1.250 1.500 2.22 0.55 Standard deviation 1.371 1.291 1.397 1.308 0.895 1.461 NA NA kurtosis 1.253 0.967 2.040 0.253 0.262 0.173 NA NA Skewness 0.985 0.901 1.346 0.703 0.657 0.623 NA NA Min 0.633 0.633 0.964 0.800 0.500 1.023 0.62 1.02 Max 1.469 1.310 1.567 1.000 0.701 0.980 1.50 0.87 Sum 0.710 0.685 0.676 0.691 0.504 0.791 0.90 0.76 Nember of samples 0.514 0.514 0.514 0.514 0.514 0.514 NA NA
122
CPI 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
annual increase as of December of as annual increase -2% 5 0 1 7 9 96 97 999 0 0 02 03 005 06 0 19 19 19 1998 1 20 20 20 20 2004 2 20 20 Jun-08
Source: GSO Figure III-14 Transition of CPI
The financing requirement of PFIs and end-borrowers is recommended the same structure as Phase II. The structure is shown in below chart.
A. Original sub-project amount (OSA): A = B + C
B. Eligible sub-project cost (ESPC): B = D + E C. Non-eligible portion
E. SME D. Sub-loan: contribution: D = 85% x B E = 15% x B
G. PFI’ F. On-lending loan: fund F = 75% x D G = 25% x D
Figure III-15 Finance Structure of sub-Project
Currency:
Currency for sub-Loans Given the analysis and observations based on the Field Survey of Phase II, despite VND is the preference of most of respondents in the field survey, currency preference depends on exchange rate transition of VND/USD and interest rate differential of the both currencies. Therefore, currency of sub-loan shall be allowed for both VND and USD, while PFI bears the exchange rate risk by lending in US dollar while borrowing in Vietnamese dong.
123 Currency for OLL USD for OLL is difficult in terms of operation and monitoring according to discussion with ICPMU and assessment of the consultant based on the experience of implementation of Phase II. Therefore, currency for OLL shall be VND only.
Interest Rate:
From JBIC to MOF
JBIC shall lend to the Ministry of Finance in yen at an annual rate of 1.2％pa.
Interest Rate for OLL: The interest rate from SBV to PFIs is the latest 364-Days Treasury bill rate in the previous quarter. However, as auction is difficult to be completed smoothly, applied rate in Phase II is kept as low as 4.8% until September 2008. On the other hand, if auction is completed smoothly, the T-bill rates might be as volatile as Interbank rates, which cause larger interest rate risk for PFIs. Therefore, weighted average of deposit rates which was applied to Phase I might be better selection considering that bond market yield in secondary market, which is another candidate, seems to be inappropriate because the secondary market is quite illiquid. At the same time, interest rates of OLL shall be in accordance with Decision 181 (currently not more than 12%).
25.00
lending rates (short 20.00 term) lending rates (medium term) 15.00 weighted average of deposit rates (annual) VDB/DAF 10.00 investment rate
T Bill (OLL rate of SMEFP II) 5.00
0.00 7 7 05 -05 06 06 -06 -06 0 -07 0 -08 08 -08 M- M J-05 S-05 N-05 J- M- M J-06 S N-06 J- M-07 M J-07 S- N-07 J-08 M M- J
Source: SBV Figure III-16 Overview of Historical Interest Rates (annual, %)
Transfer from MOF to SBV In Phase I, SBV retains no spread to cover operational costs. In Phase II, the service fee for management activities is 0.2% annually of the balance of transfer deductible from interest to pay to
124 MOF in Phase 2. In Phase 3, the service fee for management activities shall be no less than 0.2% annually of the balance of transfer deductible from interest to pay to MOF
Collateral: Collateral for sub-loans shall be determined according to credit policy of PFIs and relevant regulations. Financed property as security property shall continue to be recommendable in Phase III because of the following merits: (a) end-borrowers can get access to formal credit resources more easily; (b) loan with security property using the financed property can avoid the situation that the end-borrower dispose the financed property for any reason without informing it to PFI, and cause the sub-project suffer any set back; and (c) credit officer will become more careful to monitor the status of the financed property which is security property, and further the status of the sub-project itself.
1-2-4. Incentive for Target and Terms As discussed in section 3-1-1-1, the following sub-projects shall be promoted by incentive.
• Supporting Industry • Tier I enterprises Also, in order to promote finance for supporting industry, non-financial assistance such as linkage to Japanese FDI enterprises shall be promoted. The following incentive structure shall be recommended. Table III-3 Incentive Scheme for Target Project Status Incentive Eligibility/criteria Tier I Special fund Sub-projects belong to business sectors such as a) Electronics, enterprises informatics, telecom, d) Mechanical manufacturing, e) Production and assembling of motor vehicles among B) sectors in the invested business sector, and the end-borrower is business partner (supplier of Japanese FDIs, or sub-supplier of Japanese FDIs), Others Fund Scoring (based a)Total Amount of sub-projects allocation on standard disbursement Amount of sub-loans deviation Amount of OLL score) b)Supporting Amount of sub-projects industry Amount of sub-loans Amount of OLL c)Linkage Count of projects with linkage: contract with Japanese FDIs, purchase of Japanese machinery, SME trainings
125 In the fund allocation of initial disbursement, 1/4 of the total fund amount except the special fund for Tier I enterprises shall be allocated every six months after commencement of OLL disbursement. In this process, 2nd, 3rd and 4th allocation shall be determined according to the following formula. Total allocation of each time X share for PFI (n) Share for PFI (n) = f (standard deviation score of items (n) in a), b) and c))
1-2-5. PFI and Selection Criteria
Selection Criteria The selection criteria in Phase II is composed of three categories: (i) Financial soundness, which is the most important aspect required to be a PFI, is evaluated based on the CAMEL approach; (ii) governance and management is an important non-financial aspect of a candidate bank not only showing the current operational soundness but also ensuring the bank’s future financial soundness; and (iii) The competence/ necessity to participate category evaluates the appropriateness of each candidate bank for promoting SMEFP II. The allocation of points under the three criteria is shown in the table below. The maximum number of points is 105. More emphasis is given to financial soundness, with 60 points, than to non-financial categories. Table III-4 Overview of Scoring Criteria
Category Criterion Points A. Financial Soundness 1. Capital Adequacy Maximum 2. Asset Quality 60 Points 3. Profitability 4. Liquidity 5. Transparency B. Governance and 1. Governance Maximum Management 2. Risk Management 20 Points C. Competence / Necessity to 1. Focus on Private SMEs Maximum Participate in SMEFP 2. Necessity of Medium- and 25 Points Long-Term Funds and SME Assistance 3. Other Competence
The selection criteria of SMEFP II is attached in Annex III-1. The consultants recommend selection criteria same as Phase II, with small modification such as; a) Parameter formula for legal capital requirement which is changed within 2008 b) Parameter formula for share of loans to private enterprises among total loans SME and growth of loans to private enterprises in the category C
126
The scoring result for current PFIs is attached in Annex III-2.
Selection Process
Selection might be implemented in two stages. 1st stage: Selection of PFIs is recommended to be implemented in the same way as in Phase II. Therefore, ICPMU shall evaluate PFIs based on the scoring and review the designation annually. In commencement of Phase III, ICOMU shall assess the current 9 PFIs according to their intention to join Phase III based on the scoring.
2nd stage: If it is necessary to replace some PFIs which fail to meet the scoring requirement or to increase the number of PFIs, ICPMU shall implement open tendering, which might accept request from all the banks (depositary financial institutions). In this case, it is recommended that ICPMU shall conduct screening based on size, number of branches, operating years, and soundness rating by SBV stipulated in Decision No.457 -2005 / QD-NHNN, and Decision No. 03 - 2007 / QD-NHNN.
The following table shows commercial banks with screening of capital (not less than 1,000 billion VND), number of branches (not less than 20), and establishment (not later than 2000).
Table III-5 Image of Screening of New PFIs
Name of FIs PFIs of SMEFP Capital Number of branches Year of establishment The Vietnam Bank for Social Policies 5,988 65 1995 Vietinbank Vietnam Bank for Industry and Trade formerly: ICB 7,554 138 1996 Vietnam Bank for Agriculture and Rural Development 10,400 115 1996 Bank for Investment and Development of Vietnam BIDV 7,490 103 1996 Bank for Foreign Trade of Vietnam 12,101 26 1962 Maritime Commercial Joint Stock Bank 1,500 24 1991 Vietnam Technological and Commercial Joint Stock Bank Techcombank 2,500 38 1993 Vietnam Commercial Joint Stock Bank for private Enterprise 2,000 34 1993 Southern Commercial Bank 1,434 24 1993 Orient Commercial Joint Stock Bank 1,111 22 1996 Military Commercial Joint Stock Bank 2,000 36 1994 Vietnam International Commercial Joint Stock Bank 2,000 42 1996 Saigon Commercial Joint Stock Bank 1,970 22 1992 Saigon bank for Industrial and trade 1,020 31 1993 Saigon Thuong Tin Commerical Bank Sacombank 4,449 59 1991 Vietnam Commercial Joint Stock Export-Import Bank 2,800 27 1992 Asia Commercial Joint Stock Bank 2,630 54 1993 Dong A Commercial Joint Stock Bank Formerly: Eastern Commercial Joint Stock Bank DAB 1,600 28 1992
127 1-3. Training, TA, and Promotion and Manuals
1-3-1. Training, Technical Assistance and Promotion
The lessons in Phase II are the followings. There is much difference in the experience of banking practice and basic understanding among the attendants, which resulted in the wide degree of understanding of each attendant. Therefore, the materials shall be practical rather than only conceptual, and time shall be allocated more for exercise rather than lecture type. The number of attendants might be allocated to each PFI according to their needs which depend on their practical level while agenda and level of the course is informed in advance.
1. Training for ICPMU Policy to promote Supporting Industry and SME finance ICPMU shall play an important role as an execution function of SMEFP III. With focus on further industrial competitiveness through enterprise finance, understanding of supporting industry and its financing mechanism is important. Training on international best practice for coordination between industrial policy and finance policy is effective for management of SMEFP III. Financial Analysis of PFIs ICPMU staffs still need assistance for capacity building for analytical views for assessment of banking business based on objective data and banking practice, now that the number of PFIs increased and further efficient and objective monitoring of PFIs are required. Others “Training on promotion of environmental consideration” and “Training on Operation and maintenance of MIS” will be described in section 3-4.
2. Training for PFIs According to responses to questionnaire, needs for training on credit assessment and risk management varies among PFIs, including methodology of financial analysis, portfolio management, interview of SMEs, etc. On the other hand, most PFIs hope training on sub-project assessment including business analysis of end-borrowers. Goals and Operation Practice of SMEFP III It is essential to share the goals of SMEFP III in the context of accordance with the merits and limitation of two step loan as a policy measure. While the fund of OLL is limited, the main players such ICPMU and PFIs are expected to outreach for good projects using linkage/cooperation with other parties such as related agencies (MOIT, ASMED), business associations (VCCI, JBA), and SME assistance programs (TAC, VJCC, etc.), in order to maximize the impacts and keep sustainability after consulting support. In Phase III rational of focusing on the supporting industry needs to be understood among the relevant players as well. At the same time, the operation practice which shall be stipulated in the manuals will be disseminated in the training session.
128 Thus, for these purposes, workshop for the goals of SMEFP III shall be organized for selected PFIs, while training of the manuals shall be implemented including exercise methods shall be conducted with a few days schedule.
Credit Assessment While all the commercial banks are required to operate SME lending and asset classification based on internal credit rating, the skill level of credit assessment and credit risk management differs much among PFIs. Some of PFIs need further assistance with customized and focused subjects according to the results of TA in Phase II. On-site training for credit assessment in general for PFIs as request base is recommended in Phase III.
Training on Supporting Industry There is difficulty of credit appraisal and marketing for supplier SMEs for FDI enterprises for all the PFIs. TA to enhance capability of credit assessment in the supporting industry shall be implemented for all the PFIs. This training may include 1) Industry research for credit assessment and marketing, 2) Credit assessment for business risk of suppliers of supporting industry. Credit assessment for business risk of suppliers of supporting industry under linkage with Japanese FDI enterprises are describe next.
3. Credit Assessment for Business Risk of Suppliers of Supporting Industry Supplier SMEs under developing core contract with Japanese FDIs often face difficulties of finance because it takes 1 to 2 years to establish continuous contract since initial test order, which increases uncertainty of business risk in terms of credit assessment of banks, according to SMEs case study and interviews with PFIs. Understanding and usage of information regarding order process of Japanese FDIs would mitigate uncertainty and promote bankability of SMEs in supporting industry. Production Contract Basic Contract is signed, first. Afterwards, purchase orders shall be placed. This is same with trial production orders. Contract and order forms are written in English, signed with corporate seal, and is basically the same, world-wide. Major Manufacturer’s Production Testing Process Before entering a full-scale order contact, suppliers must pass all of the following tests in sequence. Only then, specific orders with actual volume and date/time of delivery will be made explicit. Companies with experience of manufacturing a product within the same category as the product to be ordered will be the target of this testing process, which requires 1 to 2 years to complete.
(1) Agreement on (4) Mass production (5) Full scale product modifications (2) Single product (3) Vehicle mounted test (around 10 production (500 and production test of test test thousand units) thousand units) • trial product Figure III-17 Japanese Manufacturer’s Supplier’s Capacity Testing Process
129 Companies who failed the test are allowed to enter a consolation match, but since the trial production test is conducted on a 6 month cycle, they will have to wait until the next cycle. Usually, the outcome of (2) Single product test will define the likelihood of passing all tests, and therefore, those who pass Test (2) will be given written orders for specific volume and deadline, but with reservation requiring the pass of Mounted Test (3) For those entering the Mounted test, mass production capacity will be eventually be required and at this time, usually, new investment in plant and equipment will be necessary. Implications for Loan Assessment Companies entering the mounted test (3) have proved their capacity to produce the required product and will be given a signed purchase order schedule. On the other hand, these companies will be required mass production facilities, and will most likely need to invest in new plant and equipment. Companies who can produce this information and the signed order schedule to their bank may support bank’s decision to lend funds for the investment in new plants and equipments.
4. Enhancement of SME Capacity for Better Finance Awareness among SMEs, not only for SMEFP but also for finance opportunity for SMEs in general, has much to be enhanced because banking is still unfamiliar for most of SMES and because marketing of PFIs still under development for most of PFIs according to interviews with PFIs and Q&A in the training courses on international practice of SME finance.
Table III-6 Training, TA and Promotion
Targets Topics ICPMU Training: • Policy to promote Supporting Industry and SME finance. • Financial analysis of PFIs • Promotion of environmental consideration • Operation and maintenance of MIS PFIs Training: • Goals and practice of SMEFP III • Credit assessment for business risk of suppliers of supporting industry including evaluation of capacity building history of SMEs • Industry research for credit assessment and marketing • Promotion of environmental consideration • Operation and maintenance of MIS On site Training: • Enhancement of SME support unit and SME lending practice with risk management based on internal credit rating SMEs Training: • Promotion of environmental consideration Promotion: • Leaflet of SMEFP III • News paper Educative booklet: • Guidebook of application for bank borrowing (documentation, presentation, basic knowledge on loan and collateral) • Feasibility study of project and promotion towards FDI enterprises
130 1-3-2. Manuals In Phase II, there are 3 types of manuals such as Policy Manual, Reporting Manual, and MIS Operation Manual. The lessons from Phase II are summarized below. Policy manual stipulates only core rules and guideline for operational practice. Details shall be clarified through Q&A between ICPMU and PFIs. But that clarification sometimes takes time and lack consistency. And clarification time to time is not necessarily disseminated through related persons among ICPMU and PFIs. On the other hand, Reporting Manual in Phase II added supplementary explanation in practical level of Policy Manual on top of reporting procedures, together with detailed notification, it amplified the total volume and some PFIs took time to understand. PFIs use MIS while producing reporting documents. It is not so convenient for PFIs to search in necessary sections in both MIS Operation Manual and Reporting Manual. Based on those lesson in Phase II, manuals for implementation of SMEFP III shall compose Policy Manual, Operation Manual, MIS Manual compiled together with Reporting Manual. Policy Manual is same style as Phase II and shall be revised according to the scope of SMEFP III. Operation Manual shall contain clarification of practical level, what staffs need /are recommended to do in the context of PFI/ICPMU, covering the items described in Policy Manual. Reporting Manual shall be simplified to focus on clarification of reporting documents and timeline. MIS Manual shall contain explanation of MIS operation, and shall be compiled in consistency with Reporting Manual.
1-4. Overview of Scope of SMEFP III In conclusion, scope of SMEFP can be summarized in the below table in order to cope with remained obstacles of SME finance including suppliers in supporting industry, through the measures such as loan scheme, training & promotion and linkage (discussed in detail in section 3-7). Table III-7 Overview of Scope of SMEFP III
3) Measures to overcome obstacles 1) Target to be focused 2) Obstacles for fund raising A) Loan Scheme B) Training and promotion C) Linkage A）Supporting Industry stepping up to the supplier Reinforce publicity work for SME to increase applications from SME Having no opportunity to Use information about orders and stepping up Give incentives for loans for 1:Raise awareness of SME about SMEFPII meet bank which is willing to process of orders from Japanese companies for supporting industry through VCCI, DPI, or JETRO's Trade Fair etc. finance SI-SME assessment of business risk (develop commomn 2:Compile a handbook for bank loan order format, if possible. Also to be used for application business linkage)
Use information of hisotriy of training and certificates of SME and employees for credit Supporting Industry Give training for PFI on business evaluation Uncertainty of growth in assessment (MOIT) and screening of manufacturing, especially SI. transaction or shift to high- *Categorize trainings (Management, quality Tier I enterprises (Potential and risks of SI, transaction pattern of tech products (from trial control, special manufacturing technology such business with Japanese companies, required product to formal order) as NC machine operation, product inspection, management and technology, etc.) etc.) *Prepare common rating based on effectiveness *Record training history
Having no opportunity to do 1 Compile a leaflet to encourage SMEs for PFI shall introduce SI-SME through commomn business with Japanese further marketing to FDI enterprises format to to Japanese companies through VCCI companies 2 Strengthen PFI'S SI-SME support unit or JBA etc. (by using format)
B） SME in general Less relationship with banks （repeated）Reinforce publicity work for SME to Having less incentives for increase applications from SME Give incentives for loan to new banks to seek new clients 1:Raise awareness of SME about SMEFPII clients （Give preference of (Contacts from SME should through VCCI, DPI, or JETRO's Trade Fair etc. SMEs under difficult fund allocation etc.) economy be encouraged) 2:Compile a handbook for bank loan Larger sub-projects application
Credit assessment under Training for PFI regarding loan based on information ipaqueness internal rating
131 2. Plan of Cost and Funding
2-1. Size of Fund
2-1-1. Simulation of Finance Needs from Supporting Industry
Simulation is calculated in the following process. SMEs in the Supporting Industry Step 1) Calculate amount of fixed asset, finance by debt, finance by equity, annual turnover in aggregation of business sectors which belong to the supporting industry defined by MOIT as of December of 2006 from GSO statistics. Step 2) Calculate annual debt finance amount for the eligible investment in 3 years’ period under the following assumptions. Assume that fixed asset shall increase in accordance with observed elasticity of fixed asset against annual turnover. Eligible assets (machinery and equipment, plant, etc.) share 50% of total fixed asset. 1) Collateral of real estate is 1.35 times of eligible investment on average in Phase II. 2) Tangible fixed asset is about 70% of fixed assed based on sample SMEs in Pilot Project of Phase II. 3) If assuming 100 as fixed asset, and main scenario of annual turnover discussed below, and 5 years as term of depreciation discussed below, new investment/fixed asset is 13%. 4) Real estate is 18 by calculation “100 X 13% X 1.35”. 5) Eligible asset is 52 by calculation of “70 – 18”. 6) Considering estimated eligible asset ratio against fixed asset, which is 52%, apply 50% in this simulation. Table III-8 Calculation of Eligible Asset Ratio against Fixed Asset
Collateral Tangible Fixed Tangible New Real Eligible of Real Fixed Asset Asset Investment Estate Asset Estate/ Asset/ / Fixed New fixed Asset Investment asset in Phase II (sample from Phase II)
1.35 70% 100 70 13% 18 52
Term of depreciation for machinery and equipment is 5 years.
132 Set range of annual turnover growth based on historical relationship between nominal GDP and annual growth. 1) Set projection of nominal GDP for 2008 and 2009 by adding average of annual change of GDP deflator to annual growth of real GDP estimated by the government. 2) Set average projection for annual growth turnover (2007 to 2009) by multiplying the projected nominal GDP growth by historical average of the ratio of “annual turnover growth / nominal GDP growth”. 3) Set lower projection for annual growth turnover (2007 to 2009) by multiplying the projected nominal GDP growth by historical minimum of the ratio of “annual turnover growth / nominal GDP growth”. 4) As a result, as for the year 2009 which is the lowest growth estimated, the projected range of annual turnover growth for SI is 13.2% to 24.4%, and the projected range of annual growth for narrower SI is 10.0% to 28.0%. 5) Simulation of finance needs shall be based on the lower adjusted range of annual turnover growth 5% to 20%, and with 5% interval, as the coming years might be “stressed period” because of global economic stagnation. The main scenario for annual growth of SI is 15% for SI and 10% for narrower SI by selecting the minimum projection (with 5% interval assumed above) so that the simulation shall be conservative.
18.0% 45.0% Nominal GDP (A) Real GDP growth (1994 price):left 40.0% scale 16.0% Turnover of narrow er SI (B) Nominal GDP growth : left scale 35.0%
14.0% 30.0% (D) Growth of annual turnover of SI Turnover of SI 25.0% (E) Average projection of SI 12.0% 20.0% (F) Lower projection of SI annual growth annual growth 10.0% 15.0% (G) Growth of annual turnover of 10.0% narrower SI (H) Average projection of narrower SI 8.0% Real GDP 5.0% (I) Lower projection of narrower SI 6.0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009
2001 2002 2003 2004 2005 2006 2007 2008 2009 average max min (A) Real GDP growth (1994 price):left scale 6.9% 7.1% 7.3% 7.8% 8.4% 8.2% 8.5% 6.7% 6.3% 7.5% 8.5% 6.3% (B) Nominal GDP growth : left scale 9.0% 11.3% 14.5% 16.6% 17.3% 16.1% 17.4% 13.0% 12.6% 14.2% 17.4% 9.0% (C) Growth of GDP deflator (2000=100) 1.9% 4.0% 6.7% 8.2% 8.2% 7.3% 8.2% N/A N/A 6.3% 8.2% 1.9% (D) Growth of annual turnover of SI 19.0% 32.7% 31.7% 23.1% 18.1% 31.6% N/A N/A N/A 26.0% 32.7% 18.1% (E) Average projection of SI N/A N/A N/A N/A N/A N/A 33.7% 25.2% 24.4% 27.8% 33.7% 24.4% (F) Lower projection of SI N/A N/A N/A N/A N/A N/A 18.2% 13.6% 13.2% 15.0% 18.2% 13.2% (G) Growth of annual turnover of narrower SI 35.7% 38.6% 34.3% 21.4% 13.7% 23.8% N/A N/A N/A 27.9% 38.6% 13.7% (H) Average projection of narrower SI N/A N/A N/A N/A N/A N/A 38.7% 28.9% 28.0% 31.9% 38.7% 28.0% (I) Lower projection of narrower SI N/A N/A N/A N/A N/A N/A 13.8% 10.4% 10.0% 11.4% 13.8% 10.0% (D) / (B) 2.12 2.89 2.19 1.39 1.04 1.96 N/A N/A N/A 1.93 2.89 1.04 (G) / (B) 3.98 3.41 2.36 1.29 0.79 1.48 N/A N/A N/A 2.22 3.98 0.79 Source: GSO, IFS, estimation by NRI Notes: Real GDP for 2008 and 2009 is estimation by Vietnam Government as of 2nd November 2008. Nominal GDP for 2008 and 2009 is estimated by adding historical average of GDP deflator estimated by IMF to real GDP estimated by Vietnamese government as of 2nd November 2008. Figure III-18 GDP and Annual Turnover of SI
133 Step 3) Multiple the previous amounts by SME ratio of manufacturing in asset size, then get assumed debt finance needs for eligible investment in SMEs of the supporting industry. Step 4) Divide the previous amounts by leverage ratio (project amount/OLL amount) of Phase II, then get expected needs for OLL as potential amount.
Table III-9 Turnover and Fixed Asset of the Supporting Industry
2004 2005 2006 annual growth Turnover from business 164,512 194,281 255,716 24.68% D31. Manufacture Of Electrical 23,681 30,145 44,073 36.42% Machinery And Apparatus N.e.c. D32. Manufacture Of Radio, Television And Communication 16,958 19,554 24,255 19.60% Equipment D17. Manufacture Of Textiles 24,658 35,759 63,435 60.39% D18. Manufacture Of Wearing 29,723 32,316 40,166 16.25% Apparel; Dressing And Dyeing Of D19. Tanning And Dressing Of Leather; manufacture of leather 32,664 38,088 43,042 14.79% products. D29. Manufacture Of Machinery And 13,025 14,343 13,936 3.44% Equipment N.e.c. D34. Manufacture Of Motor 23,803 24,077 26,809 6.13% Vehicles, Trailers And Semi trailers fixed asset 80,671 91,782 103,085 13.04% D31. Manufacture Of Electrical 7,449 9,756 10,425 18.30% Machinery And Apparatus N.e.c. D32. Manufacture Of Radio, Television And Communication 5,485 5,818 6,973 12.75% Equipment D17. Manufacture Of Textiles 24,702 28,929 31,958 13.74% D18. Manufacture Of Wearing Apparel; Dressing And Dyeing Of 13,092 13,660 17,475 15.53% Fur D19. Tanning And Dressing Of Leather; manufacture of leather 17,851 19,487 20,872 8.13% products. D29. Manufacture Of Machinery And Equipment N.e.c. 5,418 5,965 5,492 0.67%
D34. Manufacture Of Motor 6,672 8,166 9,889 21.75% Vehicles, Trailers And Semi trailers elasticity of 2004 2005 2006 fixed asset against annual Turnover/fixed asset 2.04 2.12 2.48 52.86% D31. Manufacture Of Electrical 3.18 3.09 4.23 50.24% Machinery And Apparatus N.e.c. D32. Manufacture Of Radio, Television And Communication 3.09 3.36 3.48 65.07% Equipment D17. Manufacture Of Textiles 1.00 1.24 1.98 22.75% D18. Manufacture Of Wearing 2.27 2.37 2.30 95.60% Apparel; Dressing And Dyeing Of D19. Tanning And Dressing Of Leather; manufacture of leather 1.83 1.95 2.06 54.97% products. D29. Manufacture Of Machinery And 2.40 2.40 2.54 19.62% Equipment N.e.c. D34. Manufacture Of Motor 3.57 2.95 2.71 354.98% Vehicles, Trailers And Semi trailers Source:GSO
134
Table III-10 Simulation of Potential Needs for OLL in the Supporting Industry SMEs (case of 15% growth of turnover)
billion VND Year fixed asset depreciati new finance by finance by debt needs needs for needs for on investmen debt equity by SMEs OLL by OLL by t (*SME%) SMEs SMEs (/leverage (billion of OLL * JPY) SME%)
-1(year 2006) 51,543 N/A N/A N/A N/A N/A N/A N/A 0 55,629 N/A N/A N/A N/A N/A N/A N/A 1 60,039 11,126 15,536 9,295 6,241 3,310 1,439 10 2 64,800 12,008 16,768 10,032 6,736 3,573 1,553 11 3 69,937 12,960 18,097 10,827 7,270 3,856 1,676 12 total N/A N/A 50,402 30,154 20,248 10,739 4,669 33 annual growth 7.93% N/A 7.93% N/A N/A N/A N/A N/A Premise annual SME% SME% elasticity eligible depreciati Liability leverage growth of (number (capital of fixed asset / on of /capital of OLL turnover of source) asset fixed eligible source enterprise against investmen asset s) annual t (years) turnover supporting industries 15% 81.7% 35.6% 52.9% 50% 5 60% 2.3 As a result, range of potential finance needs for OLL is estimated 24 billion JPY (case of 5% growth of turnover) to 38 billion JPY (case of 20% growth of turnover). The main scenario of the case of 15% is 33 billion JPY.
Table III-11 Range of Potential Finance Needs for OLL in the Supporting Industry
needs for OLL by SMEs (billion JPY) annual growth of 20%15%10% 5% turnover 1st year 11 10 9 8 2nd year 12 11 9 8 3rd year 14 12 10 8 total 38 33 28 24 On the other hand, available amount from RFA of Phase I and II is estimated 110 billion VND per 6 months if assuming 80% as utilization ratio (83% as of middle of 2008 in RFA for Phase I), which is approximately 0.8 billion JPY per 6 months, 1.5 billion JPY per year
135
Table III-12 Available Amount from RFA of Phase I and II
(VND million) Phase 1 Phase 2 Total Loan Amount 500,000 900,000 1,400,000 Loan Period (ms) 52.75 60 N/A Semi-Annual Repayment of OLL 56,872 90,000 146,872 No. of Repayment to JBIC 61 41 N/A Repayment start 3/2009 3/2015 N/A Semi-Annual Repayment to JBIC 8,197 0 8,197 Revolving Fund available in 6 ms 48,675 90,000 138,675 If Availability is 90% 43,808 81000 124,808 If Availability is 80% 38,940 72000 110,940
Non-SMEs in the Supporting Industry (narrower definition of the supporting industry) Simulation of finance needs from non-SMEs in Supporting Industry for Tier I Pilot is calculated as the followings. In the same way as before, finance needs from non-SMEs in the supporting industry are estimated. Definition of the supporting industry for non-SMEs shall be narrower definition which composes “electronics, informatics, telecom”, “Mechanical manufacturing”, and “Production of assembling of motor vehicles”, because Tier I focuses on these business sectors, and because Plan by MOIT for Action plan for promotion of Supporting Industry also designated those business sectors. Another different condition is applied for leverage ratio (project amount/OLL amount) which is 8.6, instead of 2.3 in the case of SMEs, as average size of liability of non-SMEs (labor size is 300 to 999) in the supporting industry is about 3.7 times larger than that of typical SMEFP user SMEs (labor size is 50 to 299). Table III-13 Average Size of Liability of Narrower Supporting Industry (billion VND)
(A) SME (B) non-SME (B)/(A) (labor size; 50 (labor size;300 to 299) to 999) number 376 107 N/A liability 13,980 14,942 N/A average liability 37 139 4 Source: GSO Notes: The figures are calculated from GSO statistics of narrower supporting industry, with break down by labor size. There are 107 enterprises with labor size from 300 to 999 in the narrower supporting industry, of which average liability amount is 139 billion VND as compared with 37 billion VND of enterprises with labor size from 50 to 299. Other process of calculation is same as the case of SMEs except that main scenario of annual turnover growth is 10% instead of 15% as discussed in the initial description of the assumption of the simulation.
136 Table III-14 Turnover and Fixed Asset of the Supporting Industry of Narrower Definition 2004 2005 2006 annual growth Turnover from business 77,467 88,118 109,073 18.66% D31. Manufacture Of Electrical 23,681 30,145 44,073 36.42% Machinery And Apparatus N.e.c. D32. Manufacture Of Radio, Television And Communication 16,958 19,554 24,255 19.60% Equipment D29. Manufacture Of Machinery And 13,025 14,343 13,936 3.44% Equipment N.e.c. D34. Manufacture Of Motor 23,803 24,077 26,809 6.13% Vehicles, Trailers And Semi trailers fixed asset 25,025 29,706 32,779 14.45% D31. Manufacture Of Electrical 7,449 9,756 10,425 18.30% Machinery And Apparatus N.e.c. D32. Manufacture Of Radio, Television And Communication 5,485 5,818 6,973 12.75% Equipment D29. Manufacture Of Machinery And 5,418 5,965 5,492 0.67% Equipment N.e.c. D34. Manufacture Of Motor 6,672 8,166 9,889 21.75% Vehicles, Trailers And Semi trailers elasticity of 2004 2005 2006 fixed asset against annual Turnover/fixed asset 3.10 2.97 3.33 77.44% D31. Manufacture Of Electrical 3.18 3.09 4.23 50.24% Machinery And Apparatus N.e.c. D32. Manufacture Of Radio, Television And Communication 3.09 3.36 3.48 65.07% Equipment D29. Manufacture Of Machinery And 2.40 2.40 2.54 19.62% Equipment N.e.c. D34. Manufacture Of Motor 3.57 2.95 2.71 354.98% Vehicles, Trailers And Semi trailers Source: GSO
Table III-15 Simulation of Potential Needs for OLL in the Narrower Supporting Industry (case of 10% growth of turnover) for Tier I Pilot billion VND Year fixed asset depreciati new finance by finance by debt needs for needs for on investmen debt equity needs by OLL by OLL by t SMEs SMEs SMEs (*SME%) (/leverage (billion of OLL * JPY) SME%) -1(year 2006) 16,390 N/A N/A N/A N/A N/A N/A N/A 0 17,659 N/A N/A N/A N/A N/A N/A N/A 1 19,027 3,532 4,899 2,791 2,109 1,797 209 1.5 2 20,500 3,805 5,279 3,007 2,272 1,936 225 1.6 3 22,088 4,100 5,688 3,240 2,448 2,086 242 1.7 total N/A N/A 15,866 9,037 6,829 5,819 676 4.7 annual growth 7.7% N/A 7.7% N/A N/A N/A N/A N/A
137
Premise annual non- non- elasticity eligible depreciati Liability leverage growth of SME% SME% of fixed asset / on of /capital of OLL turnover (number (capital asset fixed eligible source of source) against investmen asset enterprise annual t (years) s) turnover supporting industries 10% 9.9% 64.4% 77.4% 50% 5 57% 8.6
As a result, range of potential finance needs for OLL is estimated 3.8 billion JPY (case of 5% growth of turnover) to 7.0 billion JPY (case of 20% growth of turnover). The main scenario of the case of 10% is 4.7 billion JPY. Table III-16 Range of Potential Finance Needs for OLL in the Supporting Industry for Tier I Pilot
(billion JPY)
Annual growth of turnover 20% 15% 10% 5%
1st year 2.0 1.7 1.5 1.2
2nd year 2.3 1.9 1.6 1.3
3rd year 2.7 2.1 1.7 1.3
Total 7.0 5.8 4.7 3.8
2-1-2. Size of Fund for SMEFP III
According to the survey of 9 PFIs, the total loan outstanding of 9 PFIs is 361 trillion VND as of December 2007, which is estimated to share about 35 to 40 % of the total credit in Vietnam.
Table III-17 Loan Amount of PFIs in the Total Credit
(Trillion VND) 2005 2006 2007 Loan outstanding of 9 PFIs 203 243 361 Total credit extended to the economy by banks 553 694 940 share of 9 PFIs 37% 35% 38% Source: PFI questionnaire, IMF Notes: Figure of Total credit extended to the economy by banks in 2007 is estimated by multiplying the outstanding as of June 2007 by 115%. The calculation implemented above can be considered as finance needs in SMEs of SI and non-SMEs of narrower SI in financial market as a whole. The following table shows OLL funds by various ratios which prepared funds share against the finance needs in the market. The range of share is set from
138 25% to 40% based on the share of the 9 PFIs in the banking finance market. The estimated OLL funds vary from 9.4 billion JPY to 15.0 billion JPY. In order to plan the budget discussed in the next section, the fund for loan component is recommended to be budgeted as 13 billion JPY which is consistent with the low end of 9 PFIs share in the banking finance market in the recent years. Table III-18 OLL Fund by Case of the Share to the Potential Needs
(billion JPY)
Share to potential needs 25% 30% 35% 40%
SMEs 8.2 9.8 11.4 13.1
non-SMEs 1.2 1.4 1.7 1.9
Total 9.4 11.2 13.1 15.0
2-2. Cost of Loan Component Cost for Operation As discussed in section 3-2-1, the consultants recommend 13 billion JPY as Yen loan for SMEFP III. As for the operational cost might compose Vehicle for on-site training and monitoring, Photocopy & printing, note PCs, and other equipments for project implementation, depending on request of ICPMU. Other expenses shall be such as support staff, translation, interpretation, etc. Cost for technical assistance includes remuneration for international consultant, local consultant, international flights, subsistence allowance, and accommodation as indirect costs. As direct costs, MIS system, MIS training, and venue for other training and workshops shall be included.
Cost for Technical Assistance The consultants recommend “Introduction of SMEFP III”, “Goals and practice of SMEFP III”, and “MIS training” as trainings for project operation in this component. Table III-19 Training of Loan Component
Agenda Attendants LocationDays Venue Trips/outsource Introduction of SMEFP III ICPMU, Hanoi Half 1 N/A PFIs, Other day banks Goals and practice of SMEFP III ICPMU, PFIs Hanoi, 3 days 6 Trips:12 (M/T) DaNang, Nights: 40 HCMC MIS training ICPMU Hanoi 3 days 3 IT vendor MIS training PFIs Hanoi, 3 days 6 IT vendor HCMC
139
The assistance by consultant might be provided for the following tasks;.
• Revision of Policy Manual • Selection of PFIs • Development of Operation Manual • Development of Reporting Manual • Development of checklist of environmental impacts • Planning, developing of contents, and organizing of trainings and workshops • Enhancement of Management Information system (MIS) • Development of MIS Operation Manual and compiling with Reporting Manual • Planning, developing of contents, and organizing of MIS Training • Assisting ICPMU in project implementation such as fund operation and monitoring Workload of consulting is estimated 19 MM for international consultants and 20MM for local consultants for the loan component, which is scheduled for the first 8 months. Table III-20 MM of Consultant for Loan Component
International consultants 19MM Team leader Banking expert Supporting industry expert Environmental expert Information management expert Local consultants 20MM Supporting industry expert Banking expert Promotion expert IT expert
The cost for loan component is estimated as below. Details of the cost of MIS system and MIS training are attached in Annex III-3.
140 Table III-21 Cost Estimation of Loan Component
Unit quantity unit price amount(USD) amount (JPY) A. Loan component 121,472,473 13,119,027,124 A-1 OLL to SMEs and supporting industry 120,370,370 13,000,000,000
A-2 Operational cost 191,070 20,635,560 Vehicle for on-site activities (7 seats) car 1 50,000 50,000 5,400,000 Note PCs set 2 2,000 4,000 432,000 Photocopier & FAX set 1 4,000 4,000 432,000 Expenses for office equipment/instruments. set 1 1,970 1,970 212,760 telephone set 3 30 90 9,720 phone exchange set 2 400 800 86,400 Desk & chair set 9 120 1,080 116,640 Table set, shelves 3 120 360 38,880 Office rental month 24 2,500 60,000 6,480,000 Other expenses set 1 71,100 71,100 7,678,800 local support staff MM 24 1,200 28,800 3,110,400 Translation page 2,000 10 20,000 2,160,000 Interpreting day 10 150 1,500 162,000 Driver, Gasoline, maintenance month 24 800 19,200 2,073,600 Car insurance year 2 800 1,600 172,800
A-3 Cost for Technical Assistance 911,033 98,391,564 Remuneration of International consultant MM 19 27,000 522,000 56,376,000 Remuneration of Local consultant MM 20 4,500 90,000 9,720,000 International flights time 32 2,000 64,000 6,912,000 taxi, renting cars/vans day 123 40 4,928 532,224 Subsistence allowance day 406 55 22,330 2,411,640 Accommodation day 406 140 56,840 6,138,720 Flights Hanoi to/from Ho Chi Minh trip 12 250 3,000 324,000 Allowance for local travels day 32 25 800 86,400 Accommodation for local staffs day 32 60 1,920 207,360 MIS System set 1 100,385 100,385 10,841,580 MIS training set 1 9,830 9,830 1,061,640 Training Venue set day 7 5,000 35,000 3,780,000
2-3. Cost of Technical Assistance Component
In the TA component, the consultants recommend “Promotion of environmental consideration”, “Policy to promote Supporting Industry and SME finance”, “Financial analysis of PFIs”, “Industry research for credit assessment and marketing”, “Credit assessment for business risk of suppliers of supporting industry”, “Credit assessment for business risk of suppliers of supporting industry” as trainings for technical assistance for ICPMU and PFIs. On-site trainings for PFIs of which subjects are based on specific needs of PFIs such as collateral evaluation are recommended to be implemented according to requests of PFIs.
Table III-22 Training of TA Component
Agenda Attendants LocationDays Venue Trip Promotion of environmental ICPMU, PFIs Hanoi, 1 day 1 Trips:6 (M/T) consideration HCMC Nights: 8 Promotion of environmental SMEs Hanoi, Half 9 Trips:18 (M/T) consideration DaNang, day, 3 Nights: 24 HCMC times Policy to promote Supporting ICPMU Hanoi 2 days 2 N/A Industry and SME finance. Financial analysis of PFIs ICPMU Hanoi 1 day none N/A
141 Industry research for credit ICPMU, PFIs Hanoi, 2 days 4 Trips:10 (M/T) assessment and marketing HCMC Nights: 18 Credit assessment for business risk ICPMU, PFIs Hanoi, 3 days 6 Trips:10 (M/T) of suppliers of supporting industry HCMC Nights: 24 On site Training (credit assessment, 5 PFIs 3 days Trips:20 (M/T) internal rating, information for credit (subject to Nights: 80 assessment, pricing, marketing) PFI requests)
As for promotion, on top of news paper implemented in Phase II, the consultants recommend “Leaflet of SMEFP III”, “Guidebook of application for bank borrowing Educative”, and “Feasibility study of project and promotion towards FDI enterprise” to be compiled and distributed for SMEs through PFIs and various organizations which will be discussed in section 3-7 in order to enhance awareness of SMEs for SMEFP III and other finance sources, and capability of presentation for financial institutions and business partners about their own business. Table III-23 Promotion of TA Component
Items Size Unit(USD) Quantity Amount(USD) Leaflet of SMEFP III 4 pages 0.5 10,000 5,000 News Paper 1/3 page 2,000 3 6,000 Guidebook of application for bank 10 pages 0.8 10,000 8,000 borrowing Educative Feasibility study of project and 20 pages 1.5 5,000 7,500 promotion towards FDI enterprise
The assistance by consultant might be provided for the following tasks;.
• Developing linkage with relevant organizations in order to promote finance of supporting industry • Assist PFIs and SMEs in activities of linkage with Japanese and other FDI enterprises • Developing training materials of Industry research for credit assessment and marketing • Developing training materials of Credit assessment for business risk of suppliers of supporting industry • Developing training materials for On site Training on topics such as credit assessment, internal credit rating, usage of information for credit assessment, loan pricing, and marketing in SME finance business, etc. • Planning and organizing of trainings and workshops • Planning and organizing of on-site trainings • Developing of promotion items such as News Paper, Leaflet of SMEFP III, Guidebook of application for bank borrowing Educative, and Feasibility study of project and promotion towards FDI enterprise • Planning and arranging of study tour • Compiling textbook for finance of SME and supporting industry • Assessment of achievements and challenges of Tier I fund
142 Workload of consulting is estimated 39 MM for international consultants, and 40MM for local consultants for technical assistance component, which is scheduled mostly for the latter 26 months.
Table III-24 MM of Consultant for TA component International consultants 39MM Team leader Banking expert Supporting industry expert Environmental expert Information management expert Local consultants 40MM Supporting industry expert Banking expert Promotion expert IT expert
The cost for technical component is estimated as below.
Table III-25 Cost Estimation of TA Component
Unit quantity unit price amount(USD) amount (JPY) B. TA component B-1 Cost for Technical Assistance 1,666,678 180,001,224 Remuneration of International consultant MM 39 27,000 1,044,000 112,752,000 Remuneration of Local consultant MM 40 4,500 180,000 19,440,000 International flights time 64 2,000 128,000 13,824,000 taxi, renting cars/vans day 246 70 17,248 1,862,784 Subsistence allowance day 812 55 44,660 4,823,280 Accommodation day 812 140 113,680 12,277,440 Flights Hanoi to/from Ho Chi Minh trip 64 250 16,000 1,728,000 Allowance for local travels day 154 25 3,850 415,800 Accommodation for local staffs day 154 60 9,240 997,920 Training Venue set day 22 5,000 110,000 11,880,000 Study Tour person 30 5,000 150,000 16,200,000 Promotion (leaflet, booklet) set 1 26,500 26,500 2,862,000 Textbook for PFIs set 1 2,000 2,000 216,000
2-4. Total Cost of SMEFP III The total cost of SMEFP III is estimated as 13,417 million JPY. Table III-26 Cost Estimation of Phase III
Unit quantity unit price amount(USD) amount (JPY) C. Total Consultant fee 2,265,510 244,675,080 Remuneration of International consultant MM 58 1,566,000 169,128,000 Travel, allowance, accommodation 2,532 429,510 46,387,080 Remuneration of Local consultant MM 60 270,000 29,160,000 Direct cost 490,701 52,995,708 Sub-total 2,756,211 297,670,788 OLL 121,472,473 13,119,027,124 Total 124,228,684 13,416,697,912
143
3. Schedule
3-1. Estimated Disbursement Phase I experienced a slow disbursement and it took more than 3 years to fully disburse the 4 billion JPY fund. Comparing it with the less than 1 year to disburse the 6 billion JPY fund for Phase II, the disbursement speed was about 1/5 of Phase II. The improvement of speed for Phase II can be attributed to learning/experience on the OLL operations by the SBV’s and some of the PFI’s from Phase I and the tightening of monetary policy which made the long term funding cost of the OLL more attractive to the PFIs. The speed of On-lending Loan disbursement for Phase II was at the monthly rate of 25 loans and 87 billion VND per month (by the 9 PFIs), or 3 loans and 9.7 billion VND per PFI per month. Assuming this speed of disbursement for Phase III, and if SMEFP III’s fund size is double amount of Phase II, it may take 21 months (or less than 2 years) to be fully disbursed and if the fund size is triple amount of Phase II, it may take32 months (or less than 3 years) to be fully disbursed. The maximum month of disbursement recorded about 3 times more than the average month. This implies that ICPMU has a capacity to manage a larger number of OLLs from larger number of PFIs. If we assume 3 more banks as PFIs, the 12 banks can be assumed to disburse OLLs at a speed 33%(=12/9) faster than the speed of Phase II. In the latter case, and if the fund size is doubled from Phase II, the doubled amount could be fully disbursed within 16 months. Even if the fund size is tripled, it may take 24 months or just 2 years to be fully disbursed. Considering the improvement from the learning/experience from Phase I and II, and assuming an increase of the number of PFIs, it seems to be quite safe that the OLLs will be disbursed within 3 years, even if the monetary policy changes. Here we assume 3 years for the standard disbursement period for SMEFP III. Table III-27 Disbursement of OLL by Month (Phase II) Total of 9 PFIs Average PFI Month # of OLLs Amount of OLL (VND) # of OLLs Amount of OLL (VND) Nov 2007 7 29,945,000,000 1 3,327,222,222 Dec 2007 35 182,085,000,000 4 20,231,666,667 Jan 2008 22 68,678,000,000 2 7,630,888,889 Feb 2008 19 88,280,000,000 2 9,808,888,889 Mar 2008 59 234,595,000,000 7 26,066,111,111 Apr 2008 44 109,288,500,000 5 12,143,166,667 May 2008 11 17,308,000,000 1 1,923,111,111 Jun 2008 16 42,427,750,000 2 4,714,194,444 Jul 2008 14 13,702,000,000 2 1,522,444,444 Total 227 786,309,250,000 25 87,367,694,444 Average 25 87,367,694,444 3 9,707,521,605 Max 59 234,595,000,000 7 26,066,111,111 Min 7 13,702,000,000 1 1,522,444,444
Table III-28 Assumptions of Monthly OLL Disbursement (for Phase III) Disburse Cases ( 9 vs 12 PFIs) Number of PFIs: 912 Number of Loans/month 25 34 Monthly Disbursement (VND): 87,367,694,444 116,490,259,259
144 Table III-29 Disbursement Schedule of OLL by Month for Phase III
Disburse Months Disburse Months Case Fund size (JPY) VND/JPY Fund in VND (9 PFIs) (12 PFIs) 1 6,000,000,000 156 936,000,000,000 11 8 2 12,000,000,000 156 1,872,000,000,000 21 16 3 18,000,000,000 156 2,808,000,000,000 32 24
3-2. Selection of Consultant The following table shows a tentative time-line for the selection of consultants, assuming “all things go-well.” Considering substantial delay of selection of consultant in Phase II affected the total schedule of SMEFP II, it is recommended to stipulate a certain timeline for each process in which clarification shall be reported to JBIC in case of delay in Phase III.
Table III-30 Tentative Schedule for the Selection of Consultants
Tentative Required Task Deadline Months March 2009 L/A sealed Set-up the consultants hiring committee (SBV) March 2009 0.5 Request JBIC to recommend International Consultants (for short list) Short list (International) Consultants, Draft and finalize TOR, May 2009 1.5 receive approval from JBIC May 2009 0.5 Send out Request For Proposal to short listed Consultants
July 2009 1.5 Deadline for Submission of Proposals
August 2009 1 Evaluate Proposals and rank consultants
Selection and Contract with Consultant (Negotiate conditions September 1 with consultants, select consultant and receive approval from 2009 JBIC, sign contract and send Notice to Proceed.)
3-3. Schedule of Loan Component Assuming that a signed contract or a Notice to Proceed is sent to the consultants in September 2009, the following is the tentative schedule for the loan component, assuming a 3 year disbursement period. Table III-31 Time-line for the Loan Component Year 2009 2010 2011 2012 Quarter I Q II Q III Q IV Q I Q II Q III Q IV Q I Q II Q III Q IV Q I Q II Q III Q IV Q Loan Component (1) Credit (2) TA for ICPMU
145 Table III-32 Tasks and Schedule for the Loan Component Required Tentative Deadline Task Months Inception of TA (Submission of Inception Report to JBIC and SBV, October 2009 1 Commence first field mission, Inception Workshop in Hanoi.) Commence Second Field Mission, December 2009 2.5 Submit Draft Policy Manual, Selection of PFIs, Design MIS for Ph.III Submit draft to JBIC, receive JBIC's approval Minor Adjustments on MIS for Ph.III January 2010 1 Conduct PFI Workshop/Training for Project Operation of Ph.III (Initial disbursement of On-lending Loan.)
3-4. Schedule of Technical Assistance Component The duration of the TA component will be approximately 24 months, and the TA is expected to start in October 2009. When the SBV selects the international consultant, the consultants will propose a detailed schedule for the TA project, within their Inception Report. The rather long TA period is required for the technical assistance to upgrade the technology and productivity of the Vietnamese Supporting Industry. During the 24 months, pilot programs to facilitate the growth of SMEs in the SI sector should be implemented and the results should be monitored and assessed, while the consultants are engaged, as well as linkage programs with existing organizations to assist the growth of the SMEs after the TA period, without the assistance of the consultants. The following table shows a tentative schedule for the TA project: Table III-33 Time-line for the TA Component Year 2010 2011 Quarter I Q II Q III Q IV Q I Q II Q III Q IV Q TA Component (1) First TA programs (2) Interim Report (3) Second TA programs (4) Final Report
Table III-34 Schedule for the TA Component
Required Tentative Deadline Task Months Workshops/Trainings for capacity building (for SBV, PFI and SMEs) Enhancement of IT scheme and On-site technical assistance, etc. September 2010 8 Conducting Pilot Programs to develop SMEs in Supporting Industries Monitoring of SMEFP Promotion November 2010 1.5 Submission of Interim Report to JBIC and SBV, Discussion and Workshops/Trainings for capacity building (for SBV, PFI and SMEs) Enhancement of IT scheme, On-site technical assistance, etc. July 2011 8 Conducting Pilot Programs to develop SMEs in Supporting Industries Monitoring and Assessment of the impact of SMEFP III Promotion Submission of Draft Final Report to JBIC and SBV August 2011 1 Final Workshop in Hanoi September 2011 1 Submission of Final Report to JBIC and SBV
146
4. Framework of Operation and Management of Phase III
4-1. Executing Agency:
1. SBV as an Executing Agency (EA) SBV will perform EA for SMEFP III, as well as for Phase 1 and Phase 2. In the ODA applying mechanism in Vietnam, SBV as one of line agencies applied SMEFP III to MPI, and MPI, with an approval of the Prime Minister (PM), MPI requested SMEFP III. In responding to the MPI’s request, JBIC decided to make a SAPROF study after a discussion with SBV, and now the SAPROF Study is undergoing. Thus, the fact that SBV will perform the role of EA for SMEFP III is considered already approved by the PM. The SBV Law is expected to be revised and a new SBV Law with a vision up to 2020 will be introduced by 2010. However, even in this revision, SBV intends to retain the function of inspection and control of banks together with the role of accepting ODA for TSL fund. And, with such functions, SBV intends to continuously perform the role of EA for SMEFP III even after the SBV reform.
2. The Organization Plan to Implement the SMEFP III In Phase I SBV organized a Project Management Unit (PMU), and the PMU implemented the SMEFP I. In Phase II, PMU changed the name to International Credit Project Management Unit (ICPMU), and ICPMU implemented the SMEFP II. In Phase III, ICPMU will be assigned to implement SMEFP III continuously together with SMEFP I and SMEFP II with increasing required staff for the additional work. However, the size of expansion is not yet discussed, for the size and lending scheme for SMEFP III is not yet clear. In addition, ICPMU is planning to establish Center for SME Finance within the ICPMU for further sustainability of experience of SMEFP. The functions of the Center for SME Finance might be such as research and monitoring on SME finance, periodical survey of SME finance monitor, maintaining linkage with other relevant agencies and business associations to promote SME finance policy, evaluating effect of various projects related to SME finance, and activity planning succeeding the work of the Consultant, etc.
3. Agencies which can Perform EA for TSL in the future Vietnam Development Bank (VDB) makes policy lending to projects in the List of Eligible Projects for Investment Credit Lending, however they can not lend to projects which are not listed there. Any legislation on the activities of VDB (such as Decree No. 151/2006/ND-CP on Development Investment Credit, Decision No. 44/2007/QD-TTG on Regulation on Financial Management Regime of VDB, and Decree No.134/2005/ND-CP on the regulations on management of foreign loans and repayment) does not refer whether VDB can extend TSL or not. A table in the Annex 1 of Decision 181/2007/QD-TTg on the regulations on lending loans from the sources of foreign borrowings and grant of the Government refers “Two-step loans via the Policy Bank”, but this English translation seems not accurate and it should read more accurately "Credit programs through policy banks for on-lending to the subjects under the policy by the government". In conclusion, VDB is not supposed to extend TSL for their lending through PFIs. If there is a Prime Minister’s approval, VDB can extend TSL, and actually VDB has an exceptional TSL succeeding EU’s SMEDF as a temporary measure
147 until collection of the TSL funds on due. Other than this, there seems no case for VDB to have extended TSL. For VDB to extend TSL, they will need a revision of legislation to accommodate it. ASMED has a role to support SMEs, and if ASMED applies ODA for SME Finance through MPI, and if the PM approves, theoretically ASMED can perform the role of EA for SME finance TSL. However, ASMED is not provided a function of financing, and its personnel or the organization is not equipped with the knowledge or experience of finance and has no capability for it. At present there is no possibility that ASMED would perform EA for TSL such as SMEFP III. According to the information of the World Bank (WB), SBV performed the role of implementing agency for the Rural Finance Program Phase 1, however, by a view of WB that EA of TSL is not a function of a Central Bank, and after discussion with Vietnam Government, the implementation agency was changed to BIDV from its Phase 2. But the loan amount limit of the Rural Finance Program is 50 thousand USD in principle and the lending risk for PFI is limited. According to recent information, WB decided BIDV as implementing agency for Phase 3 of the Program after much discussion of its appropriateness. WB seems not fully satisfied with the performance of BIDV.
4. Involvement of Other Government Agencies with SMEFP III For the SMEFP III, the Consultant has an opinion to put emphasis on development of supporting industry SMEs in connection with the Vietnam-Japan Joint Initiative and Action Plan for Promotion of Supporting Industry under discussion, and on providing financial assistance to broader SMEs which do not have enough channel to get bank financing. In this connection the Consultant considers it better that MOIT and ASMED are involved in the SMEFP III for coordination. MOIT is in charge of formulating industry policy and its implementation, and they can assist formulating the target business sector for SMEFP III and in addition they can provide ICPMU with information related to finance needs and difficulties of finance in specific industrial sectors time to time. ASMED is in charge of formulating SME assistance policy and its implementation, and they can assist monitoring of effectiveness of assistance on supporting industry and SMEs. MOIT and ASMED are requested to assist SBV and specifically ICPMU of the SBV for the SMEFP III.
5. Organization of ICPMU The Director of ICPMU is responsible for all daily activities of ICPMU, including authorization of the disbursement of on-lending loans and proposing policy issues to the Board of Management for their approval. In order to ensure appropriate operational procedures, ICPMU organizes the following divisions: The current organization structure of ICPMU is shown in the Figure --- below. a) SMEFP Division The Division comprises the following functions: (i) Credit Management & Monitoring:
• examines and proposes the mechanism, management procedures and utilization of loans; • prepares report to the SBV’s Governor on the annual performance of SMEFP II at a regular Board of Management meeting; • provides necessary information and data to the SBV’s Governor for the irregular Board of Management meeting; • prepares necessary information and data to negotiate and discuss with JBIC and related authorities on issues arising during SMEFP II;
148 • conducts the accreditation of PFIs and prepares report to the Board of Management on the accreditation result of PFIs at their regular meeting; • prepares Semi-Annual Progress Report; and • coordinates with consultants in building and executing capacity improvement, technical assistance and training programs. (ii) Credit Appraisal:
• receives requests for on-lending loan release, checks the eligibility of end-borrowers and sub-loans and requests the Accounting Division to transfer funds from the RFA to the PFI; • monitors all credit activities of PFIs under SMEFP II and provides proper instructions and advice to PFIs; • coordinates with consultants in building and executing capacity improvement, technical assistance and training programs. b). Accounting Division This division is to undertake the following responsibilities:
• plans schedules for lending from JBIC and repaying to MoF; • carries out all procedures for transferring funds from the Revolving Fund Accounts to PFIs; • carries out all procedures for fund disbursements from JBIC, including the preparation of Requests for Replenishment; • keeps book of the RFAs and report to Director monthly; • prepares a Statement of RFA semi-annually; and • coordinates with consultants in building and executing capacity improvement, technical assistance and training programs. c). International project and Technical assistance Division This division is to undertake the following responsibilities:
• involved in planning for implementation of the project; • coordinates with consultants of JBIC for SMEFP II to undertake technical assistance component of the project; • coordinates with other technical assistance program on the matters relating to implementation of SMEFP II. d). Administration Division This division is to undertake the following responsibilities:
• coordinates with the SMEFP Division on the related matters during preparation and implementation of the SMEFP project; • provides other necessary administrative assistance for SMEFP consultants to undertake the technical assistance component of the project.
149
JBIC Project ICPMU Director (1)
Deputy Director （1) Specialist (1)
SMEFP Division Accounting Division Admin Division Int’l Project & TA Housing Finance Management division (8) (8) (7) Project (ADB) (6) (9)
Credit Management Financial accounting & Monitoring & Disbursement
Credit appraisal Accounting Division
Figure III-19 Organizational Structure of ICPMU for Management of SMEFP Project
150
FIGURE: Proposed Structure of SMEFP Phase III Disbursement Flow Repayment Flow Monitoring & Reporting
○3 Disbursement BOTM - initial deposit Vietcombank - replenishment
A/C [¥] JBIC [¥] ( ○ Initial de Initial 2 Request for Disbursement (30 yrsIncl. 10 yrs grace) (semi-annually) ○ p 7 osit Repayment , re [¥] [¥] ○
4 p Transfer Transfer lenishment [ ¥
] Monitoring & SupervisionMonitoring & )
MOF (Borrower’s Representative) Reporting
Special Debt Service
A/C Stand-by Fund (Initial deposit, replenishment) deposit, replenishment) (Initial ○ 1 Request for Disbursement (30 yrs Incl. 10 yrsgrace)
○ 5 (semi-annually) (semi-annually) Exchange & Transfer ○ 6 Repayment [VND] [VND]
SBV (Executing Agency)
Revolving Fund A/C @ non PFI Bank 3 Request for Loan Release 4 On-lending Loan Revolving Loans (reimbursement) (max. 10 yrs) 6 Repayment Supervision Reporting [VND] [VND] [VND]
Participating Financial Institutions (PFIs) 1 Loan Loan 1 Application (max. 10 yrs) 5 Repayment [VND, US$] [VND, US$] Monitoring 2 Sub- loan
Eligible SMEs (End- Borrowers)
Figure III-20 Executing Structure
151 4-2. Fund Allocation
4-2-1 Fund Allocation of Phase II ICPMU set tentative fund limit allocated to them, in which all Joint stock commercial Bank shall be allocated VND 50 billion and that of 2 SOCBs (Incombank and BIDV) is VND 100 billion. In the letter it also said that ICPMU shall base on the actual performance, needs and disbursement plan of each PFIs to consider whether to increase this limit or not. After the initial allocation, according to the rule of “first come, first served”, IMPMU allocated additional funds to PFIs which was going to finish previously allocated fund.
Table III-35 Fund Allocation to PFIs (Unit: VND billion)
Initial allocation final PFIs Interim Total (December 2008) (June 2008) ICB 100 180 20 300 BIDV 100 30 20 150 ACB 50 50 Sacombank 50 8 58 EAB 50 8 58 Tecombank 50 20 70 MHB 50 50 CCF 50 8 58 HDB 50 20 8 78 Total55025072872
4-2-2 Fund Allocation of Phase III According to the proposed loan scheme, the total fund is divided to the normal fund and Tier I fund. Table III-36 Normal Fund and Tier I Fund
JPY (billion) VND (billion) Normal 12 1,714 Tier I fund 1 143 Total 13 1,857
For the normal fund, amount of first allocation is 510 billion VND. The following allocation amount is combining 400 billion VND of Phase II and RFA of Phase I and II which is estimated around 110 VND.
152 Table III-37 Assumed Fund Allocation
Jan-10 Jul-10 Jan-11 Jul-11 Total Vietinbank (ICB) 80 BIDV 80 ACB 50 Sachombank 50 DAB (EAB) 50 allocated based on performance Techcombank 50 MHB 50 CCF 50 HDB 50 Total 510 510 510 514 2,044 SMEFP III 510 400 400 404 1,714 RFA 110 110 110 330
Initial allocation is simply divided to SOCB group and JSB group, with same amount for PFIs among each group. Starting at 2nd allocation, allocated amount for PFIs depend on the performance under the incentive system. Allocated amount for PFIs are calculated by the following formula.
Allocated amount fo PFI (n) = Total allocation of each time X share for PFI (n) Share for PFI (n) = f (standard deviation score of items (n) in a), b) and c)) Table III-38 Incentive System
Fund Incentive Eligibility/criteria Tier I fund Special fund sub-projects belong to supporting industry in the invested business sector, and the end-borrower is business partner (supplier of Japanese FDIs, or sub-supplier of Japanese FDIs), Normal Privileged Scoring (based a)Total Amount of sub-projects fund Fund on standard disbursement Amount of sub-loans allocation deviation Amount of OLL score) b)Supporting Amount of sub-projects industry Amount of sub-loans Amount of OLL c)Linkage Count of projects with linkage: contract with Japanese FDIs,
For Tier I fund, PFIs which have expected applications are entitled based on their request and allocated with equal amount. Entry PFIs are required to disburse the sub-loans within 6 months.
153 4-3. Approval Procedures of sub-Project including Environmental Impacts According to the recent report of the Ministry of Natural Resources and Environment (MONRE), although the SMEs have made a great contribution to the development of the national economy, the most weakness of SMEs is their low capacity in renovating and upgrading the technology. A majority of SMEs are using old and backward machinery and technology and the advanced machinery just account for around 10%. Although the level of pollution caused by the SMEs is not high, it happens on spread areas with diversified compositions and high agglomerations. Especially, most of SMEs are located in the living or residential areas, thus the prevention of pollution seem to be costly and complicated. The environmental protection is perceived by many nations to be prerequisite conditions indispensable in the current world trade. Thus, if the Vietnamese SMEs want to penetrate into the world markets, they must apply cleaner production; use the technology friendly to the environment and save the energy inputs. JBIC’s Guidelines for Confirmation of Environmental and Social Consideration (“the Guideline” here after) states that every project funded by JBIC must follow prescribed procedures in order to prevent or minimize the impact on the environment. In SMEFP II, it was prescribed that SMEs shall follow the Vietnamese law in terms of environmental compliance. However, according to the responses to the questionnaire distributed during SAPROF, it becomes clear that the implementation of this environmental consideration procedure varies from PFI to PFI. The table below shows the summary of results. It is true that some items may not be applicable to most sub-projects in SMEFP, since the scale is relatively small.
Table III-39 Actual Performance of PFIs regarding Environmental Protection Law and JBIC Environmental Guidelines PFI’s Answer Items “yes” “No” Other Check Authorization to invest 6 0 Check Construction Permit 6 0 Check if the project is involved in the 5 1 Environmental Sensitive Sectors 2 1 *Depends on each sub-project Check if resettlement of inhabitants over 200 * No as this case never happens persons is involved * No answer 2 1 *Depends on each sub-project Check if Large-scale groundwater pumping is * No as this case never happens planned * No answer Check if Large-scale land reclamation, 4 0 *Depends on each sub-project development, clearing or logging is planned * No as this case never happens Check if the Project is in Environmental or 4 1 * No as this case never happens Cultural Sensitive Areas or in their vicinity Have any other criteria and/or methods to assess 3 1 * No answer (2 PFIs) the compliance of SMEs on environmental regulations
In order to standard the practice of PFIs, it would be advisable to have clearer requirement upon both application and financing. In principle, the SMEs eligible to the SMEFP III must comply with and observe the Vietnamese legislations on the environmental protections which are detailed in Annex III-4 attached and further
154 refereed in this section. However, it should be noted that the Guideline has its screening criteria that defines what kind of measures are to be done (for screening criteria refer to Annex III-5 attached). According to the Law on Environmental Protection in Vietnam, for carrying out an investment project, an enterprise is required to either (As the Strategic Environmental Assessment Report is not applicable to the SMEs, it is not further mentioned in this Section). - obtain the Decision on approval of the Environmental Impact Assessment Report (EIAR) and then the Certification for implementing the content of the approval EIAR; or - obtain the Certificate of the Environmental Protection undertaking (EPC) under the following illustrated procedures:
1 2 3 4
Making Approval decision of Checking the Certification on EIAR by DONRE or implementation of EIAR by implementing EIAR MONRE DONRE and/or MONRE EIAR
Undertaking on Registration of Certification on the environment undertaking at the undertaking registration by protection district PC the district PC
1 2 3
Figure III-21 Procedures to Obtain Environmental Related Papers
Under the Vietnamese law, EIAR is compulsory to such investment projects defined by the Law on Environmental Protection as: - National important projects; - Projects using part of the land of or causing an adverse impact on a natural conservation zone, national park, historical and cultural site, natural heritage or beauty spot which is classified - Projects with a potentially adverse impact on a river watercourse, coastal area or area containing a protected ecosystem; - Projects for construction of infrastructure of an industrial zone, high-tech zone, industrial group, export processing zone or handicraft village group; - Projects for construction of a new urban zone or concentrated residential area; - Projects for exploitation and utilization of groundwater or natural resources on a large scale; - Other projects with a potential risk of causing an adverse impact on the environment.
The list of investment projects for which an EIAR must be made and submitted to the DONRE/MONRE for approval as stipulated in Decree 80, is given in Annex III-5 attached. In the context of SMEFP III, it seems only a few cases would be subject of EIAR, which is designed for large scale projects. Also, it is worth noting that the requirement prescribed above is relatively
155 concrete than that of JBIC’s Guideline (for comparison of Vietnamese law and JBIC’s Guideline, refer to Annex III-6). For any investment projects which are not those mentioned in Annex III-7, the investors (e.g. SMEs) shall be required to submit the undertaking letter for environmental protection so as to get the certification (EPC) from the district People's Committee. This certificate is required to all enterprises which is not the subject of EIAR or the Strategic Environmental Assessment Report (SEAR is to cover higher level of projects). Therefore, the applicant-SMEs are expected to have EPC in advance upon loan application of SMEFP. For SMEFP III, the SAPROF team would recommend that any eligible SME must submit together with their application for sub-loan under the SMEFP III, either: (i) The copy of EIAR with the Decision on the approval of EIAR issued by DONRE/MONRE or (ii) The copy of Undertaking of Environmental Protection and the Certification registration of Undertaking of Environmental Protection issued by the relevant district people's committee. Since those papers include declaration of measures to minimize impacts to environment, these papers are to be used for monitoring of environmental compliance by PFI (For the details of monitoring procedure, refer section 3-4-6). It would be decided by 1) the Law on Environmental Protection in Vietnam and 2) the screening questions of the Guideline that which paper is necessary. Thus, the approval procedure for sub-project and sub-loan consists of 3 steps as well presented in the layout below:
SME – Loan Applicant
Step 1: Submitting the Loan Application by SME
Fails Step 2: Evaluation Evaluation of the Application by by PFI PFI (--)
(+) Passed Step 3: Approving and signing the sub-loan agreement Signing the sub-loan agreement
Figure III-22 Approval Procedure for sub-Project and sub-Loan
Under Step 1: The SME shall prepare and submit to the PFI a sub-loan application dossier which shall contain, in addition to other documents, entered screening form (checklist filled by applicants to review if it corresponds to any criteria by JBIC’s guideline) and the environmental related papers such as:
- The EIAR and Decision on approval of the EIAR (see the sample form in Annex III-8 attached) in case their investment project falls under the List in Annex 3, which is subject to compulsory EIAR.
156 - The Undertaking of Environmental Protection and Certification on Registration of Undertaking Environmental Protection (EPC: See the sample form in Annex III-9 attached), issued by the related district people's committee where the SME's premise is located. It is noted that under this step, the PFI should inform the SME-Applicants of the requirements on the eligibility for SMEFP III in terms of environment for their subsequent proper preparation of the sub-loan application dossier. In order to ease the operational burden of PFIs, it would be advisable to have simple criteria as a form of checklist so that PFIs can easily judge whether an applicant needs to submit EIAR or not. Also, the PFI shall assist the SME-Applicants when they are not sure about how to comply the requirements to get those relevant official papers. For example, it may happen that an applicant who has already got certification on registration of Undertaking of Environmental Protection is not sure whether their sub-project is subject of revising the registered undertaking. In that case, PFI is advised to inquire authority, such as DONRE on behalf of the applicant.
Under Step 2: When evaluating the sub-loan application dossier, the PFI shall be required to check about the eligibility of the SME-applicant on the aspect of environment as follows:
- To check whether the investment sub-project falls under the list of compulsory EIAR. If so, the sub-loan Application Dossier should include the EIAR and the Decision on the Approval of EIAR.
- To check whether the project is classified as category A under the Guideline. If so, the applicant must submit the EIAR and the Decision on the Approval of EIAR.
- To check whether the sub-loan Application Dossier contains Under taking of Environmental Protection and the Certification on Undertaking Registration of Environmental Protection in case the sub-project does not fall under the list of compulsory EIAR Failing to have such papers, the sub-loan Application Dossier shall be temporarily rejected and the SME-Applicant shall be required to supplement those papers as soon as available so as to be eligible to SMEFP III and to come to Step 3. However, the application shall be admitted in the case that the issue of certificate is delayed by authority’s circumstances. The SME-Applicant should explain the situation to PFI and submit the certificate later.
Under Step 3: Once meeting the eligibility requirements on all aspects, including the environment as said above, the SME and PFI could sign a sub-loan agreement and disbursement could be made afterwards. PFIs shall be required to do the monitoring works for environmental impact so as to ensure the good compliance of SME with: (i) the EIAR and Decision on the approval of EIAR; or (ii) their undertaking on the environmental protection (See – more details in Section 3-4-6).
157 4-4. Monitoring and Reporting Scheme based on MIS:
4-4-1. Simplify Monitoring and Reporting
1) Reporting and Monitoring Impact on SME i. On-lending Loan Application To ensure the collection of new operation and effect indicators, stipulated in the Oct.22, 2004 Minutes of Discussions on SMEFP II between JBIC and Vietnam, and other socio-economic indicators, the application form in Phase II has been slightly enlarged to collect some statistics. The added items are; Sales and Profit of beneficiary SMEs, and “experience of access to mid-long term loan”. However, if the monitoring reports on SMEs can be done periodically, some of the reporting items added in the OLL application form (such as sales and profits) can be taken out, and the application form of Phase I and II will be closer. ii. Ad hoc Monitoring Reports SBV has been practicing the collection of sub-loan and borrower information through ad-hoc/semi-annual “Monitoring Reports”, which was not mentioned in the Phase I reporting manual. Phase II also implemented a similar monitoring report sheet to monitor the borrower and the sub-loan. The reporting manual for Phase II clarified that ICPMU may conduct ad-hoc surveys, and listed an example form in the reporting manual as a form that may be used by ICPMU. However, in order to ensure proper monitoring, these monitoring should be done periodically, not on an ad-hoc base. Only in case, when the disbursement of the JBIC fund is completed within a year, there may be a need to conduct an ad-hoc survey on SMEs to identify the impact.
2) Reporting and Monitoring Impact on PFI Request for On-lending Loan Release As the ICPMU should monitor the scheduled sub-loan date and its actual disbursement date, and check eligibility of the sub-loan, a table was attached in the Phase II Request form to be used for checking the claimable JBIC amount, and if the sub-loan has been disbursed before the request of OLL release. However, if Phase III allows OLL disbursement regardless of (prior) SL disbursement the reporting forms, there may be no need to add this table to monitor the SL disbursements.
3). Improve Consistency with PFI’s Customs and Practice Monitoring the business sectors will become an important reporting item in Phase III, as it would be one source to confirm that the SME belongs to the Supporting Industries. However, discussion with PFIs revealed that PFI credit officers and SME owners may not have a clear definition of their main business line and hence they face difficulty in reporting the business sectors. Moreover, there seems to be some popular business models in Vietnam that have multiple business lines that are closely linked and difficult to differentiate, such as transportation companies that provide automobile repair services and parts trading business for other transportation companies and private car owners. Although the Phase II reporting manual provides instructions to report the main business in terms of revenue, SMEs or PFIs may not have the accurate accounting/information system to define the business lines. Hence, careful definition should be provided in a way that credit officers can
158 understand and should be trained to report the accurate business sector and identify whether it is in the supporting industries or not. This requires careful definition in the Reporting/Operation manual and also some training/workshops and incentives (and careful monitoring by SBV) should be introduced to draw the banker’s attention for accurate reporting.
4-4-2 Upgrade of MIS
1. Direction 1) Integrate MIS for Three Phases Now there exist two kinds of MIS, one for Phase I and the other is for Phase II. The report layout and usage of MIS is different. Because of this, some staffs at PFI have to memorize two methods. If the usage was same, they could work more efficiently. In addition, if monitoring report is integrated, ICPMU and JBIC can check the status of loan more easily and management work lord must be decreased. 2) Upgrade the Specification of MIS If MIS of three phases are integrated, data volume must be much larger than the current size. There exists over 400 loan data in Phase I MIS, and the data of Phase II MIS will be increased in a couple of years although it remains to be still around 250 loans. Assuming the total funds amount of three phases over 20 billion JPY, amount of disbursement record and repayment record will be around 30,000. This may be too big for MS-Access. If three MIS is integrated, platform of MIS must be upgraded. 3) Improve Usability In order to integrate MIS, report layout and business procedure must be integrated. There are some inconsistency of the format between Phase I and Phase II, such as the difference of the unit of “On-lending loan amount” in On-lending loan application (the unit in Phase I is “mil VND”, but in Phase II, it was changed to “VND”, for example). 4) Re-use the Current Programs as much as Possible In order to develop new MIS faster and cheaper, the consultants recommend re-using current programs as much as possible. If the report layout will be changed, some programs need to be developed again. But the functions for making accounting report, managing On-lending loan repayment and interest calculation are expected to be same as Phase II. It’s expected that around 60% of current program code can be re-used. Thinking simply, if all program code will be developed in Phase III, it needs more than twice budget as estimated for re-using development. 5) Additional Functions In order to further support ICPMU and PFI, the consultants propose the following functions. a) Security Keep the log file which record that who changed loan data, what items they changed and so on. Develop the screen for checking the above log file. Using this screen, the managers can check the activities of that day. If someone tries to change data dishonestly, it also can be checked. b) Convenience Develop Vietnamese Report and screen. Develop the function to let operators select the language. Develop the function to let PFI check the status of the On-lending loan, approved or not.
159 Develop the function to move the credit limit, which was set up by ICPMU, to PFI. Develop the function to manage the balance of RFA. List of new functions are shown in Annex III-10 . 2. Structure of New MIS In order to upgrade platform and to re-use MS-Access programs as much as possible, the consultants recommend the following development plan. Adopt “SQL Server”, which is a data base management software of Microsoft company and which is a middle range and high end product of Microsoft. Move MS-Access programs from server machine to each client PC. Comparison of the current structure and new structure is show in the chart below.
160
< Current structure >
PFI
ICPMU
MIS
Virtual PFI Private Network
MIS
MIS MIS include data-base and MS-Access program. < New structure >
PFI
ICPMU MS-Access Program
MIS MS-Access Program
Virtual PFI Private Network
SQL Server
Data-base is separated from program. MIS Data-base is managed by SQL-Server.
MS-Access program is located at each PC.
Figure III-23 Structure of MIS
As described above, SQL-Server is middle range and high-end product. If total amount of record is around 30,000, SQL-Sever can manage them. If MS-Access program will be used continuously, it’s better to use product of Microsoft so that development is easy and more stably. Regarding PFI site, the consultants recommend no changing structure, because, even if MIS of each phase is integrated, amount of loan at each PFI site is manageable in MS-Access. It’s estimated around
161 several hundred loans, which MS-Access can manage, because each PFI has own policy or regulation and some another software might be prohibited to install. Regarding Hardware, the consultant estimated current server machine has enough capability for working SQL-Server. But it’s better to add more memory up to 1GB. Now MIS Server has 512MB memory, this is minimum size for working SQL-Server. Adding more memory, it must work more smoothly.
3. Comment for Web Application ICPMU originally preferred web application for new MIS, but the consultant did not agree this opinion because of the following reasons. 1) Less Availability PFI could not operate MIF while ICPMU turns off MIS server because database and program needs to be centralized. 2) Inconvenience Each PFI has its own security policy or regulation and some PFI has a limitation of Internet connection. 3) Dissatisfaction for the Requirement from PFI At the beginning of Phase II project, some PFI requested they wanted to use MIS data base for their own management purpose. Actually, some PFI has already added their program code into MIS Phase I for data analysis and making their internal report. If data base and programs are centralized at ICPMU, they can not do it. 4) Less Benefit Basically, the benefit of web application is that it can be connected to many persons via Internet, while web application is weak in security. MIS of SMEFP is used by quite limited person and data should be secured.
4. Software Maintenance In the future, MIS might be necessary to be revised because of changes in regulation or usage requirements, etc. In order to cope with this, ICPMU is recommended to contract with an IT company on maintenance.
5. Training The consultant found in SAPROF activities that some PFI didn’t understand the usage of MIS well and they asked more explanation. The consultant explained usage again beside the SAPROF activities. In order to avoid the same issue, the consultants propose to implement longer term training in Phase III. In Phase II, they implemented half day training for each site, Hanoi and HCMC. But they would like to make it long to 2 days for each site. The details are described in below.
162 Basic Plan of MIS Training for ICPMU
1 Purpose For the smooth operation, teach staffs who will use MIS how to use MIS and make them operate new MIS following new business procedure.
2 Place Hà nội ( Recommendation at the conference room in ICPMU)
3 Term About 03 days (it may be changed depending on amount of MIS training contents of MIS Operation Manual and the number of attenders. First day for MIS Presentation. Second day for practice, questions and answers. Third day for On-Job training )
4 Contents - Functions of new MIS - Presentation to explain usage of each screen - Practice
5 Training Method - Using Projector for MIS presentation and training
- Preparing PC Desktop for user training and practicing (About 01 PC sharing for 2 or 3 participants) - Content of training for Accounting Division and Credit Division (They can join each other if necessary)
6 Materials - MIS Operation Manual - MIS Training Manual (This is a booklet, It brief main functions of new MIS and exercise for MIS training) - Loan data samples
7 Attendee - Credit officer, Accountant and other department at ICPMU
8 Preparation - researve the place where the training will be implemented - prepare projector and PCs - make MIS Training Manual
Basic Plan of MIS Training for PFIs
1 Purpose For the smooth operation, teach staffs who will use MIS how to use MIS and make them operate new MIS following new business procedure.
2 Place Hanoi and HCM City (at presentation room of developer or Hotel)
3 Term Hanoi: 02 days HCMC: 02 days (it may be changed depending on amount of MIS training contents of MIS Operation Manual and the number of attenders. First day for MIS Presentation. Second day for practice, questions and answers )
4 Contents - Functions of new MIS - Presentation to explain usage of each screen - Practice
5 Training Method - Using Projector for MIS presentation and training
- Preparing PC Desktop for user training and practicing (About 01 PC sharing for 2 or 3 participants)
6 Materials - MIS Training Manual - Loan data samples
7 Attendee - Credit officer and other staffs at PFI
8 Preparation - researve the place where the training will be implemented - prepare projector and PCs - make MIS Training Manual
4-5. Monitoring of PFI Performance As accreditation process, scoring shall be is updated according to scoring formula annually based on latest information such as annual reports provided by PFIs.
163 Besides, as a process of fund allocation described in 3section -4-2, performance of PFIs shall be appraised. On top of those monitoring which are necessary for operating the loan scheme, the consultants recommend the executing agency to implement monitoring basic statistics figures in order to have overview of the disbursement from time to time. Statistics to be monitored might include 1) average amount of sub-project, sub-loan and OLL, 2) leverage ratio, 3) composition of business sectors by number and amount, and 4) composition of investment purpose by number and amount, etc. Table III-40 Overview of Loan Disbursement by PFIs of Phase II
OLL Average Leverage Count of Main Number of Total Amount OLL Amount SL Amount SP Amount Business SL/OLL SP/OLL SP/SL OLL (mil. VND) (mil. VND) (mil. VND) (mil. VND) Sectorｓ ACB 4 14 25,630 1,831 3,180 4,173 1.74 2.28 1.31 BIDV 5 26 135,847 5,225 7,088 10,225 1.36 1.96 1.44 CCF 6 43 51,074 1,188 1,585 2,760 1.33 2.32 1.74 EAB 8 20 40,432 2,022 2,762 4,077 1.37 2.02 1.48 HDB 4 7 56,125 8,018 10,847 14,899 1.35 1.86 1.37 ICB 8 55 274,849 4,997 6,665 11,610 1.33 2.32 1.74 MHB 4 9 14,420 1,602 2,151 3,095 1.34 1.93 1.44 STB 5 12 15,518 1,293 1,724 2,690 1.33 2.08 1.56 TCB 5 16 50,740 3,171 4,228 7,803 1.33 2.46 1.85 Total 13 202 664,634 3,290 4,474 7,190 1.36 2.19 1.61
Table III-41 Overview of Business Sectors by PFIs of Phase II
Agricult Healthc Constru Distribu Public ure, are, Import- Printing, Wholesa ction, tion, Manufac utilities, Transpo no Forestry Educati Export Mining Other Publishi le, total Enginee Wareho turing Infrastru rtation data , on, Trading ng Retail ring using cture Fishery Training ACB 12 1 4 3 20 BIDV 2 5 15 1 3 26 CCF 7 14 3 2 1 20 47 EAB 1 5 1 5 1 1 6 1 21 HDB 1 4 1 2 8 ICB 3 6 1 14 1 1 29 4 59 MHB 1 1 1 6 9 STB 1 2 6 2 8 19 TCB 1 4 3 1 10 19 Total16381116237118692228
4-6. Monitoring for Environmental Impacts As stated in section 3-4-3, the Environmental Impact Assessment Report (here after “EIAR”) or Certificate of Environmental Protection Undertakings (here after “EPC”) would be required to show considerations for environmental impacts. However, it is not enough to check the impact only upon loan application. In order to ensure that SMEs under SMEFP III fulfil those requirements continuously, PFIs should add them to monitoring works. When submitting for EIAR or EPC, SMEs are required to subscribe details on environmental impacts and measures to minimize negative impacts. PFIs shall review SMEs practice whether they execute the measures as stated in those official papers. As monitoring works, procedures can be designed in coordination with required official paper such as EIA Report and EPC. PFIs shall conduct monitoring by request of SBV, so that SBV can report to JICA as part of its periodical reporting.
164 1. For PFI PFIs shall monitor the SME by checking if they implement the measures that the SME described in either EIAR or EPC. Thus, PFIs shall visit the SME with a copy of EIAR or EPC and ask SME to show how they put their declared measures in practice. This process would include action such as confirmation of existence of certain equipment put to reduce wastes. All the measures in paper are to be checked even if it may seem not related to financed sub-project directly. (*The idea here is that it is necessary to check the eligibility of a SME in terms of environmental compliance as a whole enterprise). PFIs need to fill up form 1 (attached as Annex III-11) about every SME, as reporting to SBV. If it is found that any SME fails to fulfil their requirement, PFIs should be responsible to advice them for improvement in terms of environmental compliance.
2. For SBV Although the monitoring operation is transferred to PFIs, it is SBV who is responsible for confirmation of environmental consideration in SMEFP III. Thus, SBV shall be able to report JICA about the implementation based on report provided by PFIs. SBV shall encourage PFI to fill in form 1 in English, but if any PFI is not able to do so, SBV should translate.
In addition to monitoring works, there should be some enlightenment activities for SMEs. Since considerations on environmental protection is not regarded as important in Vietnam yet, it is necessary to appeal its importance. In order to spread the idea among PFIs and SMEs, seminars may be hold for staff of PFIs and directors and/or managers of SMEs. Not only the contents of seminars are important, but also its attendance can be regarded as one indicator of monitoring for environmental consideration activity of SMEs. As an idea, those seminars can be co-sponsored by SMEFP and VCCI (especially its Small and Medium Enterprise Promotion Center), who has close relationships with Vietnamese enterprises and experience in providing training or seminars. The brief outline of the seminar is as below. Table III-42 Image of Seminar for Dissemination Environmental Consideration
Number of Host Target Contents Place Frequency attendee SMEFP PFI Practice of screening and 20-30 Hanoi Once (at the monitoring in terms of (2-3 / PFIs) HCMC beginning of environmental considerations Phase III) SMEFP & SME Importance of environmental 200 Hanoi Semi-annuall VCCI (Director) considerations for business Da Nang y opportunity HCMC SMEFP & SME Importance of environmental 200 Hanoi Semi-annuall VCCI (Manager) considerations in terms of daily Da Nang y practice HCMC
For PFIs, it is necessary to make them understand the importance of environmental considerations and be able to confirm it in practice. Therefore, both the concept and operation should be clearly explained to them. For directors of SME, it is important to inform them two main issues. First one is that under the current situation that the Vietnamese Government is getting stricter to regulation on environmental protection, environmental consideration activities cannot be neglected even among SMEs. Secondly, in order to expand the business such as having transactions with foreign companies, it would be
165 helpful to have good reputation if a SME can show suitable practice of environmental considerations. For managers of SME, it should be informed that environmental consideration is necessary in terms of daily business such as to protect employees and nationhood residents’ health. To ensure the implementation, it would be helpful if SMEFP III prepares environmental protection manual (brochure). The manual may be distributed to SMEs through either PFIs or seminars so that employees of SMEs have opportunity to learn the importance and ways of environmental protection activities.
4-7. RFA Management
4-7-1.RFA Management in Phase I In Phase I loan fund is allocated to 4 PFI in a few occasions at the time of 1st generation OLL disbursement. Revolving Fund Accounts (RFA) in the name of SBV/ICPMU are opened and maintained at the respective PFIs. The repaid funds of sub-loans are deposited to the RFA maintained at the PFI, and used for new OLL fund. However, in Phase I the disbursements by PFIs are rather slow at the initial stage, and some PFIs are not so active in promoting the loan, and a big balance of RFA fund was remained in the RFA. For such PFI, ICPMU took a measure to withdraw a certain amount of fund from one RFA and transferred to more active bank’s RFA which leads to fund allocation adjustment. The trend of the balance of the RFA for Phase 1 is as the table below. Recently the balance of RFA is rather high and the RFA balance reach almost 17.9% of the total JBIC Fund. The PFIs rather used Phase II fund instead of Phase I and this may be explained that the OLL interest of Phase 2 which is 364 days T Bill rate is lower than average weighted deposit interest rate at the time and another is to give impression of their activeness in SME finance in newly started Phase II. ICPMU monitor the RFA balance everyday, and recently ICPMU is managing to concentrate the RFA balance to one account, Vietinbank. Current balances as of June 30, 2008 of respective RFAs are shown below.
Table III-43 RFA Balance for Phase I
(million VND) Category 6/30/05 12/30/05 6/30/06 12/31/06 6/30/07 12/31/07 6/30/08 Opening Balance 1,430 23,489 37,439 64,543 28,288 56,158 73,574 Disbursement from MOF 54,616 Repyment of Sub-Loan 58,022 87,989 76,400 81,376 76,034 92,154 91,101 Total Revenue 114,068 111,478 113,839 145,919 104,322 148,312 164,675
Sub-Loan Disbursement 90,579 74,039 49,296 117,631 48,164 74,738 75,166 Closing Balance 23,489 37,439 64,543 28,288 56,158 73,574 89,509
Total JBIC Fund 500,000 500,000 500,000 500,000 500,000 500,000 500,000
RFA/Total Fund (%) 4.7% 7.5% 12.9% 5.7% 11.2% 14.7% 17.9%
Notes: The Breakdown of the closing balance of RFA into respective RFAs RFA Bank 6/30/08 as of 06/30/08 is shown in the table on the right. Vietinbank 62,887 BIDV 21,532 ACB 55 DAB 5,037 Total 89,510
166 4-7-2. RFA in Phase II In Phase II, RFA is integrated and kept as two RFA accounts with non-PFI bank. One RFA is RFA for disbursement which is used for receiving JBIC disbursed fund and used for lending 1st generation on-lending loan (OLL), and another is RFA for repayment and used for 2nd and succeeding generation OLL and for the fund to repay to JBIC. The OLL is supposedly disbursed by first come first served principle. At first a certain portion of fund is allocated to all the PFIs to avoid that only a few PFI would take big portion of the total fund. And at first come first served principle worked. The disbursement of OLL started from 1st November 2007, but the disbursement is very quick, and by June 2008 85% of JBIC fund is disbursed. The balance of OLL is very low. However, after the 1st generation the aggregate OLL amount for respective PFI is becoming their allocated fund. The allocated fund may be reviewed from time to time, but first come first served principle now may not work well. The trend of the balance of the RFA for Phase 2 is as the table below. Table III-44 RFA Balance for Phase II
(million VND) Category 12/30/05 6/30/06 12/31/06 6/30/07 12/31/07 6/30/08 RFA Opening Balance 0 271,980 271,980 271,980 271,980 51,213 Disbursement from MOF 271,980 67,519 429,818 Repyment of Sub-Loan 0 0 0 0 0 38,013 Total Revenue 271,980 271,980 271,980 271,980 339,499 519,044 1st Gene. SL Disb'ment 0 0 0 0 288,286 478,526 2nd Gene. SL Disb'ment 0 0 0 0 0 16,000 RFA Closing Balance 271,980 271,980 271,980 271,980 51,213 24,518
JBIC Loan Disbursed 272,000 272,000 272,000 272,000 340,000 770,000 JBIC Loan Total 900,000 900,000 900,000 900,000 900,000 900,000 RFA/JBIC Joan Disb. (%) N/A N/A N/A N/A 15.1% 3.2%
Notes: Total of RFA for Disbursement and RFA for Repayment. RFA are maintained at VBARD Hanoi Branch
4-7-3. RFA in Phase III In Phase 3, the RFA shall be similar with Phase 2, two RFA, namely RFA for disbursement and RFA for repayment and these 2 RFAs shall be opened at non-PFI bank. The fund will be allocated to respective PFI, according to the evaluation of incentive measure as discussed in section 3-4-2-2 The allocated fund will be reviewed annually or hopefully semiannually. In fund allocation, not only the available JICA disbursed fund, but the semiannual scheduled repayment fund should be estimated, and utilize the data for next term fund allocation. For this purpose, more detailed fund management of RFA is required. Estimation of repayment schedule of OLL needs to be collected by MIS.
Unified Fund Allocation of Revolving Fund Accounts Under the present system, Phase I has 4 RFAs at the respective PFIs. In Phase II, there are 2 RFAs, but as soon as the 1st generation OLL is disbursed, the RFA for disbursement will finish its role and only RFA for repayment is in use. The unification of RFA of Phase I or together with Phase II RFA seems difficult. As such it is recommendable to consider unified fund allocation among PFIs. If PFI A is considered that fund allocation is appropriate of such and such, then overall fund of
167 Phase I Phase II and Phase III will be totally considered. In case adjustment is needed in Phase I fund, transfer of some fund from one PFI to another PFI might be considered.
168 5. Monitoring Indicators
5-1. Expected Impacts on Various Challenges 1) Impact on Supporting Industries Some of the challenges for Phase III would be to navigate the funds toward the supporting industries and assist the capacity building of the SMEs in these industries. The expected impact from these activities would be the growth of production orders, revenues and loan amount as well as upgrade of equipment and technology of SMEs that borrowed a SMEFP loan. 2) Impact on SMEs Access to Financial Sources The other challenge would be to help PFIs and SMEs that have difficulty of financing to find bankable projects. The impact would be the growth in revenue, profits, capital and employees for SMEs, which may typically have no long term loan experience. Phase II has implemented the monitoring of “first time long term loan borrowers” through the loan application form. This should be continued to monitor the difficulty of SME’s access to long term funds.
5-2. Operation and Effect Indicators 5-2-1. Indicators of SMEs In order to monitor the above impact, the following information of the SMEFP borrowers should be monitored periodically: •Revenue, •Before Tax profits, •Number of employees •Long term loan experience •Business sector •Supporting Industry sector (Yes / No) •Market value of equipments (if not available: value of fixed assets) •Indicators of technology upgrade (certificates of training in production management, etc.) •Production orders (new amount) from FDIs
5-2-2. Indicators of PFIs In order to monitor the above impact, the following information of the PFI should be monitored periodically: •SMEFP (sub-loan) Loan amount •Supporting Industry Loan Amount •SME loan amount
169 5-2-3. Linkage with Japanese Enterprise The supplier linkage or the Equipment linkage with Japanese firms could be identified by asking the SMEs about their (FDI) buyer or manufacturer of high value equipment. Such monitoring could be done by adding questions in the application format or in the periodical SME monitoring sheet or by conducting a questionnaire regarding their interest for business matching with a Japanese enterprise. The SME borrower may present a copy of their scheduled order from a Japanese firm to show their capability at the time of their credit evaluation. Although there will be no legal binding, this could be a supporting evidence of a bankable project, if the scheduled order is in line of a standard Japanese order/testing process, which could be explained to PFIs during Phase III.
5.2.4. Linkage with SME Assistance Depending on the Linkage with other organizations, SME assistance such as business matching and technical assistance could be provided by collecting information of the SME borrower, through questionnaires.
170 6. Expected Types of sub-Projects to be Conducted within 6 Months from L/A 6-1. Typical Needs and Challenges SMEs that have good products and production technology are facing growing demands from the domestic growing economy, as well as from FDIs and exporters. These SMEs are seeking to enhance their production capacity. However, due to the tightening of monetary policy many SMEs are not able to access enough funding sources and there is growing demand from the banking sector are also short in long term funding as depositors are seeking short term time deposits and the stock market is not active. The Sub-projects from Phase II show that manufacturing companies are located in the South side of Vietnam. However, equipment financing is active in the Central Highlands.
100% Transportation
90% Wholesale, Retail
80% Public utilities, Infrastructure
70% Printing, Publishing
60% Other
Mining 50%
Healthcare, 40% Education, Training Distribution, Warehousing 30% Agriculture, Forestry, 20% Fishery Construction, Engineering 10% Manufacturing
0% Central Mekong River North West Red River Delta South East Highlands Delta
Source: MIS of SMEFP II
Figure III-24 Business Sectors of SME Borrowers by PFI
171 Table III-45 Objectives of Financing by Region
Building for Machinery or Other Building Vehicles Total Plant/Factory Equipment North (North West+Red 28% 22% 1% 49% 100% River Delta) South (Mekong River 35% 23% 5% 37% 100% Delta+South East) Central Highlands 44% 32% 0% 24% 100% Source: MIS of SMEFP II
6-2. List of Expected sub-Projects During SME hearings, a few examples of projects that require financing in the next year have been identified. The common issue is to finance the high cost of high quality machining equipment to satisfy the quality requirements from Japanese FDIs.
1) Garment Mechanical Company - Need about 10 billion VND to replace and upgrade equipments - Getting difficult to borrow from banks due to monetary policy, and may need working capital as customers are delaying payments. 2) PCBs (Printed Circuit Boards) maker - Supplied to British and Korean Electronic companies. Now supplying to Cannon. - Technology/Production facilities: Surface Mount Technology (SMT – upgraded techonology), Auto Insert Technology (older technology) - Need 1 million USD to install 2 more SMT machines and other machines to meet Canon’s demand. 3) Gear Manufacturing Co. - Thinking of buying land in an industry zone, and setting up a factory building , size of 1000 m2. Current rented location is already crowded and the owner, Military, suddenly asks tenants to move out. - Requires factory investment of 2-3 billion VND. 4) Small Motorbike (moulding) parts Co. - Need 3 more new manufacturing machines: Costs 400, 000 USD total - Would like to borrow 70%. 10 years but wish to have a longer loan - Wish if PFI evaluates the financed asset more. - Collateral problem: takes time, took 2 month to get the LUR papers. 5) Larger Motorbike (steel) parts Co. - Would need new manufacturing machines (Digital CNC equipment, Robots for manufacturing) to produce new products for Japanese Company under discussion, and always need to change/upgrade equipment - Size: some hundred thousand USD, 3D measuring machine costs 100 thousand USD, need at least 3machines.
172 - Long term: minimum 5 years, because machine is expensive and hence break even point is long
6-3. Tier I Enterprises: Tier I enterprises are defined here as firms that satisfy the following: - Suppliers with a contract with a Foreign Direct Investment (FDI) firm - Manufacturer of parts & components, processing, raw materials, and equipment for FDIs producing Automobile/Motorbikes, Electronics and Machinery - Majority of share/equity held by Vietnamese private owners/companies (LLC or JSC), or a Vietnam State owned company which is officially in the process of becoming a Joint Stock Company or already converted into a JSC. These Tier I enterprises may or may not be SMEs, but Tier I enterprises can bridge the technology and marketing gap between the FDI and Vietnamese SMEs in the Supporting Industries. SMEs in the above sub-project 1), 2), 4), 5) can be considered Tier I, but SME in case study 3) does not supply to FDI and is not Tier I.
Some of the Tier I enterprises can be found from the following: - VCCI’s List of Companies in the Supporting Industry - JETRO’s Exhibitor Directory at their Exhibition on Supporting Industry, Nov., 2007 - TAC-Hanoi’s Enterprise Directory covering the Supporting Industries and List of the members of the TAC Network for SME Development However, the information in these lists is limited. The original VCCI list contained 159 companies (34 in Auto, 21 in Electronics, 104 in Mechanical). After eliminating companies which lacked sufficient description of their business, majority ownership and FDI customer information, the list had only 4 candidates that can be identified as Tier I enterprises. Likewise, the JETRO directory had 53 selling companies, but only 11 companies revealed enough information to show that it was a Vietnamese Private SI manufacturer in the Automobile/Motorbike, Electronics and Mechanical Industries, supplying to FDIs. TAC-Hanoi has a SME list of 67 companies and an Enterprise Directory of 56 companies in the Supporting Industries with some duplication and overlapping, and of which 12 was identified as Tier I. As 6 companies overlapped within the above Tier I enterprises, 21 companies were selected from these lists as identifiable Tier I enterprises, at this point. Further survey to identify the ownership and existence of FDI customers may reveal that there are more companies that could be qualified as Tier I enterprises.
173 VCCI Supporting JETRO’s TAC’s SME list Industry Company SI-Exhibitor Directory of SI List Directory Confirmation total 159 total 53 total 123 by List/ Web/ previous Tier1? Tier1? Tier1? field survey Yes 4 TBD Yes 11 TBD Yes 12 TBD Private, SI- Private, SI- Private, SI- manufacturer manufacturer manufacturer (supply to FDI) (supply to FDI) (supply to FDI)
6 overlaps (TBD: to be determined) Total (Net): 21 Tier 1 Candidates
Figure III-25 Lists of SI and Tier I Enterprises
Although the information of the list is limited, some of these companies have been visited during SMEFP Ph.2 or the SAPROF study and the visits revealed the Tier I enterprises’ need to constantly upgrade their equipment to fulfill the upgrading requirements from their Japanese FDI customers. Japanese FDI manufacturers were asked to provide a few examples of their typical Tier I enterprises. They have showed 5 companies in detail, but only one of them were in the above public lists, which suggest that there are many more Tier I enterprises in Vietnam to be discovered and developed. 2 out of these 5 companies revealed that they have financed and will continue to finance their investments with their own capital. This may be due to their stable and profitable long term and large scale relationship with the FDIs, not only for the Vietnam domestic market, but also for the international market where the FDI operates, internationally. Table III-46 Example of Tier I Enterprises No. Name Industry- Product FDI (Supplying to) Employee Need of Note Loan 1 Drycell & Storage Battery Automobile, Ford, Mercedes-Benz, 1300+ N.A. ③ (PINACO) (JSC) motorbike-battery Suzuki, Hyundai, Daewoo 2 Viettronics Binh Hoa Electronic parts Sony, SamSung, TCL, 850 - ③ (JSC) (Transformer, converters, etc. amplifiers, etc.) 3 Export Mechanical Tool Metal parts Honda, Yamaha, 750 - ③ Stock Company Suzuki, VMEP, Ford, Ha Toyota 4 Viet Tiep Lock (JSC) Automobile and Yamaha, Suzuki, Asahi 700 Yes Ha motorbike locks Denso 5 Hanel Plastics Plastic Parts Canon, Panasonic, 700 Yes Ha Toto, LG, Daewoo 6 Nhat Linh Co, Ltd. Automobile electrical Ford & BMW 500+ N.A. ③ wires and heat-resistant Ha cables
174 7 4P Company Electronic parts (Printed Canon 360 Yes ③ circuit board) Ha 8 Tan Hoa Mechanical Co. Motorbike parts: Honda, Piaggio, SYM 320 Yes ③ Ltd. mufflers, rims, rear forks, Ha handles, chain cases, etc. 9 CATTHAI Plastic Plastic and steel parts Rinnai, Sanyo, Toshiba, 200 Yes ② company Dupont 10 Giai Phong Rubber Motorcycle parts (Rubber Machino,Yamaha, 150 Yes ② Company covers), spare parts for Hoa Phat, Toyo Denso, HY trucks Nippon-Seiki,Yangmin 11 Manh Quang mechanical Metal parts Honda 150 Yes Ha Co., Ltd. 12 Minh Quang Co., Ltd. Metal parts Machino Auto Parts 150 No Ha 13 Toan Cau Mechanic- Mechanical parts Nissin Brake, Honda, 100+ Yes ② Electrical Limited (Electrical Ventilation Daewoo Ha Company fans) 14 Hoang Thinh Mechanical Die and mold, jig Canon 100 Yes Ha Co., Ltd. 15 Lam Uy Industrial Jigs Honda 100 - ② Machinery and Ha Equipment Co., Ltd. 16 Automobile and Motorcycle parts, such as VAP-Honda, Asahi 80 Yes ② Motorcycle Parts clutch, motor cover parts, Denso HY Manufacturing Company locks, etc. (AMA) 17 Vietnam Japan Motorbike parts and Honda, Yamaha, 80 No ② Mechanical (VJM) accessories, Suzuki, need HY 18 The Precision Tools and Die and mold, jig Vietchin Co., Yamaha, 68 Yes ② CNC Machine Takanachi, LG Mega Ha 19 Tam Hop Co., Ltd. Automobile parts Toyota Boshoku Hanoi 50 - Ha 20 Kim Long Molding Motorbike rubber and Yasufuku, Honda, 35 Yes ② Company steel parts Yamaha Ha 21 Manh Quang CNC and Machines Yamaha 30 Yes Ha Technology Application J.S.C Source: VCCI, JETRO, TAC-Hanoi Notes: ②：SME (based on employee size), ③：Non-SME. (cf. Classification of SME and Supporting Industry in 3-1-2-2. Eligible end-borrowers), Ha:Hanoi, VP:Vinh Phuc, HY: Hung Yen
Table III-47 Tier I Enterprises Presented by Japanese FDIs No. Name (not to Industry- Product FDI (Supplying to) Need of Note be disclosed) Loan 1 Company A Automobile steel parts Japanese supplier to a Japanese No need ② Automobile maker 2 Company B Automobile plastic parts Japanese supplier to a Japanese Yes ② Automobile maker 3 Company C Motorcycle steel parts Japanese motorcycle maker No need ② 4 Company D Plastic parts Japanese electronics product maker Yes ② 5 Company E Packing parts Japanese electronics product maker Yes ③ Notes: ②：SME, ③：Non-SME. cf. Classification of SME and Supporting Industry in 3-1-2-2. Eligible end-borrowers
175
Among the Tier I enterprises that were identified as Tier I enterprises, 10 companies expressed their needs to borrow for investment in production capacity within the next year or so. The average size of loan that would be needed according to these companies is about 17 billion VND. Assuming that 61% of the sub-loan would be financed by On-lending Loan, as evidenced in Ph.II, the average size of OLL for these 10 Tier I enterprises could be around 11 billion VND. A bank at the DFR workshop in Hanoi, revealed that they have about 10 Tier I enterprises that are in need of a total of 250 billion VND, or 25 billion VND per Tier I enterprise, within a year. Among the 9 PFIs for Phase II, only 1 PFI revealed that they are not aware of any Tier I customers with a loan need, while all 7 other banks revealed that they have at least 15 Tier I customers who have the need to borrow from their bank within a year.
Table III-48 Response from FIs at the DFR Workshop (Oct. 15, 2008) No. Name of FI Q1: Interest in Ph.III Q2: Relations with Tier 1 Co.s Q3: Loans needed by Tier 1 1 CCF Yes No 0 No answer 2 BIDV Yes Yes 5 5 enterprises 3 Vietinbank Yes Yes 15 15 enterprises 4 DAB Yes Yes 20 20 enterprises 5 HDBank Yes Yes 20 appx. 20 enterprises 6 MHB Yes Yes 25 Appx.VND 250 billions 7 ACB Yes Yes 50 50-100 enterprises 8 Sacombank Yes Yes 50 50 enterprises 9 TCB Yes Yes - 300 SI enterprises Median | Average = 20 23
176 7. Cooperation Schemes Enhancing Vietnam SMEs’ Business with Japan
7-1. Achievements and Lessons from Phase II In Phase II, to enhance the technology level of SMEs which seek business opportunities with Japanese companies and improve their investment plans before submitting their bank loan applications, the Consultant tried to arrange linkage with TAC and VCCI. Technical Assistance Center (TAC) is a body under Agency for SME Development of MPI which provides consultancy on technology and technique, equipment improvement, technical management guidance and equipment maintenance, facilitating SME access to new technology. Under a special arrangement between SMEFP II and TAC-Hanoi, SMEs are now able smoothly to apply for technical advice on their investment plans which are financed by, or under application for finance by, the participating financial institutions. Vietnam-Japan Corporation Center (VJCC) is a state-level cooperation between the Ministry of Foreign Affairs of Japan (through JICA) and the Ministry of Education and Training of Vietnam with a primary purpose of supporting the development of human resources in Vietnam. One of the VJCC task is to provide SMEs with (i) public management courses on production management, human resources, marketing, corporate finance, business strategy etc (ii) corporate-site instruction services such as on-site instruction guidance and application to the above courses. In addition, SMEFP II tried to establish business matching information flow with a participation of PFI and VCCI and exchange the information of selling on SME side and the information of purchase on Japanese companies. And actually Consultant and a PFI tried to find business matching opportunity. Such efforts are expected to be continued.
PFIs ICPMU, Consultant Other entities / programs SMEFPII-Support Programs
PFI Clarify SMEs’ needs PFI finds suitable program Consultants will prepare table of and problems for their SME customer programs that may solve some type JETRO of SME problems (Exhibitions, database,etc.)
Technical Assistance Center SME Information library on SMEFP-II Support (TAC) Relationship Programs services
Vietnam – Japan Cooperation Center (VJCC)
PFI recommends assistance program to SME Other network of Japanese and assists enrollment, if necessary enterprises
Figure III-26 Linkage Structure of SMEFP II
7-2. Assumed Scheme The objective of the linkage scheme for Phase III is to address the following issues:
• SMEs having difficulty to access bank loans
177 • PFIs and SMEs having difficulty in assessing the equipment/technology investment risk during their transition to a higher technology level SI-SME
• SMEs having difficulty accessing FDIs
The following are the possible linkage schemes to address these issues: 1) Improving Transparency during Transitions within SI SMEs may have a better chance of obtaining a loan, if bankers acknowledged the transition process and implications to become a SI-SME or one with higher level of technology. For this purpose, it would be necessary to obtain information about the orders and stepping up process of orders from Japanese companies for assessment of business risk. It may also be useful to develop a common SME questionnaire form, to clarify the basic requirements for a SI-SME, which may be used for business linkage. The partners for linkage for this function and their role are:
• JBA : Develop questionnaire form, and disseminate business information of possible orders from Japanese companies to VCCI
• JETRO: Develop questionnaire format, and accumulate business information of Japanese companies on orders from Japanese companies within the local network.
• Japanese Companies: Disseminate business information of Japanese companies on potential business orders
2) Assessment of Certificates Useful as SI-SMEs The history of training and certificates of SME and employees may be useful for credit assessment with respect to the capabilities of the SME, as the FDIs and FPIs have difficulty in the assessment of the SME’s capabilities. For this purpose, it would be better (i) to categorize trainings (Management, quality control, special manufacturing technology such as NC machine operation, product inspection, etc.), (ii) to prepare common rating (usefulness in selecting SI partners) based on effectiveness, and (iii) to record training history. The partners for linkage for this function and their role are:
• VCCI: Categorize trainings, prepare common rating on effectiveness of trainings
• JBA: Provide advice on VCCI prepared categorized trainings and rating on effectiveness of trainings
• JETRO: Provide production technology seminar, provide Certificate of Training to SMEs, and provide advice on VCCI prepared categorized trainings and rating on effectiveness of trainings
• TAC-Hanoi: Provide production management seminar and on-site diagnosis to SMEs, provide Certificate of Training and Record of On-site Diagnosis to SMEs, and provide advice on VCCI prepared categorized trainings and rating on effectiveness of trainings
• VJCC: Provide business management seminar, provide Certificate of Training to SMEs or trainees, and provide advice on VCCI prepared categorized trainings and rating on effectiveness of trainings
• Association for Bookkeeping Promotion in Vietnam (ABPV): Open bookkeeping Class in Japanese language, and provide Certificate of Training to SMEs or trainees
178 • AOTS: Provide production management seminar in Vietnam or in Japan, at the request of Japanese companies or Vietnam government agencies, and provide Certificate of Training to SMEs or Trainees
• SME Doctor Association (in the future, if developed): Provide Diagnosis to SME, provide Record of Diagnosis to SME, and provide advice on VCCI prepared categorized trainings and rating on effectiveness of trainings
• Japanese companies: Provide advice on VCCI prepared categorized trainings and rating on effectiveness of trainings
3) Business Matching/Introduction For SMEs having no opportunity to do business with Japanese companies, PFI may be able to introduce SI-SME to FDIs/major final product producer, if a common form listing Japanese companies’ general information and their needs can be made and introduced through VCCI or JBA etc. The partners for linkage for this function and their role are:
• VCCI: Perform the role of ‘SME Business Information Center’, dispatch PFI provided SME Profiles to JBA and JETRO, and dispatch Japanese company's order information to PFIs
• JBA: Dispatch PFI provided SME Profiles to Japanese companies, and dispatch Japanese company's order information to VCCI
• JETRO: Data accumulation of PFI provided SME Profiles for Japanese companies’ reference, and data accumulation of Japanese company's order information for Vietnam SMEs' reference
• TAC-Hanoi: Collect SI-SME Profile in a common format and dispatch to VCCI, receive Japanese company's order information and send to prospective supplier SMEs
• PFI: Review SI-SME Profile and contact to prospective supplier SMEs Such assumed scheme is illustrated in the following Figure:
Remarks
Flow of Information Other Domestic SI-SME Info of FDI Assistance program companies FDI Finance and credit assessment support
Info of Cosponsor of companies seminar etc. Donors Info of PFI SI-SME (TAC etc.)
Advice and JBA , JETRO support ICPMU Supported by Info of MOIT SI-SME Consultant Advice and Info of support Japanese companies/ Data of SME ASMED SI-SME VCCI • Information Center • Linkage intermediary Figure III-27 Linkage Scheme
179
7-3. Role of PFIs In order to promote finance for supporting industry, non-financial assistance such as linkage to Japanese FDI enterprises shall be promoted and PFIs are also expected to perform a key role. In order to enhance PFIs activities for linkage, fund allocation from the 2nd allocation of the Normal Fund, has been designed to be under an incentive system based on the number of sub-projects with linkage, such as contract with Japanese FDIs(cf. 3-4-2-2 Fund allocation of Phase III for further detail). PFIs have many SME customers within its branch network and through relationship banking they have knowledge of characteristic and needs of SMEs. They are in a best position to receive the information Japanese companies dispatch on purchase and find appropriate SMEs and bring the information to the SME. On the other hand they collect SMEs’ corporate profile and transmit them to Japanese companies. For a common format for this purpose, the Enterprise Registration Form for the application for TAC service may be appropriate. For PFI to play a role as a hub to dispatch and receive business information, PFI need to decide which section or unit in the PFI will be responsible. Currently this kind of role are handled by department or section in charge of SME Lending, Loan Planning, or SMEFP at the head office and at the branch office such role would be generally handled by a loan officer of the SME. If a unit such as SME advisory unit which provide non-financial service to SME is established, such unit may be able to handle business matching information more smoothly. In addition, it is important that the information dispatched by PFI will reach correctly to the Japanese companies. Japanese companies information will be dispatched directly or through JBA or JETRO. On the other hand there are 9 PFIs for SMEFP III. It would be appropriate that VCCI would play an intermediary role. In this connection, VCCI is expected to be a SME Business Information Center. To establish such information transmitting system, it would be necessary to discuss a detail.
180 Annex I-1 List of Banks in Vietnam
Foreign Type of Bank Name(English) Name(Vietnamese) Address Ownership Vietnam Bank for Ngân hàng Nông nghiệp SOCB Agricultural & Rural và Phát triển nông thôn 2 Láng Hạ - Hà NộI Development (Agribank) Việt Nam Bank for Investment & Ngân hàng Đầu tư và Phát SOCB Development of Vietnam 191 Bà Triệu - Hà NộI triển Việt Nam (BIDV) Vietnam Bank for Industry Ngân hàng Công thương 108 Trần Hưng Đạo - Hà SOCB and Trade (Vietinbank) Việt Nam Nội Mekong Delta Housing Ngân hàng Phát triển nhà 9 Võ Văn Tần - Dist 3 - SOCB Development Bank Đồng bằng sông Cửu Hồ Chí Minh City (MHB) Long Vietnam Bank for Social Ngân hàng Chính sách xã 68 Trường Chinh, Đống Policy Bank Policies hội Việt Nam Đa, Hà Nội Vietnam Development Ngân hàng phát triển Việt Policy Bank : 25A Cát Linh, Hà Nội Bank Nam Asia Commercial Bank 442 Nguyễn Thị Minh JSCB Á Châu (ACB) Khai. Q3. TP HCM 268 Nam kỳ khởi nghĩa. JSCB Sacombank Sài gòn thương tín Q3.TPHCM Export-Import Bank 7 Lê Thị Hồng Gấm. Q1. JSCB Xuất nhập khẩu (Eximbank) TPHCM JSCB Techombank Kỹ Thương 70-72 Bà Triệu. Hà Nội 64-68 Lý Thường Kiệt. JSCB VI Bank Quốc tế Hà Nội Toà nhà VIT 519 Kim JSCB Vietnam Maritime Bank Hàng hải Mã, Hà Nội 03 Liễu Giai. Q Ba Đình. JSCB Military Bank Quân Đội Hà Nội Eastern Asia Commercial 130 Phan Đăng Lưu. Q JSCB Đông Á Bank (EAB) Phú Nhuận. TPHCM B7 Giảng Võ. Q Ba JSCB HABU Bank Nhà Hà Nội Đình. Hà Nội 193, 203 Trần Hưng Đạo, JSCB Saigon Commercial Bank Sài Gòn Q1 TPHCM SeA BANK (Southeast 16 Láng Hạ, Đống Đa, JSCB Đông Nam Á Asia Bank) Hà Nội 279 Lý Thường Kiệt. JSCB Phuong Nam Bank (PNB) Phương Nam Q11. TP HCM Số 199-Đường Nguyễn JSCB Ocean Bank Đại Dương Lương Bằng - TP Hải Dương Số 2C Phú Đức JSCB Saigonbank Sài gòn công thương Chính,Q1. TPHCM số 8 Lý Thái Tổ, Hoàn JSCB VP Bank Ngoài quốc doanh Kiếm, Hà Nội Housing Development 33-39 Pasteur. Q1. TP JSCB Phát triển Nhà TPHCM Bank (HDB) HCM 47 Điện Biên Phủ, Q1, JSCB AB Bank An Bình TPHCM 138- Đường 3/2- Phường Saigon Hanoi Commercial JSCB Sài Gòn-Hà Nội Hưng Lợi – TP Cần Thơ JSB - Tỉnh Cần Thơ 39-41-43 Bến Chương JSCB Navi Bank Nam Việt Dương, Q1, TPHCM JSCB Orient Bank (OCB) Phương Đông 45 Lê Duẩn. Q1. TP
HCM 35-Phạm Hồng Thái – P.Vĩnh Thanh Vân–TX JSCB Kienlong Bank Kiên Long Rạch giá-Tỉnh Kiên Giang 97 bis Hàm Nghi, Q1, JSCB Nam A Bank Nam Á TPHCM 340 Hoàng Văn Thụ, JSCB Pacific Bank Thái Bình Dương Q.Tân Bình, TPHCM Xã Long Hoà-Huyện Cần JSCB Trust Bank Đại Tín Đước-Tỉnh Long An 273 Kim Mã, Ba Đình, JSCB GP Bank Dầu khí Toàn Cầu Hà Nội 35 Trần Hưng Đạo, TX Viet Nam Commercial JSCB Việt Nam Thương tín Sóc Trăng, tỉnh Sóc Bank Trăng Vietnam Asia Commercial 115-121 Nguyễn Công JSCB Việt Á JSB (Viet A Bank) Trứ.Q1.TP HCM 152 Đường Cách mạnh JSCB Dai A Bank Đại Á tháng 8-Thành phố Biên Hoà-Tỉnh Đồng Nai North Asia Commercial 117 Quang Trung. TP JSCB Bắc Á Joint Stock Bank Vinh. Nghệ An 715 Trần Hưng Đạo. Q5. JSCB First Commercial Bank Đệ Nhất TPHCM 135 Phan Dang Luu, Phu JSCB Gia Dinh Bank Gia Định Nhuan District, HCMC 127 Ly Tu Trong, An JSCB Western Bank Miền Tây Hiep, Can Tho 132-134 Nguyễn Huệ, Petrolimex Group JSCB Xăng dầu Petrolimex Thị xã Cao Lãnh-Tỉnh Commercial JSB Đồng Tháp Lien Viet Commercial JSB Ngân hàng TMCP Liên 32 Nguyễn Công Trứ, thị JSCB (Lien Viet Bank) Việt xã Vị Thanh, Hậu Giang Toà nhà FPT, Lô B2 Tien Phong Commercial Cụm SX tiểu thủ công Ngân hàng TMCP Tiên JSCB JSB (Tien Phong Bank nghiệp và công nghiệp Phong TPB) nhỏ, P.Dịch Vọng Hậu, Cầu Giấy, Hà Nội Bank for Foreign Trade of Bank for Foreign Trade of Vietnam, 198 Trần Quang Khải - JSCB Vietnam, ngan hang ngoai thuong Hà Nội ngan hang ngoai thuong (Vietcombank) 248,Trần Hưng Ngân hàng TMCP Mỹ Đạo-Phường Mỹ JSCB My Xuyen (MX Bank) Xuyên Xuyên-Thị xã Long Xuyên- Tỉnh An Giang 39 Hàm Nghi, District 1, Joint Venture Taiwan INDOVINA BANK INDOVINA BANK HCM city 3-5 Hồ Tùng Mậu, Joint Venture Korea SHINHAN-VINA BANK SHINHAN-VINA BANK District.1, HCM city 85 Lý Thường Kiệt, Joint Venture Russia Vietnam-Russia Bank Việt-Nga Hoàn Kiếm district, Hà NộI Joint Venture Malaysia VID PUBLIC BANK VID PUBLIC BANK 53 Quang Trung, Hà Nội 2 Phó Đức Chính, district Joint Venture Thailand VINASIAM VINASIAM 1, HCM city BANK OF TOKYO Foreign Bank BANK OF TOKYO 5b Tôn Đức Thắng, Japan MISUBISHI UFJ Branch MISUBISHI UFJ ( Japan ) District.1, HCMC ( Japan ) Foreign Bank Taiwan CHINFON COM. BANK CHINFON COM. BANK 14 Láng Hạ street , Hà
Branch (Taiwan ) ( Taiwan ) Nộ ANZ ( Australia & New ANZ ( Australia & New Foreign Bank Australia Zealand Banking Group) Zealand Banking Group) 14 Lê Thái Tổ, Hà Nội Branch ( Australia ) ( Australia ) Foreign Bank 21-23 Nguyễn Thị Minh France CALYON (France) CALYON (France) Branch Khai, TPHCM Foreign Bank 17 Ngô Quyền street , Hà US CITY BANK ( USA ) CITY BANK ( USA ) Branch Nộ Foreign Bank ABN Amro Bank ABN Amro Bank Netherland 360 Kim Mã, Hà Nội Branch ( Holland ) ( Holland ) Foreign Bank BANK OF CHINA BANK OF CHINA 115 Nguyễn Huệ, China Branch ( China ( China District.1, HCMC Foreign Bank BANGKOK BANK BANGKOK BANK 35 Nguyễn Huệ, Thailand Branch ( Thailand ) ( Thailand ) District.1, HCMC Foreign Bank BNP (Banque Nationale BNP (Banque Nationale SaiGon Tower , 29 Lê France Branch de Paris) (Pháp) de Paris) (Pháp) Duẩn, District 1, HCMC Foreign Bank Cathay United Bank Cathay United Bank Thị xã Tam Kỳ, tỉnh Taiwan Branch ( Taiwan ) ( Taiwan ) Quảng Nam Foreign Bank Chinatrust Com.Bank Chinatrust Com.Bank 1-5 Lê Duẩn, Q1, Taiwan Branch ( Taiwan ) ( Taiwan ) TPHCM Saigon Centre tầng Foreign Bank DEUSTCHE BANK DEUSTCHE BANK Germany 12,13,14,65 Lê Lợi, Q.1, Branch (German) (German) TPHCM Foreign Bank Far East National Bank Số 2A-4A, Tôn Đức US FENB ( USA ) Branch ( USA ) Thắng, TP.HCM Foreign Bank First Commercial Bank First Commercial Bank 88 Đồng Khởi, Q1, TP Taiwan Branch ( Taiwan ) ( Taiwan ) HCM HONGKONG HONGKONG Foreign Bank SHANGHAI BANKING SHANGHAI BANKING 23 Phan Chu Trinh, UK Branch CORPERATION CORPERATION Q.Hoàn Kiếm, Hà Nộ ( England ) ( England ) HONGKONG HONGKONG Foreign Bank SHANGHAI BANKING SHANGHAI BANKING 235 Đồng khởi,Q.1, UK Branch CORPERATION CORPERATION TPHCM ( England ) (England ) Foreign Bank JP Morgan CHASE bank JP Morgan CHASE bank 29 Lê Duẩn, Q.1, US Branch ( USA ) (USA ) TPHCM Foreign Bank KOREA EXCHANGE KOREA EXCHANGE Korea 360 Kim Mã Hà nội Branch BANK (KEB) ( Korea ) BANK (KEB) ( Korea ) Cao ốc Sun Wah Tower, Foreign Bank Malaysia MAY BANK ( Malaysia ) MAY BANK ( Malaysia ) 115 Nguyen Hue, District Branch 1, HCMC Foreign Bank Malaysia MAY BANK ( Malaysia ) MAY BANK ( Malaysia ) 63 Lý Thái Tổ, Hà Nội Branch Mega International Mega International Foreign Bank 5b Tôn Đức Thắng, Q.1, Taiwan Commercial Co., Commercial Co., Branch TPHCM ( Taiwan ) (Taiwan ) Foreign Bank Mizuho Corporate BANK Mizuho Corporate BANK 63 Lý Thái Tổ street , Hà Japan Branch ( Japan ) ( Japan ) Nội Foreign Bank 173 Vo Thi Sau, District France NATEXIS (France) NATEXIS (France) Branch 3, HCMC Foreign Bank OCBC OCBC SaiGon Tower , 29 Lê Singapore Branch ( Singapore )(Keppel) ( Singapore )(Keppel) Duẩn, District.1, TPHCM Foreign Bank SHINHAN BANK SHINHAN BANK 41 Nguyễn Thị Minh Korea Branch ( Korea ) ( Korea ) Khai, District.1, TPHCM STANDARD STANDARD Foreign Bank UK CHARTERED BANK CHARTERED BANK 49 Hai Bà Trưng, Hà Nộ Branch ( England ) (England ) Foreign Bank Standard Chartered Bank Standard Chartered Bank Tầng 2, Saigon Trade UK Branch ( England )- HCMC (England)- HCMC branch Center , District 1,
branch HCMC Sumitomo-Mitsui Banking Sumitomo-Mitsui Toà nhà The Landmark Foreign Bank Japan Corporation ( Japan ) Banking Corporation T9, 5B Tôn Đức Thắng, Branch (SMBC) ( Japan ) (SMBC) District 1, HCMC UNITED OVERSEAS UNITED OVERSEAS Foreign Bank 17 Lê Duẩn, District.1, Singapore BANK (UOB) BANK (UOB) Branch HCMC ( Singapore ) (Singapore) P808, lầu 18 toà nhà Sun Foreign Bank Woori Bank ( Korea )- Woori Bank ( Korea )- Korea Wah, 115 Nguyễn Huệ, Branch HCMC branch HCMC Branch Q1, HCMC Foreign Bank WOORI BANK ( Korea ) WOORI BANK ( Korea ) Korea 360 Kim Mã, Hà Nội Branch (Hanvit cũ) (Hanvit cũ) Foreign Bank LAO-VIET BANK LAO-VIET BANK 181 Hai Bà Trưng, Q1, Lao Branch ( Laos ) ( Laos ) TPHCM (CN thứ 2) Foreign Bank LAO-VIET BANK LAO-VIET BANK Lao 17 Hàn Thuyên, Hà Nội Branch ( Laos ) ( Laos ) ANZ ( Australia & New ANZ ( Australia & New Foreign Bank Australia Zealand Banking Group) Zealand Banking Group) HCMC (sub branch) Branch ( Australia ) ( Australia ) Foreign Bank CALYON sub branch Hà Nội Tower, 49 Hai Bà France CALYON (France) Branch (France) Trưng, Hà Nội (CN phụ) Foreign Bank US CITY BANK ( USA ) CITY BANK ( USA ) HCMC (Sub branch) Branch 18 th floor, Sun Wah Foreign Bank Mizuho Corporate BANK Mizuho Corporate BANK Japan Building, 115 Nguyễn Branch ( Japan ) ( Japan ) Huệ, District 1, HCMC Cooperative Central People's Credit Quỹ Tín dụng Nhân dân 193 Bà Triệu, Hai Bà Financial Fund Trung ương Trưng, Hà Nội Institutions
Annex I-2 Summary on SME Support Programs/Projects Funded by Other Donors
Focus area Project title Donor Budget Duration Conditions/ Implications to SMEFP Incentives Finance provision SME Development EU Euro 20 September 2004 – Lending limit = 5 billion This is a very similar project to Fund (SMEDF) million August 2008 VND. The lending term SMEFPII, but because it has ended, Project is 5 to 8 years, including and this is the last project on SME a grace period of 1 year. finance funded by EU, SMEFP III will be a very good source for SME finance in the coming years. Finance provision Rural Finance World Second RFP Second RFP: May No limit for loans to This project is large in scope and Program (RFP) Bank USD 298.2 2002– Sept. 2008 SMEs. This program lasts for a long period. In this project, million Third RFP: also has a long maturity rural SMEs are beneficiary bodies, so Third RFP: approved term of up to 10 years, there should be close coordination USD 200 like SMEFP II and synergy between the third RFP million (including a grace period and SMEFP III to bring the best of 2 years or less). support to rural SMEs. Finance Mekong Enterprise ADB, MEF: USD MEF: 2002-2005 SMEs with high As return on investment is an provision/business Fund (MEF) Belgium, 18.5 million MEF II: ongoing development rate, and important factor in this program, services and Finland, MEF II: USD MEF III: planned effective management. MEF mainly focuses on consulting to SMEs Norway, 50 million In this program, MEFs well-established and export-oriented SECO provide up to 20-30% of SMEs (most of the enterprises SMEs’ equity capital. receiving MEF investment were 63 established before 2000 ). SMEFP III, on the other hand, can reach smaller SMEs, even newly-established ones and bring them opportunities for soft loans application. Finance provision IFC Loan Program IFC USD 20 ongoing million Government Vietnam USAID USD 5.64 December These projects/programs will capacity building Competitiveness million 2003-September enhance the capacity of government Initiative 2006 agencies to support SMEs, of SMEs
63
Focus area Project title Donor Budget Duration Conditions/ Implications to SMEFP Incentives Government Assignment of JICA USD 340,000 May 2004 – May themselves and help bring a more capacity building Advisory Expert on 2007 effective legal framework for SME SME Promotion development. Together with SMEFP, Policy these projects will help bring about a Government Assistance to Finland, USD 3.3 August 2004 – sustainable development for the SME capacity building Establish the National Italy, million December 2007 sector in Vietnam. and Provincial SME Norway Support Infrastructure Legal/regulatory SME Development ADB, ADB: USD 80 Sub-program I: improvement, Program Loan AFD, KfW million October 2004 – improved access to AFD: Euro 35 December 2006 finance million Sub-program II: KfW: Euro 20 December 2006 – million August 2008 Legal/regulatory Vietnam Private EU EU: Euro 9.05 May 2005 - improvement, Sector Support million December 2008 improved access to Program Vietnamese finance Government: Euro 2.095 million Legal/regulatory SME Development GTZ Euro 8.311 May 2005 - April improvement, Program million 2009 government capacity building Legal/regulatory Business Sector DANIDA USD 35 January 2005 - improvement, Program Support million December 2009 business facilitation (BSPS)
Annex I-3-a SME Promotion Policy Documents
No. Name of documents CGF for Other credit/ SME finance policy 2001 Decree No. 90/2001/ND-CP of the Government dated 23 November 2001 on supporting the development of SMEs Decision 193/2001/QD-TTg of the PM dated 20/12/2001 on issuing the regulations on establishment, organization and operation of X Credit Guarantee Funds for SMEs 2002 Circular No.86/2002/TT-BTC dated 27 September 2002 of MOF, guiding the expenditure for trade and export promotion activities. 2003 Decision No. 12/2003/QD-TTg of the PM dated 17/01/2003 on functions, responsibilities, and membership of the SME Development Promotion Council Decision No.104/2003/QD-BTM of Minister of Trade dated 24 January 2003 on promulgating the regulation on formulation and management of national key trade promotion programs Decision No.185/QD-BKH dated 24 March 2003 of Chairman of the SME Development Promotion Council on promulgating the operation regulation of the SME Development Promotion Council Decision No. 290/2003/QD-BKH of Minister of Planning and Investment dated 12 May 2003 on the establishment of Technical Assistance Centers for SMEs in the cities of Hanoi, Da Nang and HCM Directive No.27 /2003/CT-TTg of the Prime Minister dated 11 December 2003 on continued boosting of the implementation of Enterprise Law and encouragement of SME development 2004 Decision No.115/2004/QD-TTg dated 25 June 2004 of the Prime Minister on amendment and modifications of the Regulation on X establishment, organization and operation of CGF for SMEs accompanied Decision No. 193/2001/QD-TTg Decision No.143/2004/QD-TTg of the Prime Minister dated 10 August 2004 on approving the Human Resources Training Support Program for SME in the period of 2004-2008 Guideline No.1347/2004/QD-BKH of MPI dated 24 November 2004 on implementation of the Human Resources Training Support Program for SME in the period of 2004-2008 Circular No.93/2004/TT-BTC dated 29 September 2004 of Minister of Finance guiding some contents in the Regulations of X establishment, organization and operation of CGF for SMEs 2005 Notice No. 144/TB-BKH of SME Development Promotion Council dated 7 October 2005 on SME development plan 2006-2010 X Decision No.279/2005/QD-TTg dated 3 November 2005 of the Prime Minister on the Regulation of Implementation of National Trade promotion program 2006-2010 Directive No.40/2005/CT-TTG of the PM dated 16 December 2005 on continued strengthening of SME development support X 2006 Circular No.01/2006/TT-NHNN dated 20 February 2006 of the State Bank of Vietnam guiding some contents on capital X
contribution to establish CGF for SMEs Decision No. 236/2006/QD-TTg of the Prime Minister dated 23 October 2006 on Approval of the SME Development Plan X
Annex 1-2-b Members of the SME Development Promotion Council
1. Chairman: Mr. Võ Hồng Phúc, Minister of Planning and Investment. 2. Standing member: Mr. Trần Đình Khiển, Vice Minister of Planning and Investment.
Members: 3. Mr. Trần Văn Tá, Vice Minister of Finance. 4. Mr. Bùi Xuân Khu, Vice Minister of Industry. 5. Mr. Cao Đức Phát, Vice Minister of Agriculture and Rural Development. 6. Mr. Tống Văn Nga, Vice Minister of Construction. 7. Mr. Phạm Duy Anh, Vice Minister of Transportation. 8. Mr. Đỗ Như Đính, Vice Minister of Trade 9. Mr. Bùi Mạnh Hải, Vice Minister of Science and Technology. 10. Mr. Đặng Hùng Võ, Vice Minister of Natural Resources and Environment. 11. Mr. Lê Vũ Hùng, Vice Minister of Training and Education. 12. Mr. Lê Duy Đồng, Vice Minister of Labour, War Invalids and Social Affairs. 13. Mr. Hà Hùng Cường, Vice Minister of Justice 14. Mr. Nghiêm Xuân Đạt, Member of Hanoi People’s Committee 15. Mr. Nguyễn Hữu Tín, Member of Hanoi People’s Committee. 16. Mr. Trần Phước Chính, Vice Chairman of Da Nang People’s Committee. 17. Mr. Phạm Tiến Dũng, Vice Chairman of Hai Phong People’s Committee. 18. Mr. Nguyễn Công Tạn, Chairman of the Rural SME Association. 19. Mr. Nguyễn Ty, Chairman of Việt Nam Cooperatives Union. 20. Mr. Vũ Tiến Lộc, Vice Chairman of Vietnam Chamber of Commerce and Industry (VCCI). 21. Mr. Hồ Uy Liêm, Vice Chairman and General Secretary of Vietnam Union of Scientific and technical associations 22. Mr. Trương Gia Bình, Chairman of Young Entrepreneurs Association. 23. Head of ASMED (MPI), acting as Standing Secret
Annex I-4-a List of Projects Entitled to Investment Credit Loans
(Promulgated together with the Government’s Decree No. 151/2006/ND-CP dated December 20, 2006) No. Branches, domains I Socio-economic infrastructures (regardless of geographical areas) 1 Projects of investment in roads, road bridges, railways and railway bridges 2 Projects of investment in the building of clean water supply works for industry and daily life 3 Projects of investment in the building of wastewater and garbage treatment works in urban centers, industrial parks, economic zones, export-processing zones, hi-tech parks, hospitals and clusters of industrial craft villages 4 Projects of investment in housing funds for workers in industrial parks, economic zones, export-processing zones; students' dormitories 5 Projects of investment in the health sector: expansion and upgrading of, and equipment investment in building of, hospitals 6 Projects of investment in the expansion, upgrading, building of educational, training and vocational training institutions 7 Projects of investment in technical infrastructure in handicraft villages, clusters of rural industrial craft villages II Agriculture, rural areas (regardless of geographical areas) 1 Projects of investment in building or expansion of concentrated cattle and poultry raising and slaughtering establishments; 2 Projects on development of aquatic breeds; investment in aquaculture infrastructure 3 Projects on development of plant varieties and animal breeds, forest saplings III Industry (regardless of geographical areas) 1 Projects of investment in deep processing from mineral ores: - Steel-cast, pig-iron, with a minimum capacity of 200,000 tons/year; - Production of aluminum, with a minimum capacity of 300,000 tons/year; production of metallic aluminum, with a minimum capacity of 100,000 tons/year; - Production of ferro-al1oy, with a minimum capacity of 1,000 tons/year; - Production of non-ferrous metals, with a minimum capacity of 5,000 tons/year; - Production of titanium dioxide powder, with a minimum capacity of 20,000 tons/year; 2 Projects on manufacture of diesel engines of 300 CV or more 3 Projects of investment in building train carriages and assembly of train locomotives 4 Projects of investment in preparation and production of antibiotics, detoxification drugs, commercial vaccines and anti –HIV/AIDS drugs 5 Projects of investment in the building of small hydroelectric power plants of a capacity of 100 MW or less; building of wind power plants 6 Projects of investment in DAP and nitrogenous fertilizer IV Projects of investment in geographical areas hit by socio-economic difficulties or exceptional difficulties; projects in geographical areas inhabited by Khmer ethnic minority people, communes covered by Program 135 and border communes covered by Program 120, alluvium communes V Lending projects under the Government's agreements; projects on offshore investment under the Prime Minister's decisions.
Annex I-4-b List of Good Items Entitled to Export Credit Loans
(Promulgated together with the Government’s Decree No. 151/2006/ND-CP dated December 20, 2006) No. List of good items I Group of agricultural, forestry and aquatic goods 1 Peanuts 2 Coffee 3 Tea 4 Pepper 5 Processed cashew nuts 6 Vegetables and fruits (canned, fresh, dry, preliminarily processed, juice) 7 Sugar 8 Aquatic products 9 Cattle and poultry meat 10 Poultry eggs 11 Cinnamon and essential oil from cinnamon II Group of fine-art and handicraft goods 1 Rattan and bamboo articles, wicker articles made of other materials 2 Embroidery 3 Fine-art ceramic and porcelain articles 4 Woodworks 5 Silk and silk products 6 Woodworks for export III Group of industrial products 1 Component parts and equipment in complete units 2 Electric and diesel engines 3 Transformers of all kinds 4 Plastic products in service of industry and construction 5 Home-made electric wires and cables 6 Seagoing vessels 7 Electric cables 8 Light bulbs IV Computers in complete units, computer component parts and software
(Reference) Share of sub-Loan amount within sub-sectors of Manufacturing
Business Sector Share of sub-loan amount Paper and paper products 16% Metals 13% Food products 9% Wood and of products of wood and cork, etc. 7% Rubber and plastics products 7% Beverages 6% Other non-metallic mineral products 5% Pharmaceutical products and pharmaceutical 3% Textiles 3% Wearing apparels 3% Chemicals and chemical products 3% Electrical equipment 2% Computer, electronic and optical products 1% Leather and related products 0% Machinery and equipment n.e.c. 0% Motor vehicles 0% Other transport equipment 0% Other manufacturing 21% Total 100%
Annex III-1 Scoring Formula for Selection of PFIs
CRITERIA FORMULA DESCRIPTION OF SCORING MAX SCORE A. FINANCIAL SOUNDNESS 60 1 Capital a. Chartered Chartered Capital / Legal 100% or more but less than 150%: 2 10 Adequacy Capital Capital 150% or more but less than 200%: 3 (Decree No.82/1998/ 200% or more but less than 300%: 4 ND-CP, 300% or more: 5 Decree No. 141-2006- ND-CP to be applied *Regarding SOCB, if a reliable from the end of 2008) equitization plan exists and scheduled in 2007, the projected figures can be applied. b. Capital Total Equity / 8% or more but less than 9%: 3 Adequacy Ratio Risk-weighted Assets 9% or more but less than 10%: 4 (Decision No.457 -2005 10% or more: 5 / QD-NHNN, and Decision No. 03 - 2007 / *Regarding SOCB, if a reliable QD-NHNN) equitization plan exists and scheduled in 2007, the projected figures can be applied. c. Deducting In case (Chartered Capital / Legal Points Capital) is less than 100% and Capital Adequacy Ratio is less than 8%, the score of the Capacity Adequacy Criterion shall be awarded minus 5 points. 2 Asset Quality a. Credit Quality i) Non-Performing Loan In case NNPL Ratio is 0% or less, 20 (NPL) Ratio = NPLs / NPL: 2% or less: 10 Total Outstanding More than 2% but up to 5%: 6 Loans More than 5% but up to 10%:2 ii) Net NPL (NNPL) Ratio = (NPL – In case NNPL Ratio is more than Outstanding Loan Loss 0% but less than 10%, Provisions) / Total NPL: 2% or less: 8 Outstanding Loans More than 2% but up to 5%: 4 (Decision No. 493/ More than 5% but up to 10%:1 2005/QD-NHNN, and In case NNPL Ratio is 10% or more: Decision 18-2007 / QD – NHNN) -5 b. Guarantee Overdue Loans under No overdue loans under guarantee Quality Guarantee Commitments commitments: 5 / Total Outstanding Less than 10%: 3 Loans 10% or more but less than 20%: 1 20% or more: 0 c. Structure of Profit Generating Assets More than 75%: 5 On-Balance / Total On-Balance Sheet 65% or more but less than 75%: 0 Sheet Assets Assets Less than 65%: -3
CRITERIA FORMULA DESCRIPTION OF SCORING MAX SCORE 3 Profitability a. Return on Profit before Tax / 20% or more: 7 10 Equity (ROE) Owner's Equity 15% or more but less than 20%: 5 10% or more but less than 15%: 3 5% or more but less than 10%: 2 More than 0% but less than 5%: 1 0%: 0 -5% or more but less than 0%: -1 -10% or more but less than -5%: -2 -15% or more but less than -10%: -3 -20% or more but less than -15%: -5 less than -20%: -7 b. Bonus Points Non-Interest Income / 40% or more: +3 (Net Interest Income + 30% or more but less than 40%: +2 Non-Interest Income) 20% or more but less than 30%: +1 Less than 20%: 0 4 Liquidity a. Liquidity Ratio Liquid Assets / Liquid 25% or more: 7 10 Liability (1 month) In case the liquidity ratio falls less * in accordance with than 25%, the score shall be as Article 12 ,Decision No. follows: 457/ 2005/ QD-NHNN + In case of the first-time violation: 3 + In case of repeated violations, receipt of documents from the SBV warning the bank or penalizing it for administrative violation regarding the bank's maintenance of the payment capacity: 0 b. Ratio of Usage Total Outstanding MLT 100% or less: 3 of Medium- and Loans / Total Funds More than 100% but not exceeding Long-Term Usable for MLT Lending 105%: 0 Funds More than 105%: -3 5 Transparency a. Auditing The bank’s financial statements are 10 audited and the auditor’s report is disclosed: 6
In case of no disclosure of the auditor’s report: 1
Regarding SOCB, if a reliable equitization plan exists and scheduled in 2007: 6 b. Bonus Points i) The bank discloses IAS-based financial statements with the auditor’s report: +2 ii) The bank discloses capital adequacy ratio, liquidity ratio and ratio of short term funding used for medium and long term lending stipulated in Decision No.457/2005/QD-NHNN: +2
CRITERIA FORMULA DESCRIPTION OF SCORING MAX SCORE c. Deducting In case the qualified opinions in the Points auditor’s report are considered seriously in terms of the bank’s profits, the score of the Transparency Criteria shall be deducted in accordance with the degree of the possible reduction in profit before tax, as follows:
more than 10% but less than 20%: -1 20% or more but less than 30%: -2 30% or more but less than 40%: -3 40% or more but less than 50%: -4 50% or more: -5 B. GOVERNANCE AND MANAGEMENT 20 1 Governance a. Board of At least one-third of the board 7 Directors members are non-executive: 2 b. Supervisory A supervisory board or board of Board / Board auditors is separate from a of Auditors management board and reports directly to the board of directors to support its oversight function: 2 c. Bonus Points: In case the following governance Public structures are disclosed in the bank’s Disclosure annual report: - Board structure (size, membership, qualifications and committee): +1 - Senior Management structure (responsibilities, reporting lines, qualifications and experience): +1 - Basic organizational structure (line of business structure, legal entity structure): +1 d. Deducting In case the chairman of the board of Points directors is the chief executive officer (CEO) concurrently: -3 2 Risk a. Credit Credit committee(s) at headquarters 13 Management Committee / branches is independent from business lines and in principle its members are not in charge of relationship management with clients: 3
CRITERIA FORMULA DESCRIPTION OF SCORING MAX SCORE b. Asset Liability ALCO was established or is to be Management established within a year under the Committee CEO or a board of management to (ALCO) support the bank management: 3
In case ALCO is not under the CEO or a board of management: -1 In case ALCO do not manage market risk (interest rate, FOREX), liquidity risk and portfolio risk: -one of the three risks: -1 -two of the three risks: -2 -all of the three risks: the score under this item = 0 c. Rating System The bank has a rating system for for Corporate corporate customers: 3 Customers In case the rating system is linked to the decision-making process of internal lending limits and/or loan interest rates: +1 d. Loan Pricing Loan interest rates are determined Mechanism by some factors and vary reflecting each customer’s situation: 3
In case the credit risk premium is not variable in accordance with the credit risk of a customer nor involved in the pricing mechanism, the score under this item shall be: -3 C. COMPETENCE / NECESSITY TO PARTICIPATE IN SMEFP 25 1 Focus on a. Share of Loans (Loans to Joint-Stock 55% or more: 5 10 Private SMEs to Domestic Companies+ Loans to 40% or more but less than 55%: 3 Private Limited Liability 25% or more but less than 40%: 1 Enterprises Companies + Loans to 5% or more but less than 25%: 0 Private Companies) / Less than 5%: -3 Total Outstanding Loans
CRITERIA FORMULA DESCRIPTION OF SCORING MAX SCORE b. Growth of Averaged Growth Ratio 40% or more but less than 80%: 3 Loans to of Loans to Domestic 0% or more but less than 40%: 2 Domestic Private Enterprises in the -40% or more but less than 0%: 1 Private Past Three Years -80% or more but less than -40%: 0 Enterprises Less than -80%: -3
In case the score of the Section B is 10 points or more and the growth rate is 80% or more: 4 In case the score of the Section B is less than 10 points and the growth rate is as follows: 80% or more but less than 100%: 2 100% or more but less than 200%: 1 200% or more: 0 c. Bonus Points In case the bank expresses its policy to focus on SME lending in its annual report: 1 d. Deducting Outstanding loans to domestic Points private enterprises are: 800 or more but less than 1,000 billion VND: -1 600 or more but less than 800 billion VND: -2 400 or more but less than 800 billion VND: -3 200 or more but less than 400 billion VND: -4 Less than 200 billion VND: -5 2 Necessity of a. Medium- and MLT Funding / Total Less than 20%: 5 10 SMEFP II Long-Term Funding 20% or more but less than 30%: 3 (MLT)Funding 30% or more but less than 40%: 1 40% or more: 0 b. Deducting MLT Loans / MLT Less than 80%: -3 Points Funding
CRITERIA FORMULA DESCRIPTION OF SCORING MAX SCORE c. SME assistance Commitment for close If the bank expresses commitment to cooperation with SMEFP SME assistance through SMEFP II II in SME assistance for each area shown below, i) Cooperation for the promotion campaign: 1 ii) Cooperation for training of bank staff in SME loan appraisal: 1 iii) Developing internal policy/methodology to increase non-collateralized portion of SME loans: 1
If the above commitment is materialized in organizational scheme or certain practical programs that supports SME loan originations at branches: 2 3 Other a. Experience of The bank has experience of being 5 Competence Participating in involved in other donors' loan Other Donors’ programs: 2 Loan Programs b. Outreach of The bank has a branch network in Branch Network Hanoi, HCMC and their neighboring areas: 1 The bank has a branch network in Hanoi, HCMC, Danang or Hai Phuong and their neighboring areas: 3
In case the bank only has a branch network in either Hanoi or HCMC: -3
Notes : When a new regulatory rule is applied or introduced, the accreditation points may fluctuate much. When a new legal capital is applied, for example, in accordance with Decree 141-2006-ND-CP at the end of 2008 and 2010, the chartered capital/legal capital ratio may go down significantly. And also when PFIs shift the methodology of loan classification from Article 6 to Article 7 stipulated in Decision No. 493/2005/QD-NHNN, the NPL ratios of PFIs may deteriorate substantially. To avoid a big fluctuation of accreditation points caused by changes of regulatory rulings, or to avoid any inequality among PFIs such that some PFIs continue to adopt Article 6 and others start to adopt Article 7 of Decision No. 493/2005/QD-NHNN, the scoring points shall be reviewed year by year by ICPMU. And in case ICPMU consider it appropriate to revise the scoring points or any other parts of the selection criteria, ICPMU takes necessary procedure to revise it in accordance with the Policy Manual 9.2.
Annex III-2 Tentative Result of Scoring of PFIs 5 3 0 5 2 0 0 2 1 1 1 0 3 3 0 3 1 3 0 1 2 0 5 5 0 3 0 2 4 6 0 7 5 0 3 (3) 3 0 1 0 0 1 1 1 1 1 1 1 0 1 1 1 1 1 1 73 44 18 11 0% MHB 1.00 83% 81% 21% 36% 2,920 qualified qualified 45.55% 15.00% 18.24% 14.93% 33.29% 40.43% 5 3 0 0 5 2 0 0 2 1 1 1 0 3 3 0 3 1 3 0 1 1 0 5 5 0 3 3 5 8 6 2 7 5 5 4 3 0 1 0 0 1 1 1 1 1 1 1 0 1 1 1 1 1 1 93 51 20 22 90% 56% 36.02 100% 111% 173% qualified qualified qualified qualified 11,229 93.58% 14.30% 19.86% 19.26% 53.04% 20.74% Tecombank 5 3 0 0 5 7 1 3 5 5 6 5 0 0 0 2 1 1 1 0 3 3 0 3 1 3 0 1 2 0 7 5 1 4 (1) 10 0 0 0 0 1 1 1 1 1 1 1 0 2 1 1 1 1 1 1 92 54 17 21 0% 85% 35% 72% 63.56 116% qualified qualified qualified qualified qualified 11,857 Sacombank 11.07% 20.22% 25.18% 71.43% 16.23% 145.16% 4 3 0 5 3 0 3 1 2 4 6 2 3 0 0 0 2 1 1 1 0 0 0 0 0 0 0 3 0 1 2 5 1 1 7 (3) 0 0 0 0 1 1 1 1 1 0 0 0 0 0 0 1 1 1 1 58 38 10 10 CCF 1.12 82% 93% 28% 16% 61% 1,305 qualified qualified 6.60% 64.22% 10.10% 13.03% 47.64% 36.50% 0 1 0 6 0 5 7 0 3 5 5 2 5 0 0 0 2 1 1 0 0 0 3 0 0 3 1 3 0 1 1 5 0 3 7 10 0 0 0 0 1 1 1 0 1 0 1 0 3 1 1 1 1 1 1 80 53 16 11 HDB 7.14 67% 88% 23% 41% 2,050 110% qualified qualified 10.00% 22.67% 19.76% 76.42% 14.00% 170.31% 5 3 6 0 0 5 7 1 3 3 5 5 3 4 5 2 0 0 0 1 1 1 0 0 3 0 0 3 1 3 0 1 2 7 (3) 10 0 1 0 0 0 1 1 1 1 0 1 0 3 1 1 1 1 1 1 87 56 ACB 0% 83% 42% 78% 37.57 105% qualified qualified qualified qualified 13,360 16.10% 33.99% 25.21% 47.37% 22.73% 79.58% 3 5 0 5 3 1 3 5 5 0 8 6 2 3 4 5 2 0 0 0 1 1 1 0 3 3 0 0 3 1 3 0 1 2 7 (3) 0 1 0 0 0 1 1 1 1 1 1 0 3 1 1 1 1 1 1 83 42 23 18 1% EAB 89% 52% 59% 9,365 22.86 276% qualified qualified 14.36% 14.06% 28.60% 52.92% 16.90% 104.96% 5 3 0 4 5 1 3 0 4 6 5 5 0 3 3 5 2 0 2 1 1 1 0 0 3 0 0 3 1 3 0 1 2 7 (3) (2) 0 1 0 1 1 1 1 1 1 0 1 0 3 1 1 1 1 1 1 74 45 0% BIDV 7.00 91% 44% 35% 77% 9.17% 56,795 17.43% 28.52% 47.57% 43.00% 63.34% 3 3 5 0 3 3 5 0 0 0 2 1 1 1 0 3 3 0 0 3 1 3 0 1 2 7 0 5 3 0 3 3 000000000 5 0 1 10 0 11 1 1 111 11 01 1 1 111 11 0 0 0 1 1 1 1 1 2 1 0 3 1 1 1 1 1 11 1 1 011 11 11 1 1 011 11 11 1 1 011 11 1 11 1 1 111 11 11 1 1 111 11 11 1 1 011 11 80 44 18 14 18 15 18 13 ICB 6.92 94% 20% 49% 33% 105% qualified qualified qualified qualified qualified qualified qualified qualified qualified 1.03% 4.80% 0.45% 0.08% 0.20% 2.40% 0.23% 1.38% 2.05% 48,734 -0.80% 2.82% 0.10% -0.34% -0.36% 1.20% -0.28% 0.68% 0.84% 11.62% 14.36% 14.88% 58.59% 25.50% 101.38% 5 3 2 2 2 2 1 1 1 3 3 3 1 3 5 4 1 5 2 6 10 60 30 20 10 25 10 53 Full 105 Score PFI candidates Credit quality: NPL ratio Credit quality: Net bad loan ratio Auditing of Auditor's Disclosure report Credit rating system Linked makingto decision pricing systemLoan deduction: not reflecting credit risk forCommitment promotion campaign staff bank of training for Commitment forCommitment loan non-collateralized Hanoi network: branch of Outreach HCMC Other cities 1.11.2 capital Chartered 1.32.1 Capital Adequacy points Deducting 2.22.33.1 Guaranty quality sheet assets on-balance of 3.2 Structure Return on Equity4.1 Non-interest income /Total revenue4.21.1 Liquidity ratio funds term usage & long of medium of Ratio 1.21.31.4 disclosure based IAS of 3 safety disclosure ratios auditors of points:opininon deduction 1.1 5 1.2 5 3 BODs in 1.3 members executive non of Number 5 board 1.4 Supervisory of Separation 3 1.5 of BOD Disclosure 1.6 of BOM Disclosure 2.1 of basic organizational Disclosure structure CEO & Chairman between 2.2 separation 5 Deduction: committee Credit of Independency 2.3 ExistenceALCO of 2.4 7 deduction: not under ALCO CEO/BOM 2.5 deduction: Appropriate of ALCO function 2.6 7 1.11.2 Share of to domesticloan private enterprises 1.3 Growth of loan to domestic private enterprises 1.4 strategy and policy lending SMEs 2.1 enterprises private domestic to loans outstanding deduction: 2.2 fund/total MLT funding 2.3 funding deduction loans/MLT points: MLT 3.13.2 Experience donors' programin A. FINANCIAL SOUNDNESS A. FINANCIAL 5.Transparency Total Score 2.Asset quality 3.Profitability 4.Liquidity requirement minimum against result qualified qualified qualified qualified qualified qualified result against minimum requirement minimum against result requirement minimum against result requirement minimum against result qualified qualified qualified qualified qualified qualified qualified qualified qualified 1. Capital Adequacy Capital 1. B. GOVERNANCE AND MANAGEMENT C. COMPETENCE/NECESSITY TO PARTICIPATE IN SMEFP Qualification 1.Governance 2.Risk management 1.Focus on SMEs 2.Necessity of SMEFP II competence 3.Other
Annex III-3 Estimation of MIS Cost
Estimate Cost for MIS at SMEFPIII
A. MIS software development
No. Task Man day Man month Amount (USD) Note 1 Understanding Requirement 50 2 External Design 40 3 Detailed Design 125 4 Development 375 5 CM (Install environment) 5 $ 120 man day 6 UAT support release 45 7 Writing user manual & deployment document 20 8 Project management effort (10%) 59.5 9 Supporting for additional requirement and questions 40 Total 759.5 37.975 91,140.00
B. Hardware & System Software Cost for MIS
No. Items Unit Price (USD) Unit Amount (USD) Note 1 Tape Backup 25.00 7.00 175.00 For MIS daily backup 2 additional memory 512MB 240.00 1.00 240.00 SQL Svr Standard Edtn 2005 Win32 English OLP NL 3 6,500.00 1.00 6,500.00 1 Proc Total 6,915.00
C. Deployment Cost
No. Items Unit Price (USD) Unit Amount (USD) Note 1 Hardware & system software Setup at ICPMU 110.00 3.00 330.00 1 person in 3 days 2 Hotel/Expense 60.00 10.00 600.00 10 days at HCMC for 1 person 3 Transportation 50.00 10.00 500.00 ditto 4 Airfare + Extra fee 450.00 2.00 900.00 2 business trip to HCMC Total 2,330.00
D. Training Cost
No. Items Unit Price (USD) Unit Amount (USD) Note For 100 people: 1 Document Preparing & Printing 10.00 100.00 1,000.00 12 (PFIs)x5(people) and 20 (ICPMU)x2(Trainings) Preparation 3 days, Attend 2 Support from IT vendor 120.00 10.00 1,200.00 training 7 days 3 training courses: ICPMU, 3 Training Room 500.00 3.00 1,500.00 PFIs at Hanoi, PFIs at HCMC
2 days(1night) at HCMC for 3 4 Hotel/Expense 60.00 3.00 180.00 person(including IT vendor) 5 Transportation 50.00 2.00 100.00 ditto 1 business trip to HCMC for 3 6 Airfare + Extra fee 450.00 3.00 1,350.00 person 7 Lunches + Tea Break 25.00 100.00 2,500.00 8 PCs hiring 20.00 100.00 2,000.00 Total 9,830.00
E. Total Budget ($US) $ 110,215.00
F. Maintenance Cost ( for referrence )
No. Items Unit Price (USD) Unit (month) Amount (USD) Note 1 person for 1 month 1 MIS Maintenance cost for ICPMU 2,400.00 12.00 28,800.00 Need to pay every year Total 28,800.00
Assumption of Cost Estimation
1) MIS Software Development In order to estimate cost of development, at first we have to clarify what function will be developed. This will be clarified in the early phase of Phase III, but the consultant made the tentative list of new functions which is described in the next table. If ICPMU will request other functions, the needed cost will be changed from this estimated cost. 2) Hardware As described above, the consultant assumed no more Hardware is necessary except additional memory. 3) Deployment Cost The consultant assumed local IT expert will go to PFI site in order to set up MIS. Beside the cost of local IT expert, transportation cost is necessary and it’s described in this section. In order to estimate transportation cost, the consultant set up the following assumption. The place the consultants have to set up MIS is Hanoi and HCMC. They will go to HCMC twice, one for initial set up and one for final set up. They will stay at HCMC for 5 days for each trip. (5 new PFI at HCMC and one day for each PFI) For PFI which has already attended in Phase II, it’s not necessary to set up MIS but only update it. It can be implemented for a short time. This time doesn’t need to be included in the estimation. 4) Training Cost The training will also implemented by local IT expert but it’s necessary to be supported by IT developer. The term of training is 3 days for ICPMU, 2 days for PFI at Hanoi and 2 days for PFI at HCMC. Based on this data, the consultant estimates the needed cost for training. 5) Maintenance Cost If ICPMU ask other company to maintain software, ICPMU have to pay for them each year continuously. So this may be different from project cost. The consultant added maintenance cost only for the reference.
Annex III-4 The List of Legislations on the Environmental Protection of Vietnam
1) Law No. 52/2005/QH11 dated 29th November 2005 on Environmental Protection ("Law on the Environment"). 2) Decree No.80/2006/ND-CP dated 9 August 2006 of the Government, stipulating the detailed guidance on the implementation of some articles of the Law on the Environment ("Decree 80'). 3) Decree No.21/2008/ND-CP dated 28th February 2008 of the Government on the amendment of and supplements to some articles of Decree 80. 4) Circular No.08/2006/TT-BTNMT dated 8 September 2006 of the MONRE, guiding the Environmental Strategic Assessment; Environmental Impact Assessment and Undertaking on Environmental Protection ("Circular 08')
Annex III-5 Screening Form
Name of Project：
Name of Project Execution Organization：
Name of Borrower：
Please provide the name, department, job title, and contact details for the person who is responsible for filling out this form.
Name：
Department and title：
Name of Company or Organization：
Telephone number： Fax number： E-Mail address：
Date：
Signature：
(Matters to be noted) 1. Please note that JBIC may provide the information concerning the environmental assessment (including that in writing or orally; hereinafter referred to as the “Environmental Information”) provided by the Borrower, etc. in considering the financing, investments or guarantee for a project as part of JBIC’s international financial operations to the financial institutions in Japan, which also consider financing, investments or guarantee for the same project jointly or separately with JBIC (hereinafter referred to as the “Cofinancing Institutions”), whether or not any confidentiality agreement has been entered into by and between JBIC and the Borrower, etc. JBIC provides the Environmental Information to the Cofinancing Institutions for their conducting the confirmation of environmental and social consideration with respect to the project. In providing the Environmental Information, JBIC requires the Cofinancing Institutions (i) not to use the Environmental Information for any purpose other than the internal confirmation of environmental and social consideration with respect to the project, and (ii) not to disclose the Environmental Information to any third party. 2. Please note that this Screening Form or the contents thereof may be made public.
Questions
Q1. Please provide the address of the project site.
Address of the project site：
Q2. Please provide brief explanation of the project.
Q3. Will JBIC loan be applied to a new project or an executing project? In case of executing project, please inform the presence of strong claims by local residents. □ New Project □ Executing Project (with Claim)
□ Executing Project (without Claim) □ Others（Please specify ）
Q4. In case of this project, is it necessary to execute Environmental Impact Assessment (EIA) based on the laws or regulations? If necessary, please inform the progress of EIA. □ Required (Completed) □ Required (Under execution or under planning) □ Not Required □ Others (Please specify )
Q5. In case that EIA is already completed, pleases inform whether EIA report is already approved based on the environmental assessment system or not. If EIA report is already approved, please provide the date and name of authorities of the approval. □ Approved (without condition) □ Approved (conditional) □ Under approval process □ Others (Please specify )
Date of Approval：
Name of Authorities：
Q6. If environmental permit(s) other than EIA is required, please provide the name of required permit(s). Have you obtained required permit(s)? □ Obtained □ Required, but not obtained yet □ Not required □ Others (Please specify )
Name(s) of required permit(s)：
Q7. Will the loan be used for the undertaking that cannot specify the project at this stage (e.g. export or lease of machinery that has no relation with specific project, or Two Step Loan that cannot specify the project at the time of loan agreement)? (Yes / No)
If you answered “Yes”, it is not necessary to reply to the following questions. If you answered “No”, please reply to the following questions.
Q8. Are there any environmentally sensitive area shown below in and around project site? (Yes / No)
If you answered “Yes”, please select applicable items by marking, and reply to following questions. If you answered “No”, please reply to questions 9 and after.
(1) National parks, protected areas designated by government (coastal areas, wetlands, habitats of minorities or indigenous populations, heritage sites, etc.)
(2) Primeval forests, tropical natural forests
(3) Ecologically important habitats (coral reefs, mangrove, tidal flats, etc.)
(4) Habitats of endangered species of which protection is required under local laws and international agreements.
(5) Areas that have risks of large scale increase in soil salinity or soil erosion
(6) Desertification areas
(7) Areas with special values from archaeological, historical and/or cultural viewpoints
(8) Habitats of minorities, indigenous populations, nomadic people with traditional life style, or areas with special social value
Q9. Does the project involve following elements? (Yes / No)
If you answered “Yes”, please describe the scale of applicable elements, and reply to the questions 10 and after. If you answered “No”, please reply to questions 11 and after.
（1）Involuntary resettlement (Number of resettlers: )
（2）Pumping of groundwater (Scale: ton/year)
（3）Land reclamation and/or development (Scale: ha)
（4）Deforestation (Scale: ha)
Q10. Please reply to this question only in case that the project involves some of the above (1) to (4) elements. In the country where the project is planned, are there any regulations on a scale of the elements asked in question 9? If the country has such regulation, please answer whether the project satisfies the regulation or not. □ Regulation is applicable (□ satisfied □ not satisfied) □ No regulation
□ Others (Please specify )
Please reply to questions 11 and after.
Q11. Will JBIC share in the project be equal or less than 5% of the total project cost, or the total amount of JBIC loan equal or less than SDR 10 million? (Yes / No) If you answered “Yes”, it is not necessary to reply to the following questions. If you answered “No”, please reply to questions 12 and after.
Q12. Does the project belong to either of the sectors that impact on the environment is deemed immaterial or is not anticipated under normal conditions (e.g. maintenance of the existing facilities, non-expansionary renovation project, acquisition of rights or interest without additional plant investment)? (Yes / No) If you answered “Yes”, it is not necessary to reply to following questions. If you answered “No”, please reply to the questions 13 and after.
Q13. Does the project belong to the following sectors? (Yes / No) If you answered “Yes”, please specify the sector by marking, and reply to questions 14 and after. If you answered “No”, it is not necessary to reply to the following questions.
(1) Hydro power plant, Dam or water reservoir
(2) Thermal power plant
(3) Mines
(4) Development of oil and gas
(5) Pipeline
(6) Steel industry (with large scale furnace)
(7) No-ferrous metal refining
(8) Petrochemical (including manufacturing of raw materials and petrochemical complex)
(9) Terminal of oil, gas and chemicals
(10) Petroleum refining
(11) Paper and pulp
(12) Manufacturing and/or transportation of hazardous substances (specified by international agreement)
(13) Road, railway or bride
(14) Airport
(15) Port
(16) Waste material processing or treatment
(17) Treatment of sewage and/or waste water that includes hazardous substances or executed at environmentally sensitive area
(18) Power transmission and/or distribution lines (including large scale involuntary resettlement, large scale deforestation or submarine cable)
(19) Tourism (Construction of hotel, etc.)
(20) Forestry or tree planting
(21) Agriculture (large scale project and/or project including irrigation)
Q14. Please provide information on the scale of the project (project area, area of plants and buildings, production capacity, amounts of power generation, etc.) Further, pleased explain whether an execution of EIA is required on account of the large scale of the project in the country where the project is implemented.
Annex III-6 Comparison of JBIC’s Guideline and the Law on Environmental Protection in Vietnam for Projects that Environmental Impact Assessment Report Must Be Prepared
the Law on Environmental JBIC Protection in Vietnam
Classification By Sector (21 sectors) By Sector and the type of projects (construction, manufacturing etc.) Scale Not specified Specified by each category of (stated as “large-scale”) the project Area National parks, historical sites National parks, historical sites etc. etc.
Characteristics (1) Large-scale involuntary None resettlement (2) Large-scale groundwater pumping (3) Large-scale land reclamation, land development and land-clearing (4) Large-scale logging
Annex III-7 List of Projects for which Environmental Impact Assessment Report Must Be Prepared
(Issued together with Decree 80-2006-ND-CP of the Government dated 09/08/2006)
No. Project Scale 1. National important projects All 2. Projects using part of the land of or causing an adverse All impact on a natural conservation zone, national park, historical and cultural site, natural heritage or beauty spot which is classified or which is unclassified but the object of a protection decision made by a people's committee of a province or city under central authority 3. Projects with a potentially adverse impact on a river All watercourse, coastal area or area containing a protected ecosystem 4. Nuclear power plant projects All 5. Thermo-nuclear power plant projects All 6. Projects for the construction of a nuclear reactor All 7. Projects for the construction of a manufacturing, business All or services establishment using or emitting radioactive substances 8. Projects for the construction of a telecommunications All establishment 9. Projects for the construction of infrastructure of an urban All zone or residential zone 10. Projects for the construction of infrastructure of an All industrial zone, high-tech zone, industrial group, export processing zone or handicraft village group 11. Projects for the construction of infrastructure of an All economic or commercial zone 12. Projects for the new construction, or upgrade or All improvement of a Level I, II or III highway 13. Projects for the new construction of a Level IV road Length 50k or more 14. Projects for the new construction, or upgrade or Length 100k or more improvement of railways 15. Projects for construction of a permanent bridge above Length 200m or more roads [and/or] railways (excluding approaches) 16. Projects for the new construction, or upgrade or Requiring resettlement of 2,000 improvement of road works or more people 17. Projects for construction of a plant for building and Ships of a tonnage of 1,000 repairing ships DWT or more 18. Projects for construction of a plant for building, repairing Design output capacity of 500 and assembling locomotives, train carriages and or more vehicles per year automobiles
19. Projects for the construction, upgrade or improvement of For ships of a tonnage of 1,000 river ports or seaports DWT or more 20. Airports All Projects for construction of underground tramways or 21. Length 500m or more roads 22. Projects for construction of overhead rail lines Length 2,000m or more 23. Projects for mining petroleum and gas All 24. Petrochemical refinery projects (except for projects for All filling LPG or for preparing lubricants) 25. Projects for construction of petroleum and gas pipelines All 26. Projects for petrol and oil storage Capacity of 1,000 cubic meters or more 27. Projects for manufacture of petroleum products All (surfactants, plastifiers and methanol products) 28. Projects for the hygienic rinsing and cleaning of [cargo All holds of] ships Projects for construction of an entrepot for petroleum and 29. All gas 30. Thermo-electric plant projects Output capacity of 50 MW or more 31. Hydro-electric plant projects Reservoir capacity of 1,000,000 cubic meters or more of water 32. Projects for construction of high-pressure power lines Length 50k or more 33. Projects for construction of a plant producing laminated Design output capacity of 5,000 and refined steel and non-ferrous metal tons of product per year 34. Projects for a plant manufacturing plastic Design output capacity of from 1,000 tons or more of product per year 35. Projects for a plant manufacturing chemical fertilizer Design output capacity of from 10,000 tons or more of product per year 36. Projects for chemicals' [or] plant protection agents' storage Storage capacity of from 10 tons or more 37. Projects for a plant manufacturing paint [or] basic Design output capacity of from chemicals 1,000 tons or more of product per year 38. Projects for a plant manufacturing washing detergents [or] Design output capacity of from additives 1,000 tons or more of product per year 39. Projects for a plant manufacturing plant protection agents Design output capacity of from 500 tons or more of product per year 40. Projects for a plant processing rubber latex Design output capacity of from 10,000 tons or more of product per year
41. Projects for a plant processing rubber Design output capacity of from 1,000 tons or more of product per year 42. Projects for a plant manufacturing pharmaceutical products Design output capacity of from [or] beauty products 50 tons or more of product per year 43. Projects for a plant manufacturing automobile and tractor Design output capacity of from tyres and tubes 50,000 tons or more of product per year 44. Projects for a plant [manufacturing] batteries Design output capacity of from 50,000 KWh or more per year 45. Projects for a plant [manufacturing] cement Design output capacity of from 500,000 tons of cement or more per year 46. Projects for a plant [manufacturing] bricks and tiles. Design output capacity of from 20 million items or more per year. 47. Projects for a plant manufacturing other building materials. Design output capacity of from 10,000 tons or more of product per year. 48. Projects for mining building materials (earth, stone, sand Design output capacity of and gravel) above dry land. 50,000 cubic meters or more of material per year. 49. Projects for mining, dredging and gathering building Design output capacity of materials (sand and gravel) from riverbeds. 50,000 cubic meters or more of material per year. 50. Projects for mining solid minerals (not using chemicals). With a volume of solid minerals and gravely soil of 100,000 cubic meters or more per year. 51. Projects for mining or processing solid minerals containing All. or using toxic chemicals. 52. Projects for processing solid minerals. Design output capacity of from 50,000 tons or more of product per year. 53. Projects for exploitation of underground water. Design output capacity of from 1,000 cubic meters per 24 hours. 54. Projects for exploitation of surface water. Design output capacity of from 10,000 cubic meters per 24 hours. 55. Projects for a plant processing foodstuffs. Design output capacity of from 1,000 tons or more of product per year. 56. Projects for a plant processing frozen seafood. Design output capacity of from 1,000 tons or more of product per year. 57. Projects for a plant [manufacturing] sugar. Design output capacity of from 20,000 tons or more of
sugarcane per year.
58. Projects for a plant producing alcohol [and/or] wine. Design output capacity of from 100,000 litres of product per year. 59. Projects for a plant producing beer [and/or] soft drink. Design output capacity of from 500,000 litres of product per year. 60. Projects for a plant manufacturing MSG [monosodium Design output capacity of from glutamate]. 5,000 tons or more of product per year. 61. Projects for plant processing milk. Design output capacity of from 10,000 tons or more of product per year. 62. Projects for a plant processing coffee. Design output capacity of from 5,000 tons or more of product per year. 63. Projects for a plant manufacturing tobacco. Design output capacity of from 50,000 packs per year. 64. Projects for a poultry and livestock abattoir. Design output capacity of from 100 or more livestock, 1,000 or more poultry per 24 hours. 65. Projects for a plant manufacturing ice. Design output capacity of from 500 or more blocks, or 25,000 kilograms or more of ice per 24 hours. 66. Projects for a plant processing agricultural produce being Design output capacity of from cereals. 10,000 tons or more of product per year. 67. Projects for a plant processing tapioca. Design output capacity of from 1,000 tons or more of product per year. 68. Projects for a plant [manufacturing] tan. All. 69. A textile and dyeing plant. All.
70. A textile (without dyeing) plant. Output capacity of from 100,000,000 metres or more of cloth per year. 71. Projects for an engineering works producing machinery Design output capacity of from and equipment. 1,000 tons or more of product per year. 72. Projects for a plant processing timber [and/or] plywood. Output capacity of 100,000 square meters or more per year. 73. Projects for a plant manufacturing electrical [and/or] Design output capacity of from electronic equipment. 10,000 items of equipment per year. 74. Projects for a plant manufacturing electrical [and/or] Design output capacity of from electronic components. 10,000 tons or more of product
per year.
75. Projects for a plant producing fine art goods. Design output capacity of from 1,000,000 or more products per year. 76. Projects for the construction of a reservoir lake or irrigation Reservoir capacity of 1,000,000 reservoir. cubic meters or more of water. Projects for the construction of a reservoir or tidal gate Covering an area of 500 or 77. system. more hectares. 78. Projects for a sea dam or dyke. All. 79. Projects for an intensive or semi-intensive aquaculture Water surface area of 10 or farming zone. more hectares. 80. Projects for extensive aquaculture farming. Water surface area of 50 or more hectares. 81. Projects for an aquaculture farming zone on sandy land. All. 82. Projects for a concentrated livestock farming zone. With 100 or more head of livestock. 83. Projects for a concentrated poultry farming zone. With 10,000 or more head of poultry. 84. Projects for a plant processing poultry and livestock Design output capacity of from foodstuffs. 10,000 tons or more of product per year. 85. Projects for planting and exploiting forest. Area of 1,000 or more hectares. 86. Projects for the construction of a concentrated cassava Area of 100 or more hectares. [and/or] sugarcane plantation area. 87. Projects for the construction of a concentrated coffee Area of 100 or more hectares. plantation area. 88. Projects for the construction of a concentrated tea Area of 100 or more hectares. plantation area. 89. Projects for the construction of a concentrated rubber Area of 200 or more hectares. plantation area. 90. Projects for the construction of a tourism [and/or] Area of 5 or more hectares. entertainment zone. 91. Projects for the construction of a golf course. With 50 or more holes. 92. Projects for the construction of a hotel [and/or] boarding With 50 or more guest rooms. house area. 93. Projects for the construction of a hospital. With 50 or more patient beds. 94. Projects for the construction of a general solid waste All. recycling and treatment plant. 95. Projects for the construction of disposal plants for All. industrial and toxic waste. 96. Projects for the construction of disposal plants for domestic For 100 or more family waste. households.
97. Projects for the construction of a concentrated industrial Design output capacity of 1,000 water waste treatment system outside an industrial zone, cubic meters or more of waste high-tech zone or export processing zone. water per 24 hours. 98. Projects for the construction of a concentrated domestic Design output capacity of 1,000 water waste treatment system. cubic meters or more of waste water per 24 hours. 99. Projects for the construction of a crematorium. All. 100. Projects for the construction of a cemetery. Area of 15 or more hectares. 101. Projects using land of a protective forest in a catchments Area of 5 or more hectares. area, estuary or coastal area, or using land of a specialized use forest. 102. Projects using land of a natural forest. Area of 50 or more hectares.
Annex III-8 Sample Approval Decision of an Environmental Impact Assessment Report
SAMPLE APPROVAL DECISION OF AN ENVIRONMENTAL IMPACT ASSESSMENT REPORT
(An attachment of the Circular No. 08/2006/TT-BTNMT dated September 8, 2006 of Ministry of Natural Resources and Environment providing guidance on strategic environmental assessment, environmental impacts assessment and environmental protection commitments)
...... (1)……………… THE SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness No: ……. ….. (Location), date……. month……..year……
DECISION On approval of the environmental impact assessment report of Project "………………………(2)…………………………………" ………………………..(3)…………………………… Pursuant to Law on Environmental Protection dated November 29, 2005; Pursuant to Decree No. 80/2006/ND-CP dated August 09, 2006 of the Government on detail regulation and guidance to implement some articles of the Law on Environmental Protection; Pursuant to Decree No...... /ND-CP dated ...... of the Government on functions, tasks, responsibility and organization of ……(1).....;
Based on proposals of ……..(4)……. (or of the Appraisal Committee of environmental impact assessment of Project………(2)……..met on date…month ... year …., at……………); Considering contents of the environmental impact assessment report of Project…(2)…., which has been revised, amended and is attached to the explanation letter dated ...... of…..(5)…..; Based on proposals of Sir (Madam) ……………(6)…………….., DECIDES: Article 1. To approve contents of the environmental impact assessment report of Project………(2)...... … of……..(5)…….. ….(hereafter referred as Project owner). Article 2. Project owner is responsible to implement exactly what has been said in the environmental impact assessment and the following compulsory requirements: 1. …………………………………………………………………………. 2. …………………………………………………………………………. 3. …………………………………………………………………………. Article 3. The environmental impact assessment of project and the requirements that are mentioned in the Article 2 of this Decision are basis for competent and authorized State administration agencies to inspect and
supervise the environmental protection work of the project. Article 4. During the project implementation, if there are any changes of contents of the approved environmental impact assessment report, the project owner must have official reports and can only make changes after the letter of approval of …..(1)….. Article 5. To authorize ……(7)……to check and monitor the environmental protection work, which are in the environmental impact assessment report and the requirements of the Article 2 of this Decision. Article 6. This Decision comes to effect since the date it is signed./.
Recipient: …………(3)……….. - Project owner; (Signature, Full names, Title, Stamp) - - Archive …..
Notes: Organization of approval authorization; Full names of project owner; Head of the organization of approval authorization; Name of appraisal service agency; Name organization, enterprise - the project owner; Permanent head of appraisal; Organization given tasks of checking and monitoring after approval.
Annex III-9 Form for Certifying Register Paper of Environmental Protection
FORM FOR CERTIFYING REGISTER PAPER OF ENVIRONMENTAL PROTECTION
(Attached with Circular No.08/2006/TT-BTNMT dated September 8th 2006 by Ministry of Natural Resources and Environment guiding on strategic environmental assessment, environmental impact assessment and environmental protection commitment) …………(1)……………… The Socialist Republic of Vietnam Independence - Freedom - Happiness No: ……. (Place), date…… month……year…..
CERTIFICATION FOR REGISTER PAPER OF ENVIRONMENTAL PROTECTION COMMITMENT of Project:...... ………....(2)......
…………….(3)……………… CERTIFIES Article 1. Date…..month….year.... Project owners are …………(4)… issued document No... date … month … year ……to register for environmental protection commitment of Project ………(2)……… Article 2. Project owner has responsibility to implement exactly and fully contents of environmental protection given in environmental protection commitment. Article 3. Environmental protection commitment is the basis for state administration agency on environment to monitor, examine and investigate environmental protection of Project. Article 4. This certification is valid from the signing day./. Receivers: Representation of. ….. (5)…….. - Project owner; HEAD - (Signed, full name, title, sealed) - File…. Notes: (1) Name of competent certifying agencies; (2) Full name of Project; (3) Leader or Head of competent certifying agencies; (4) Name of agency, company owned company; (5) People Committee at district level.
Annex III-10 Tentative List of New Functions of MIS
No. function remark 1 to manage SME, project, sub-loan and on-lending loan information Prepare Vietnamese version screen 2 to manage PFI information Prepare Vietnamese version screen 3 to make on-lending loan application Prepare Vietnamese version and English version of the report. Change layout based on new RM 4 to make request for on-lending loan release Prepare Vietnamese version and English version of the report. Change layout based on new RM 5 to make receipt of on-lending loan Prepare Vietnamese version and English version of the report. Change layout based on new RM 6 to make semi-annual report Prepare Vietnamese version and English version of the report. Change layout based on new RM
7 to send data to ICPMU Prepare Vietnamese version screen 8 to export designated data to excel sheet Can be re-used 9 to calculate the interest of on-lending loan and make the following repCan be re-used a) Interest Calculation table of each PFI Can be re-used b) Interest Calculation table of each on-lending loan contract Can be re-used 10 to make notification that tells PFI the due date of on-lending loan Can be re-used repayment. 11 to make the list of over due on-lending loan. Can be re-used 12 to make Summery Sheet of Payment Change layout based on new RM 13 to make Statement of the Revolving Fund Account Change layout based on new RM 14 to make Lending and repayment reports of on-lending loan Can be re-used 15 to make list of on-lending loan contract Can be re-used 16 to make list of loan outstanding of each on-lending loan contract Can be re-used 17 to make list of on-lending loan amount Can be re-used 18 to make list of repayment amount of on-lending loan Can be re-used 19 to make excel file of the Accounting reports Can be re-used 20 to make Classification of sub-loan by… Can be re-used Nature of Project Can be re-used Size of Registered Capital Can be re-used Size of sub-loan Can be re-used Disbursement date Can be re-used PFI Can be re-used Area Can be re-used purpose Can be re-used sub-borrowers Can be re-used Size of number of employees Can be re-used 21 to make report named "Theo doi tra no" Can be re-used 22 to record log file new function 23 to check log file by screen basis new function 24 to let PFI check the status of OLL new function 25 to move credit limit to PFI site new function 26 to manage balance of RFA new function 27 to analyze rest of RFA and credit limit new function 28 to move data from old MIS to new MIS new function
Annex III-11 Reporting Form for Environmental Monitoring
(To be submitted by PFI to ICPMU and JICA)
Name of PFI: As of: DD/MM/YYYY
To: SMEFPD, ICPMU (SBV) 16 Ton Dan Street, Hanoi, Vietnam
Identity Environmental Monitoring Remarks Environmental Name of No. Permit Protection Status* SME- of SME- Solid Borrower EIA EPC Air Water Others Sufficient Insufficient Borrower waste
1
2
3
4
5
Notes: - *Depending on the level of compliance on environmental protection, the PFI can conclude on "Sufficient" or "Insufficient" of the SME Borrower in terms of environmental protection.
- In case of serious inefficiency of implementation, the PFI shall consider refusing to make further reimbursement. - If a borrower is to submit any measurement report to official agency such as DONRE or People’s Committee, the copy of that report should be submitted to PFI.
Date:
` Authorized signature and stamp of PFI:
SMALL AND MEDIUM – SIZED ENTERPRISES FINANCE PROJECT – PHASE III- Summary of Report (in English) Japan International Cooperation Agency (JICA) DRAFT FINAL REPORT of SAPROF for SMEFP III:
Small and Medium - Sized Enterprises Finance Project
Hanoi, October 2008
Consultant:Consultant: Nomura Nomura ResearchResearch Institute,Institute, Ltd.Ltd.
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. SAPROF of SMEFP III
Contents I. Scope of SMEFP Phase III 1-1 Target and Objective of SMEFP III 1-2 Loan scheme 1-3 Training, TA, and Promotion and Manuals 1-4 Overview of scope of SMEFP III II. Framework of operation and management of Phase III II-1. Fund allocation II-2. Approval procedures of sub-project including environmental impacts II-3. Monitoring and reporting scheme based on MIS III. Cooperation schemes enhancing Vietnam SMEs’ business with Japan III-1. Linkage to support SIs III-2. Enhancement of understanding of SI business III-3. Usage of SME training history for evaluation of SIs
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 Target and Objective of SMEFP III Challenges from economic and financial environment ►Fast increasing imports, especially intermediary goods, caused further deterioration of trade/current deficit, while expected enhancement of productivity and competitiveness of industries has not yet been fully materialized. GDP, FDI and trade development
70.0 1,400,000
60.0 1,200,000
50.0 1,000,000
40.0 800,000
30.0 600,000 billion VND billion billion USD billion 20.0 400,000
10.0 200,000
0.0 0 1995199619971998199920002001200220032004200520062007
FDI (USD) Export (USD) Import (USD) import of capital goods (USD) GDP (current,VND ) Investment of GDP(VND)
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 Target and Objective of SMEFP III Support SME finance and Industrial Policy ►Strong tightening of monetary policy to cope with inflation hit Imports of intermediary goods highly increased million USD million USD Machinery, apparatus and parts on funding capability of 3,500 14,000 commercial banks. for textile, garment Machinery, apparatus and parts for leather, footw ear Under tight monetary policy, 3,000 12,000 petroleum oils, etc.(right scale) Machinery, apparatus and parts prominent project of SMEs for paper or which will enhance paperboard industry 2,500 10,000 Machinery, apparatus and parts for plastic industry competitiveness of industry Electronic parts Machinery, apparatus and parts shall be supported by SMEFP. for construction 2,000 8,000 ►In middle term view, financial Machinery, apparatus and parts support for industrial policy to for cement production 1,500 6,000 Machinery, apparatus and parts overcome challenges of Iron, steel (right scale) for telecommunication
Machinery, apparatus and parts dependence on imports shall be for manufacture of food or drink 1,000 4,000
pursued. Electronic parts (including Machinery, etc. for television parts), computers and Coordinate with Vietnam-Japan telecomunication their parts Joint Initiative and planned 500 2,000 Petroleum oils, refined product
Action Plan for Promotion of Iron, steel Supporting Industry. 0 0 2000 2001 2002 2003 2004 2005 2006 2007
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 Target and Objective of SMEFP III Finance needs of Supporting Industry ►Among the five industrial groups, “Electronics, informatics, telecom”, “Mechanical manufacturing”, and “Production and assembling of motor vehicles” show stronger appetite for debt finance. These sectors are also crucial for competitiveness of Vietnam economy.
(billion VND)Liability of Supporting Industry 2004 2005 2006 Total 94,434 112,024 128,696 annual growth 19% 15% Electronics, informatics, D31. Manufacture Of Electrical Machinery 11,332 15,727 19,818 telecom And Apparatus N.e.c. 39% 26% D32. Manufacture Of Radio, Television And 6,206 7,610 10,580 Communication Equipment And 23% 39% Textile & garment D17. Manufacture Of Textiles 27,143 33,376 33,066 23% -1% D18. Manufacture Of Wearing Apparel; 14,555 16,424 20,543 Dressing And Dyeing Of Fur 13% 25% Leather & footwear D19. Tanning And Dressing Of Leather; 20,463 21,672 22,824 manufacturing manufacture of leather products. 6% 5% Mechanical manufacturing D29. Manufacture Of Machinery And 6,469 7,738 9,920 Equipment N.e.c. 20% 28% Production and assembling of D34. Manufacture Of Motor Vehicles, Trailers 8,267 9,478 11,945 motor vehicles And Semi trailers 15% 26%
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 Target and Objective of SMEFP III Supporting Industry SMEs face difficulty for finance
►Supporting Industry SMEs (SI-SMEs), especially being in transition of becoming partners of FDI enterprises, often face difficulty of finance for new expensive machinery because of information opaqueness caused by order process of FDI enterprise. ►These projects might be supported by SMEFP III.
Example of evaluation of suppliers by FDIs
Capacity of Capacity of Production Capacity =+Product Design/ Production Development Management
Example of Major Manufacturer’s Production Testing Process
(1) Agreement on product modifications (2) Single product (3) Vehicle mounted (4) Mass production (5) Full scale and production test of test test test production trial product
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 Target and Objective of SMEFP III “Tier I” enterprises
►“Tier I” enterprises can bridge the gap between FDIs and local SI-SMEs because they can closely cooperate with local SMEs and mitigate the information opaqueness. ►SMEFP III shall spotlight this sector as a pilot project so that effectiveness can be evaluated in a couple of years.
Tier 1 : Final (export) Product (Legend) Tier 1 enterprise: Manufacture (e.g. FDI)
Layer 1 Key Supplier Key supplier Key Supplier (FDI) (VN majority) (Vietnam)
Layer 2 Key Supplier Key Supplier Supplier Supplier Supplier Supplier (VN) (VN) (VN) (VN) (VN) (VN)
Layer 3
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 Target and Objective of SMEFP III Bridge the gap between FDIs and local SI- SMEs ►Tier I companies can enhance the growth of Supporting Industries by: Purchasing products from SI-SMEs Lessen necessary amount of working capital to SI-SMEs Providing machinery to SI-SMEs Providing technology and management skills to SI-SMEs Showing the international standards to SI-SMEs
Final Product Manufacture (e.g. FDI) •Providing machinery to SI-SMEs •Purchasing Key supplier •Providing products from (Tier 1) SI-SMEs technology and management •Providing skills to SI- working Supplier Supplier SMEs capital to SI- (VN) (VN) • SMEs Showing the international standards
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 Target and Objective of SMEFP III Objectives of SMEFP III a. Promote SMEs to materialize investment projects through long- term finance, technical assistance for PFIs, and promotion of awareness of SMEs to become further bankable. b. Promote industrial competitiveness through long-term finance, technical assistance to improve credit assessment for industrial sectors, and development of infrastructure to mitigate information opaqueness in business risk of the supporting industry. c. As a part of the 2nd objective b), implement trial to evaluate alternative approach to support larger enterprises to enhance business partnership between local supporting industry SMEs and FDI enterprises such as Japanese manufacturing.
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 Loan scheme Eligible sub-project and target
►Invested business sectors A) Sectors in accordance with the List of Eligible invested Business Sectors stipulated in Annex III of Policy Manual of Phase II B) Sectors of Supporting Industries in the Master Plan of MOIT: a) Electronics, informatics, telecom, b) Textile & garment, c) Leather & foot ware manufacturing, d) Mechanical manufacturing, e) Production and assembling of motor vehicles Sector B) shall be promoted by incentive. ►Legal status and form of end-borrower Same as SMEFP II ►Size Size shall be consistent with SMEs defined in Decree 90 which is planned to be revised in 2008, and established under Law on Enterprise. Exemption for “Tier I” enterprises: If sub-projects belong to B) in the invested business sector, and the end- borrower is business partner (supplier of Japanese FDIs, or sub-supplier of Japanese FDIs), then the restriction of the size is exempted.
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 Loan scheme Limit of sub-loan size ►Limit of sub-loan size might be increased from 20 billion VND to 25 billion VND because of the followings; Average project size in Phase II increased 1.3 times as compared with Phase I 90% of sub-projects are less than 20 billion VND in Phase II while that is less than 15 billion VND in Phase I. As of June 2008, CPI increased 50% since December 2004. Distribution of sub-project amount and sub-loan amount (million VND) Phase II Phase I
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% project cost 50% project cost
40% sub-loan 40% sub-loan
30% 30%
20% 20%
10% 10%
0% 0%
0 0 0 0 0 00 0 0 0 00 00 00 00 00 0 00 00 00 00 00 0 0 0 ,000 , , ,0 ,0 ,0 ,0 ,0 ,000 ,0 1, 3,000 5, 7, 9 1 3 5 7 9 1 11 13,000 15,000 17 19,000 21, 11 13,000 15,000 17,0 19,0 2 Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 Loan scheme Interest rate of OLL
►T-bill rate, while auction is difficult to be completed smoothly, might be as volatile as Interbank rates, which cause larger interest rate risk for PFIs. ►Weighted average of deposit rates might be better selection as market rates. At the same time, interest rates of OLL shall be in accordance with Decision 181 (currently not more than 12%). (Annual, %)
25.00
lending rates (short 20.00 term) lending rates (medium term) 15.00 weighted average of deposit rates (annual) VDB/DAF 10.00 investment rate
T Bill (OLL rate of SMEFP II) 5.00
0.00 5 7 8 05 -05 -05 06 -06 -07 -07 M-05 M- J-0 S N J-06 M-06 M-06 J- S-06 N J-07 M-07 M-0 J-07 S N J-08 M-08 M-08 J-0
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 Loan scheme Incentive for target and terms ►Sub-projects of supporting industry and Tier I enterprises shall be promoted by incentive. ►Also, in order to promote finance for supporting industry, non-financial assistance such as linkage to Japanese FDI enterprises shall be promoted. ►The following incentive structure is recommended.
Status Incentive Eligibility/criteria Tier I Special fund sub-projects belong to supporting industry in the invested enterprises business sector, and the end-borrower is business partner (supplier of Japanese FDIs, or sub-supplier of Japanese FDIs), Others Fund Scoring a) Total Amount of sub-projects allocation (based on disbursement Amount of sub-loans standard Amount of OLL deviation b) Supporting Amount of sub-projects score) industry Amount of sub-loans Amount of OLL c) Linkage Count of projects with linkage: Contract with Japanese FDIs SME trainings
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 Loan scheme Selection of PFIs 1. Selection criteria ► Same as Phase II, with small modification such as; a) Parameter formula for legal capital requirement which is changed within 2008 b) Parameter formula for share of loans to private enterprises among total loans and growth of loans to private enterprises.
2. Selection Process ► Selection might be implemented in two stages. 1st stage: Assess the current 9 PFIs according to their intention based on the scoring. 2nd stage: Implement open tendering. Accept request from all the banks (depositary financial institutions). Then, ICPMU will conduct screening based on size, number of branches, operating years, and soundness rating by SBV stipulated in Decision No.457 -2005 / QD-NHNN, and Decision No. 03 - 2007 / QD-NHNN.
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. I-3 Training, TA, Promotion and Manuals Training for Project Implementation
Agenda Attendants Location Days Introduction of SMEFP III ICPMU, PFIs, Other Hanoi Half day banks Goals and practice of SMEFP III ICPMU, PFIs Hanoi, DaNang, 3 days HCMC MIS training ICPMU Hanoi 3 days MIS training PFIs Hanoi, HCMC 3 days
Goals and operation practice of SMEFP III ► It is essential to share the goals of SMEFP III in the context of accordance with the merits and limitation of two step loan as a policy measure. ► While the fund of OLL is limited, the main players such ICPMU and PFIs are expected to outreach for good projects using linkage/cooperation with other parties such as related agencies (MOIT, ASMED), business associations (VCCI, JBA), and SME assistance programs (TAC, VJCC, etc.), in order to maximize the impacts and keep sustainability after consulting support. In Phase III rational of focusing on the supporting industry needs to be understood among the relevant players as well.
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. I-3 Training, TA, Promotion and Manuals Training for Technical Assistance
Agenda Attendants Location Days Promotion of environmental ICPMU, PFIs Hanoi, HCMC 1 day consideration Promotion of environmental SMEs Hanoi, DaNang, Half day, consideration HCMC 3 times Policy to promote Supporting Industry ICPMU Hanoi 2 days and SME finance. Financial analysis of PFIs ICPMU Hanoi 1 day Industry research for credit assessment ICPMU, PFIs Hanoi, HCMC 2 days and marketing Credit assessment for business risk of ICPMU, PFIs Hanoi, HCMC 3 days suppliers of supporting industry On site Training (credit assessment, 5 PFIs (subject to 3 days internal rating, information for credit PFI requests) assessment, pricing, marketing)
Training on Supporting Industry ► There is difficulty of credit appraisal and marketing for supplier SMEs for FDI enterprises for all the PFIs. TA to enhance capability of credit assessment in the supporting industry shall be implemented for all the PFIs. This training may include 1) Industry research for credit assessment and marketing, 2) Credit assessment for business risk of suppliers of supporting industry.
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. I-3 Training, TA, Promotion and Manuals Promotion and Training for SMEs
► Awareness among SMEs, not only for SMEFP but also for finance opportunity for SMEs in general, has much to be enhanced because banking is still unfamiliar for most of SMES and because marketing of PFIs still under development for most of PFIs according to interviews with PFIs and Q&A in the training courses on international practice of SME finance.
Type of TA Contents
Training Promotion of environmental consideration
Promotion Leaflet of SMEFP III
Educative booklet 1. Guidebook of application for bank borrowing (documentation, presentation, basic knowledge on loan and collateral) 2. Feasibility study of project and promotion towards FDI enterprises
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-4 Overview of scope of SMEFP III
3) Measures to overcome obstacles 1) Target to be focused 2) Obstacles for fund raising A) Loan Scheme B) Training and promotion C) Linkage Lack of understanding of supporting ） A Supporting Industry industry Reinforce publicity work for SME to increase applications from SME Having no opportunity to Use information about orders and stepping up Give incentives for loans for 1:Raise awareness of SME about SMEFPII meet bank which is willing to process of orders from Japanese companies for supporting industry through VCCI, DPI, or JETRO's Trade Fair etc. finance SI-SME assessment of business risk (develop common 2:Compile a handbook for bank loan order format, if possible. Also to be used for application business linkage)
Use information of history of training and certificates of SME and employees for credit Supporting Industry Give training for PFI on business evaluation Uncertainty of growth in assessment (MOIT) and screening of manufacturing, especially SI. transaction or shift to high- *Categorize trainings (Management, quality Tier I enterprises (Potential and risks of SI, transaction pattern of tech products (from trial control, special manufacturing technology such business with Japanese companies, required product to formal order) as NC machine operation, product inspection, management and technology, etc.) etc.) *Prepare common rating based on effectiveness *Record training history
Having no opportunity to do 1 Compile a leaflet to encourage SMEs for PFI shall introduce SI-SME through common business with Japanese further marketing to FDI enterprises format to Japanese companies through VCCI or companies 2 Strengthen PFI'S SI-SME support unit JBA etc. (by using format)
B） SME in general Less relationship with banks （repeated）Reinforce publicity work for SME to Having less incentives for increase applications from SME Give incentives for loan to new banks to seek new clients 1:Raise awareness of SME about SMEFPII clients （Give preference of (Contacts from SME should through VCCI, DPI, or JETRO's Trade Fair etc. SMEs under difficult fund allocation etc.) economy be encouraged) 2:Compile a handbook for bank loan Larger sub-projects application
Credit assessment under Training for PFI regarding loan based on information opaqueness internal rating
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. II-1 Fund Allocation
►Initial allocation is simply divided to SOCB group and JSB group, with same amount for PFIs among each group. Starting at 2nd allocation, allocated amount for PFIs depend on the performance under the incentive system. ►Allocated amount for PFIs are calculated by the following formula. Allocated amount fo PFI (n) = Total allocation of each time X share for PFI (n) Share for PFI (n) = f (standard deviation score of items (n) in a), b) and c))
a)Total Amount of sub-projects Jan-10 Jul-10 Jan-11 Jul-11 Total disbursement Amount of sub-loans Vietinbank (ICB) BIDV Amount of OLL ACB b)Supporting Amount of sub-projects Sachombank initial industry DAB (EAB) allocatio allocated based on Amount of sub-loans Techcombank n performance Amount of OLL MHB CCF c)Linkage Count of projects with linkage: HDB contract with Japanese FDIs, Total SME trainings, etc. SMEFP III RFA
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. II-2 Approval procedures of sub-project including environmental impacts
► An enterprise is required to either obtain the Decision on approval of the Environment Impact Assessment Report (EIAR) and then the Certification for implementing the content of the approval EIAR; or obtain the Certification on the undertaking for Environment Protection ►The SME shall prepare and submit to the PFI a sub-loan application dossier which shall contain, in addition to other documents, entered screening form and the environment related papers.
2 3 4
Making Approval decision of Checking the Certification on EIAR by DONRE or implementation of EIAR by implementing EIAR MONRE DONRE and/or MONRE EIAR Enterprise
1
Undertaking on Registration of Certification on the environment undertaking at the undertaking registration by protection district PC the district PC
2 3
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. II-3. Monitoring and reporting scheme based on MIS
1. Integrate MIS for three phases 2. Upgrade the specification of MIS 3. Improve usability 4. Re-use the current programs as much as possible 5. Additional functions a. Security b. Convenience Structure of new MIS
PFI
ICPMU MS-Access Program
MIS MS-Access Program
Virtual PFI Private Network
SQL Server
Data-base is separated from program. MIS Data-base is managed by SQL-Server. MS-Access program is located at each PC. Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. III-1. Linkage to support SIs
►Linkage to support SIs will focus on the followings; Improving PFIs’ assessment capacity of sub-project by SIs Business matching/introduction of SIs using by-product information ►This linkage shall require cooperation network of the relevant organizations
Remarks
Flow of Information Other Domestic SI-SME Info of FDI Assistance program companies FDI Finance and credit assessment support
Info of Cosponsor of companies seminar etc. Donors Info of PFI SI-SME (TAC etc.)
Advice and JBA , JETRO support ICPMU Supported by Info of MOIT SI-SME Consultant Advice and Info of support Japanese companies/ Data of SME ASMED SI-SME VCCI • Information Center • Linkage intermediary
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. III-2. Enhancement of understanding of SI business
►SMEs may have a better chance of obtaining a loan, if bankers acknowledged the transition process and implications to become a SI-SME or one with higher level of technology.
Tasks in SMEFP III PFI ICPMU/ VCCI/ JETRO/ FDIs Consultant JBA Clarification of standard process of Study Input input FDIs order Training on industrial sectors Internal training Input research focusing SIs Dissemination Training on sub-project assessment Internal training Input focusing on SIs dissemination Operating stage Assessment of Updating the Raise issues with Provide SIs process for views of SIs suggestions Raise issues further Utilize it for with vies of FIs improvement business matching
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. III-3. Usage of SME training history for evaluation of SIs
► The history of training and certificates of SME and employees may be useful for credit assessment with respect to the capabilities of the SME, as the FDIs and PFIs have difficulty in the assessment of the SME’s capabilities.
Tasks in SMEFP III PFI ICPMU/ VCCI/TAC Training FDIs Consultant /JETRO providers Development of assessment Develop Provide Suggest framework of SME trainings framework training implications (categorize trainings to profiles for capacity management, quality control, of SIs special manufacturing technology, etc.) Collecting history of trainings Develop Provide database training history Training on assessment of SIs Internal Training Input training history dissemination Operating stage Conduct Maintain and Maintain Provide SME Occasional assessment of enhance database trainings suggestion SIs framework Utilize it for matching
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. SMALL AND MEDIUM – SIZED ENTERPRISES FINANCE PROJECT – PHASE III- Summary of Report (in Japanese)
国際協力機構 (JICA)
最終報告書(案) 要約版 ベトナム社会主義共和国「中小企業支援事業（III）」に係る 案件形成促進調査（SAPROF）
Hanoi, 2008年10月
Consultant:Consultant: 株式会社株式会社 野村総合研究所野村総合研究所
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. SAPROF of SMEFP III 目次 I. SMEFP Phase IIIの概要 1-1 SMEFP IIIの目的と対象企業 1-2 融資スキーム 1-3 研修プログラム、TA 概要、事業実施マニュアル、広報活動等 1-4 SMEFP IIIの事業スコープ II. Phase IIIの事業実施･運営･管理体 II-1. 資金配分 II-2. サブプロジェクトの承認(含、環境配慮)と貸付実行体制等 II-3. MISを活用したモニタリング体制(進捗･返済状況、リボルビングファンド等) III. ベトナム中小企業と日本との取引を促進する連携の仕組み III-1. 裾野産業を支援する連携 III-2. 裾野産業に対する理解の促進 III-3. 裾野産業の評価のためのSMEの研修履歴の活用
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 SMEFP IIIの目的と対象企業 経済・金融環境から見た課題
► 2007年から08年にかけて、輸入（特に中間財）の急増を主因に、貿易赤字が増加。 ► FDIや国内投資が増加するも、必ずしも産業の生産性・国際競争力の強化に、効率的に 結びついていないことを示唆。 GDP, 直接投資、輸出入の動向
70.0 1,400,000
60.0 1,200,000
50.0 1,000,000
40.0 800,000
30.0 600,000 billion VND billion USD 20.0 400,000
10.0 200,000
0.0 0 1995199619971998199920002001200220032004200520062007
FDI (USD) Export (USD) Import (USD) import of capital goods (USD) GDP (current,VND ) Investment of GDP(VND)
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 SMEFP IIIの目的と対象企業 中小企業・産業政策を支援する金融面のサポート
►インフレ抑制のための金融引き 締め強化が商業銀行の資金調 中間財輸入が急増 million USD million USD 達力を低下させている。 Machinery, apparatus and parts 3,500 14,000 for textile, garment 引き締め政策の効果浸透を見 Machinery, apparatus and parts 守る状況といえども、産業の競 for leather, footw ear 3,000 12,000 争力を高めるような優れた中小 petroleum oils, etc.(right scale) Machinery, apparatus and parts for paper or 企業の投資プロジェクトは paperboard industry 2,500 10,000 Machinery, apparatus and parts SMEFPで支援すべき。 for plastic industry Electronic parts Machinery, apparatus and parts for construction 2,000 8,000 ►中長期的には、輸入依存から Machinery, apparatus and parts の脱却を目指す産業政策を金 for cement production 1,500 6,000 Machinery, apparatus and parts 融面で支援することも重要。 Iron, steel (right scale) for telecommunication
Machinery, apparatus and parts 日越共同イニシアチブや裾野 for manufacture of food or drink 1,000 4,000
産業育成アクションプランとの Electronic parts (including Machinery, etc. for television parts), computers and 連携を図る。 telecomunication their parts 500 2,000 Petroleum oils, refined product
Iron, steel 0 0 2000 2001 2002 2003 2004 2005 2006 2007
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 SMEFP IIIの目的と対象企業 産業競争力強化には裾野産業育成が不可欠 ► 裾野産業の５セクターのうち、電子・通信業、機械製造業、バス・トラック組立・製造業は 負債調達の需要が強い。これらの産業は今後のベトナム経済の産業競争力を左右す るセクターでもある。 裾野産業の負債動向 (billion VND) 2004 2005 2006 Total 94,434 112,024 128,696 annual growth 19% 15% Electronics, informatics, D31. Manufacture Of Electrical Machinery 11,332 15,727 19,818 telecom And Apparatus N.e.c. 39% 26% D32. Manufacture Of Radio, Television And 6,206 7,610 10,580 Communication Equipment And 23% 39% Textile & garment D17. Manufacture Of Textiles 27,143 33,376 33,066 23% -1% D18. Manufacture Of Wearing Apparel; 14,555 16,424 20,543 Dressing And Dyeing Of Fur 13% 25% Leather & footwear D19. Tanning And Dressing Of Leather; 20,463 21,672 22,824 manufacturing manufacture of leather products. 6% 5% Mechanical manufacturing D29. Manufacture Of Machinery And 6,469 7,738 9,920 Equipment N.e.c. 20% 28% Production and assembling of D34. Manufacture Of Motor Vehicles, Trailers 8,267 9,478 11,945 bus and trucks And Semi trailers 15% 26%
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 SMEFP IIIの目的と対象企業 裾野産業の中小企業は資金調達が困難
► 裾野産業の中小企業は、外資との取引の過程で高精度かつ高額な製造設備の購入 が必要となる場合があるが、金融機関にとって、外資の発注過程におけるSMEのビジ ネスリスクが不透明性であるため、資金調達の困難性が大きい。 ► このようなプロジェクトをSMEFP IIIで支援することが考えられる.
外資の仕入先評価方法の一例
Capacity of Capacity of Production Capacity =+Product Design/ Production Development Management
日系大手製造企業の仕入れ部品試験プロセスの一例
(1) Agreement on product modifications (2) Single product (3) Vehicle mounted (4) Mass production (5) Full scale and production test of test test test production trial product
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 SMEFP IIIの目的と対象企業 “Tier 1” 企業
► 裾野産業のうち、外資と直接取引する中核企業は、地元SMEと緊密に協力することで 外資と裾野産業中小企業との間の架け橋となり、情報の非対称性を緩和することが期 待される。 ► SMEFP IIIではこうしたTierⅠ企業に対して、パイロットとして支援を行い、２～３年の 期間で効果検証を行う。
（凡例） Final (export) Product Tier 1 企業: Manufacture (e.g. FDI)
Layer 1 Key Supplier Key supplier Key Supplier (FDI) (VN majority) (Vietnam)
Layer 2 Key Supplier Key Supplier Supplier Supplier Supplier Supplier (VN) (VN) (VN) (VN) (VN) (VN)
Layer 3
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 SMEFP IIIの目的と対象企業 期待される外資と裾野産業中小企業の架け橋
► Tier 1企業は、以下のような機能を通じて裾野産業の育成に貢献することが想定され る。
裾野産業の中小企業から商品・部品を購入する
裾野産業の中小企業の所要運転資金を削減する（売掛期間の短縮）
裾野産業の中小企業に機械設備を供与する
裾野産業の中小企業に製造･管理技術を提供する
裾野産業の中小企業に目標とすべき国際標準を示す
FDI/Exporter （compete in Int’l market） •Providing machinery to SI-SMEs •Purchasing Key supplier •Providing products from (Tier 1) SI-SMEs technology and management •Providing skills to SI- working Supplier Supplier SMEs capital to SI- (VN) (VN) • SMEs Showing the international standards
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-1 SMEFP IIIの目的と対象企業 SMEFP IIIの目的 a. 長期資金の供給、参加金融機関への技術支援、および中小企業にお けるSMEFPIIIその他の金融機関融資への認知度向上を通じて、中 小企業の投資プロジェクトの円滑な実現を図る。 b. 長期資金の供給、産業調査や審査能力向上の技術支援、裾野産業 に関連した事業リスクの不透明性を緩和する情報インフラの開発を通 じて、産業競争力の向上を図る。 c. 裾野産業金融支援を通じた産業競争力向上の一環として、中小企業 の規模を超える企業に対する金融支援の試行を行い、裾野産業中小 企業と日系製造業との間の事業連携を促進する効果を評価する。
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 融資スキーム サブプロジェクトの適格条件と融資対象企業
►事業分野 A) フェーズIIのPolicy Manual（の付属資料III）で規定している「適格投資分野」に適 合している分野 B) MOITの裾野産業マスタープランで取り上げられている産業分野: a)電子・情報・ 通信, b) 繊維・衣服, c) 皮革・履物産業, d) 機械・部品製造,業、e) バス･トラックの 組立て・製造業 なお、分野B) における投資プロジェクトにはインセンティブが付与される。 ►エンドボロワーの形態と法的地位 SMEFP IIと同じ ►エンドボロワーの規模
２００８年中に改定予定の政令９０号（統一企業法）で規定される中小企業の定義 に該当する企業。 Tier 1企業への適用除外: サブプロジェクトが上記の分野B)に該当し、借入企業が当プロジェクトのビジネスパート ナー（現地日系企業に対する有力な納入製造業者）である場合はエンドボロワーの規模 条件については適用除外とする。
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 融資スキーム サブローンの融資上限額 ► フェーズⅢのサブローンの上限額は、以下の点を勘案して、フェーズⅡの200億VNDから 250億VNDに引き上げる： サブプロジェクトサイズは、フェーズⅠ対比で、フェーズⅡは１．３倍に増大している。
フェーズⅡでは90%のサブプロジェクトは150億VND以下に収まっていたのに対して、フェーズⅡ では、90%のサブプロジェクトが収まる規模は200億VND以下へと高まっている。
他方、物価（CPI)動向は、フェーズⅠ計画策定時の2004年12月から2008年の6月までの期間で 1.5倍に上昇している。 サブプロジェクトとサブローン金額の分布 (million VND) Phase II Phase I
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% project cost 50% project cost
40% sub-loan 40% sub-loan
30% 30%
20% 20%
10% 10%
0% 0%
0 0 0 0 0 00 0 0 0 00 00 00 00 00 0 00 00 00 00 00 0 0 0 ,000 , , ,0 ,0 ,0 ,0 ,0 ,000 ,0 1, 3,000 5, 7, 9 1 3 5 7 9 1 11 13,000 15,000 17 19,000 21, 11 13,000 15,000 17,0 19,0 2 Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 融資スキーム オン・レンディング・ローン（OLL）の金利
► フェーズⅡの参照金利である短期財務省証券の発行利回りは、入札が成立しないこと が多く、また値がついたとしてもインターバンクレートと同程度と不安定であると考えら れるため、PFIの金利リスクの観点から、参照金利としては望ましくない。 ► 現状の金融市場の状況をふまえれば、加重平均預金金利の方が、市場金利の基準と してより適切と考えられる。 ► なお、OLL金利は、Decision181と整合性を保つ必要がある（現時点では１２％以下）。 (Annual, %)
25.00
lending rates (short 20.00 term) lending rates (medium term) 15.00 weighted average of deposit rates (annual) VDB/DAF 10.00 investment rate
T Bill (OLL rate of SMEFP II) 5.00
0.00 5 6 7 7 07 08 M-05 M-05 J-05 S-05 N-0 J-06 M-06 M-06 J-06 S-06 N-0 J-07 M-07 M-0 J-07 S- N-0 J-08 M-08 M- J-08
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 融資スキーム 特定の融資対象・条件へのインセンティブ ► 裾野産業とTier 1の企業のサブプロジェクトにはインセンティブを付けて推進すべき。 ► また、裾野産業への融資を促進するためにも、現地日系企業とのリンケージ等の非金融支 援の活用に対してもインセンティブをつけるべき。 ► インセンティブの方法としては、以下の体系を推奨する。 フェーズⅢのインセンティブ体系 融資対象 インセンティブ 適用条件 Tier I 企業 該当企業への特 サブプロジェクトの投資分野が裾野産業に属し、借手企業が 別の資金枠 ビジネス・パートナー（現地日系企業への有力納入製造業者 ）に該当 その他の 資金配分での優 スコアリ a)総融資額 サブプロジェクトの総額 企業 遇 ング( サブローンの総額 偏差値 OLLの総額 に基づく b)裾野産業 サブプロジェクトの総額 ) 融資 サブローンの総額 OLLの総額 c)リンケージ リンケージ付ロジェクト件数: • 現地日系企業への納入契約 • 日系企業からの設備購入 • 提携中小企業研修への参加
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-2 融資スキーム 参加金融機関の選定基準と選定方法 1. 選定基準 ► フェーズⅡと同様のスコアリング。ただし、下記の微修正が必要; a) 2008年に予定されている最低資本金の引き上げに伴うスコアの調整 b) 基準とする民間企業融資比率や民間企業融資額増加率の更新に伴うス コアの調整
2. 選定方法 ► 2段階の選定が考えられる.
第1段階: 現行の９行について、スコアリングによる評価を行う。
第2段階: 公募：広く預金金融機関からの参加希望を受付 絞込み：規模、支店数、営業年数、健全性レーティング（Decision No.457 - 2005 / QD-NHNNとDecision No. 03 - 2007/QD-NHNNに基づく）
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. I-3 研修プログラム、TA 概要、事業実施マニュアル、広報活動等 プロジェクトの実施・運営方法に関する研修
ICPMU/銀行へのSMEFPIIIの目的とプロジェクト実施・運営に関する研修 目的 受講者 地域 日数 SMEFP III の概要紹介 ICPMU, PFIs, その他の Hanoi 半日 銀行 SMEFP III の目的と実施・運営方 ICPMU, PFIs Hanoi, DaNang, 3 日 法の理解 HCMC MIS のオペレーション研修 ICPMU Hanoi 3 日 MIS のオペレーション研修 PFIs Hanoi, HCMC 3 日
►「SMEFPⅢの目的と実施・運営方法の理解」について
政策手段としてのTwo Step Loanのメリットと限界を踏まえたSMEFPⅢの目的を理解することが重 要。
限られたOLL資金の有効活用という観点から、ICPMUと参加金融機関は、融資効果を最大限に 高める優良プロジェクトを支援することが期待されている。そのためには、関係機関(MOIT, ASMED)や業界・協会団体(VCCI, JBA)と中小企業支援プログラム(TAC, VJCC, etc.)とのリンケ ージと協力を進め、コンサルティング実施期間後でも連携が持続されることが求められている。
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. I-3 研修プログラム、TA 概要、事業実施マニュアル、広報活動等 技術支援に係る研修 ICPMU/銀行への技術支援に係る研修 目的 受講者 地域 日数 環境社会配慮の啓蒙・普及 ICPMU, PFIs Hanoi, HCMC 1 日 環境社会配慮の啓蒙・普及 中小企業 s Hanoi, DaNang, 半日, 3 回 HCMC 裾野産業と中小企業金融に関する政策 ICPMU Hanoi 2 日 PFI の財務分析 ICPMU Hanoi 1 日 信用評価とマーケティングのための産 ICPMU, PFIs Hanoi, HCMC 2 日 業調査 裾野産業企業の事業リスクに関する信 ICPMU, PFIs Hanoi, HCMC 3 日 用評価 行内実務研修（信用評価、内部格付け、 PFI の中から 5 行 3 日 信用評価のための情報、金利設定、マ (PFIからの要望次 ーケティング） 第)
►裾野産業に係る研修について
外資系企業に納入する裾野産業中小企業に関する信用評価やアプローチは、どのPFIにとっても特異で はない。全PFIを対象に、裾野産業の信用評価能力を向上させるための技術支援・研修を実施する。
この技術支援・研修の内容としては、１）信用評価とマーケティングのための産業調査 と ２）裾野 産業の部材供給企業の事業リスクに関する信用評価の2つが含まれる。
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. I-3 研修プログラム、TA 概要、事業実施マニュアル、広報活動等 中小企業への宣伝と啓蒙
► 中小企業からみて銀行は依然として敷居が高い面があると同時に、銀行の営業推進 体制もいまだ発展途上である。 ► したがって、中小企業が、SMEFPⅢのみならず、銀行融資に係る認識・知識を高めら れるように支援するため、中小企業向けの研修や広報宣伝を実施する。
中小企業向けの研修、広報内容 技術支援の種類 支援内容
研修 環境・社会配慮の啓蒙・普及
広報・宣伝 SMEFPⅢの紹介パンフレットの作成
ガイドブック 1. 銀行融資についてのガイドブック（必要書類, 事業の説明、融資商品と担保に関する基礎知 識等) 2. 事業・設備投資の採算性分析 3. 外資系企業への売り込みのポイント
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. 1-4 SMEFP IIIの事業スコープ
3) 課題克服の方法 １）強化すべきターゲット 2) 資金調達の課題 A) ローンスキーム B) 研修・プロモーション C) 連携 A）裾野産業 裾野産業に関する情報不足 SMEを対象にした広報を強化し、SME 事業リスクに関する信用評価のため 裾野産業の中小企業へ からの申し込みを増やす に日系企業からの発注情報や発注 の融資に積極的な銀行 裾野産業融資へのイ ①VCCI、JETRO逆見本市等を経由し パターンに関する情報提供の活用 と知り合うきっかけがな ンセンティブ付与 て、SMEFPIIIのSMEにおける認知を高 （取引や取引意向があることを示す い める 共通フォーマットの作成。ビジネスリ ②銀行融資申し込みハンドブック編集 ンケージにも共用）
既存の研修（経営者、社員向け）を受 裾野産業 (MOIT) PFI向けに、製造業、特にSIの事業性 けた企業の情報の審査への活用 取引量の増大や高技術 Tier I企業 と審査方法に関する研修を実施（裾野 ＞研修実績のカテゴリー化（経営、品 品シフトに係る不確実性 産業の成長機会とリスク、日系企業と 質管理、NC工作機械操作等専門加 （試作品から発注への の取引パターン、必要な経営や技術 工技術、製品検査等） 不透明性） の特徴、等） ＞期待される効果等共通のレーティ ング整備 ＞研修実績の蓄積 ①SME向けのマーケティング、営業力 PFIから、VCCI、JBA等を通じて、SI企 日系企業との取引の 強化を喚起するパンフレット作成 業を日系企業に紹介（共通フォーマッ きっかけがつかめない ②PFIのSI・SME支援ユニットの強化 ト）。 B）中小企業一般 銀行との関係希薄 （再掲）SMEを対象にした広報を強化 銀行側に新規開拓のイ し、SMEからの申し込みを増やす 新規顧客等の案件に ンセンティブが乏しい ①VCCI、JETRO逆見本市等を経由し 経済環境悪化に直面 対するインセンティブ （SME側からのアプロー て、SMEFPIIIのSMEにおける認知を高 している中小企業 （資金枠優遇等） 大型投資案件を抱え チの強化が必要） める た中小企業 ②銀行融資申し込みハンドブック編集 情報の不透明性に基づ PFI向け、内部格付をベースとした融 く信用評価の困難性 資実務、ABL活用の研修
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. II-1 OLL資金の配分
► 最初の資金配分では、PFIを国有商業銀行（SOCB）グループと民間銀行（JSB）の２グ ループに分け、各グループ内で同金額を割り当てる。 ► 第二次以降の資金配分では、インセンティブ体系に基づく実績に応じて、各行への配分 を決定する。 ► 各PFIの配分額は、以下の式で算出する。
PFI (n)への配分額 = 各回の配分総額 ×PFI (n) のシェア
PFI (n) のシェア = f ( a), b) c) の各項目の偏差値)
2010年1月 2010年7月 2011年1月 2011年11月 合計 Vietinbank (ICB) a) 総融資額 サブプロジェクトの件数 BIDV サブローンの金額 ACB OLLの金額 Sachombank 最初の DAB (EAB) 実績に応じた資金配分 b) 裾野産業 資金配分 サブプロジェクトの件数 Thechcombank サブローンの金額 MHB OLLの金額 CCF HDB c) リンケージ リンケージを伴うプロジ ェクトの件数（日系企業と 合計 の契約、日本製機器の購 入、SME研修） SMEFP III RFA
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. II-2 環境配慮を含むサブプロジェクトの承認プロセス
► 企業は、下記のいずれかの要件を満たすことが求められている。
環境影響アセスメントレポート（EIAR）の承認書およびレポート記載内容の実行に関する証明 書の取得、または
環境保護公約の登録証明書の取得
► SMEFPⅢのサブローンの申し込みに際しても、記入済み環境スクリーニングフォーム と環境配慮関連文書の作成・提出を求めるものとする。
2 3 4
EIAR記載内容の 環境影響アセスメント DONREまたはMONRE DONRE and/or MONRE に 実行に関する証明 によるEIARの受理決定 よるEIARの実行に関する調査 レポート（EIAR）の作成 書の発行 企業 1
環境保護に関する 地方人民委員会（PC）に 地方人民委員会（PC）における 公約の作成 おける公約の登録 公約の登録証明書
2 3
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. II-3. MISに基づくモニタリングおよび報告スキーム
1. フェーズⅠ～Ⅲのデータの統合 2. 仕様のアップグレード 3. 使いやすさの改善 4. 可能な範囲での既存プログラムの再利用 5. 追加機能
a. セキュリティ 利便性 b. 新MISの構造
PFI
ICPMU MS-Access Program
MIS MS-Access Program
バーチャル PFI プライベート ネットワーク
SQL Server
DBはプログラムと切り離されている MIS DBはSQLサーバーで管理 MSアクセスを各パソコンに装備
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. III-1. 裾野産業を支援するリンケージ
► 裾野産業を支援するリンケージは、以下の２つを中心に実施する。
PFIにおける裾野産業の審査・評価能力向上
SMEFPⅢで収集する裾野産業関連情報のビジネスマッチング/裾野企業紹介への活用
► リンケージの推進には、関係諸機関との連携・協力が不可欠である。
凡例
情報の流れ その他 Domestic 裾野産業 外資系企業 SME 支援プログラム の情報 FDI ファイナンス、信用 アセスメント支援
企業の 情報 セミナーの共同開催等 ドナー機関 裾野産業 PFI SMEの情報 (TAC etc.)
助言や 支援 JBA , JETRO 裾野産業 SMEの情報 ICPMU Supported by MOIT Consultant 助言や 日本企業／ 支援 裾野産業 SMEの情報 SMEの情報 ASMED VCCI • 情報センター • リンケージ仲介 Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. III-2. 裾野産業に関する理解の促進
► PFIが裾野産業企業の受注プロセスや技術高度化についての理解を深められるように 支援を行い、裾野産業企業の融資機会の拡充を図る。
ICPMU/ VCCI/ JETRO/ SMEFPⅢにおけるタスク PFI FDIs Consultant JBA 外資企業の標準的な発注パターンの 調査 インプット インプット 明確化 裾野産業に焦点を当てた産業調査の 行内展開 研修 インプット 研修 裾野産業に焦点を当てたサブプロジ 行内展開 研修 インプット ェクト評価の研修 実行段階 裾野産業の評 さらなる改善 裾野産業企業の 助言 価 に向けたプロ 視点でのレビュ 金融機関の視 セスのアップ ー 点でのレビュー デート 情報のビジネス マッチングへの 活用
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved. III-3. 研修受講実績の裾野産業企業評価への活用
► 金融機関は、裾野産業企業の審査、特にビジネスリスクの評価が容易ではないと感じ ている。 ► そこで、各機関が中小企業向けに実施している研修や技術支援（従業員向けを含む）の 履歴情報を蓄積し、金融機関の信用評価に活用できる仕組みを構築する。こうした情報 が、外資系企業が中小企業の能力を評価するうえでも活用できるように配慮する。
ICPMU/ SMEFP IIIにおけるタスク PFI VCCI 研修提供者 FDIs Consultant SME向け研修評価フレームワ フレームワーク 研修内容の 裾野産業企 ークの開発 （研修を経営管理、品 の構築 提供 業の能力に 質管理、製造技術等に分類） 関する示唆 の提供 研修受講履歴の収集 データベースの 研修受講履 開発 歴の提供 裾野産業企業の研修受講履 行内展開 研修 インプット 歴の評価に関する研修 実施段階 裾野産業企 フレームワーク データベー SMEへの研 適宜助言 業評価の実 の管理や強化 スの管理お 修実施 施 よびマッチ ングへの活 用
Copyright©2008 Nomura Research Institute, Ltd. All rights reserved.