New credit guarantee regulations for SMEs

The prime minister has issued a new decision on credit guarantee regulations for small and medium-sized enterprises (SMEs), excluding those with less than 10 employees.Vietnam Development Bank (VDB) is responsible for providing credit guarantees on loans to SMEs from commercial banks to facilitate the development of certain industries, such as agro-forestry and fisheries, manufacturing and processing, gas production, construction and transport, to name a few.

In order to qualify for a loan guarantee, a SME must have an effective investment project that has been approved by the VDB. Also, the business must have at least 15 per cent of its equity invested into such projects at the time of application. In addition, they must not be in default with any credit organisation.

The bank may guarantee either a portion of or the entire loan from a commercial bank to an SME. But the guarantee can account for a maximum of 85 per cent of the project’s total capital.

As a result of these regulations, aimed at increasing the quality of loans, VDB will also face other restrictions in its loan book to SMEs.

It will be required to cap credit at 5 per cent of the charter capital of any single company. And it’s loan book can not exceed five times its own capital base.

The new decision will take effect from February 25. – VIR