Many difficulties in implementing Credit Guarantee Fund for SMEs

	Clarifying shortcomings in the implementation of credit guarantees for SMEs
	Operation mechanism of credit guarantee fund for small and medium sized enterprises
	The Ministry of Finance to improve the efficiency of the Credit Guarantee

Capital mobilization is faced with many difficulties, so the operations of the Credit Guarantee Fund for SMEs are mainly ensured by the local budget. Photo: Internet

Difficulty in capital mobilization

After Decree 34/2018/ND-CP was issued, ministries and agencies have issued guiding circulars so that credit guarantee funds have a legal framework to implement credit guarantees for SMEs to access loans at credit institutions.

Specifically, Circular 15/2019/TT-BTC of the Ministry of Finance guides the financial management mechanism and performance evaluation of the Credit Guarantee Fund for SMEs; Circular 57/2019/TT-BTC guides the risk handling mechanism of the Credit Guarantee Fund for SMEs; Circular 45/2018/TT-NHNN guides credit institutions in loan guarantee by the Credit Guarantee Fund following the provisions of Decree 34/2018/ND-CP.

Decree 34 has become the highest framework for credit guarantee activities for SMEs. The decree follows relevant legal documents and has new contents, creating better and more favourable conditions for SMEs to continue access to loans from credit institutions for investment, production and business development.

Currently, Vietnam has 25 operating credit guarantee funds. The local budget mainly ensures the financial resources of these funds. In addition, the funds increase capital from interests of deposits at commercial banks, entrusted capital of agencies and economic organizations or investment activities. December 31, 2021, 10 of 26 credit guarantee funds have a minimum charter capital of VND 100 billion. Other funds have a charter capital of only VND4-80 billion (accounting for 61.54%), and notably, Dong Nai Credit Fund has the lowest actual chartered capital of VND4 billion.

Dr Pham Phan Dung, USAID LinkSME project expert, said that according to Decree 34/2018/ND-CP, credit guarantee funds are allowed to raise capital from domestic and foreign financial and credit institutions following the law and regulations and repayment capacity of the funds in order to increase their financial resources to support SMEs. In addition, the credit guarantee funds are encouraged to increase their capital from social resources to reduce dependence on the State budget, especially in provinces with budget difficulties.

Some credit guarantee funds have also actively sought and mobilized other resources besides the State budget, including proposing to the Ministry of Finance and the Government to keep revenues from the SOEs equitization in the locality to increase charter capital or propose to retain this source to establish a new credit guarantee fund. However, the results were not what were expected.

The fund to carry out guarantee activities is mainly from the local budget

According to Mr Nguyen Viet Hung, Deputy Director of the Department ofBanking and Financial Institutions (Ministry of Finance), besides the positive results in the performance of the credit guarantee funds, the credit guarantee for SMEs for loans at credit institutions still has some difficulties such as legal regulations, organizational model and charter capital.

Regarding limitations on the legal framework, Dr Pham Phan Dung said that the People's Committees of provinces and centrally run cities have not fully implemented the tasks assigned by the Government. For example, there is not a specific list of prioritized industries for socio-economic development in the locality in each period, so the credit guarantee funds give priority to grant guarantee certificate; and there are no regulations on security measures and authority to decide for each security measure and cases of exemption of collateral. In addition, the chairman of the credit guarantee fund has not yet fully implemented his assigned tasks, powers and responsibilities

For the limited financial resources, the financial capacity of the credit insurance fund to implement credit guarantee activities is low, while the number of SMEs is high. As a result, credit insurance funds cannot meet SMEs' needs. Some funds have not yet met the required charter capital. After three years of implementing Decree 34/2018, the number of active credit guarantee funds with a minimum charter capital of less than VND 100 billion is still high.

In addition, Decree 34/2018 does not stipulate the time limit of capital contribution to the credit guarantee fund, so some credit institutions that contributed capital under Decision 193/2001/QD-TTg and Decision 58/2013/QD-TTg have proposed to withdraw their contributed capital.

Decree No. 34/2018 allows credit guarantee funds to mobilize capital from domestic and foreign financial and credit institutions following their repayment capacity. However, in the past three years, credit guarantee funds have not been able to mobilize capital from these organizations. Accordingly, the fund to carry out guarantee activities is mainly from the local budget.

According to the representative of Thanh Hoa Credit Guarantee Fund, the operation of local credit guarantee funds in general and Thanh Hoa Credit Guarantee Fund, in particular, is not effective. It is because these funds neither clearly understand the contents and nature of the mechanism of granting credit guarantee nor the binding relationship of the conditions of credit guarantee granting and guarantee process; they grant credit guarantees but cannot control the use of loans, cannot control the assets formed in the future, leading to unsafe credit guarantees.

Clarifying shortcomings in the implementation of credit guarantees for SMEs VCN – A workshop to review the establishment, management and operation of the Credit Guarantee Fund for ...

Furthermore, salaries, remunerations and bonuses of employees and managers are applied following regulations for one-member limited liability companies with 100% state capital, so the salary calculation is based on the difference between annual revenue and expenditure. Meanwhile, the credit guarantee funds operate not for profit; the funds' revenue is mainly from interest income from bank deposits. Moreover, the more the fund operates, the larger the expenses, the lower the difference between the following year's revenue and the previous year's expenditure, and the lower the salary and income. This is not suitable and should be considered and revised