International lenders vital to rise up SMEs

Foreign lenders may prove the key to connecting Vietnamese SMEs with the larger world outside

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It is the middle of the lychee harvest season in the northern provinces of Vietnam, which lasts for less than three spring-summer months.

For Son, 65, owner of a small lychee orchard in the northern province of Hai Duong, exporting the fruit has been an intriguing if difficult prospect. Son does not have the financial resources to invest in cultivation and post-harvest technologies, not to mention marketing and distribution.

With more than enough lychee to supply the domestic market, local lychee growers are looking abroad. In overseas markets, the return on such exotic fruits is far greater.

The Law on Supporting SMEs was passed by the National Assembly last month and will come into force on January 1, 2018. Local SMEs and household business owners like Son hope that the new law will help strengthen and expand their businesses in the months and years to come.

The law is expected to help foster the growth of the SME sector in Vietnam, which currently accounts for approximately 97 per cent of the country’s total enterprises, to reach the target of one million businesses by 2020.

Support for SMEs will come into two forms, including basic support services that apply more broadly, and specific support in terms of information and access to capital, land, and markets. Qualifying enterprises include new enterprises converted from household businesses, creative startups, and supporting businesses in various sectors.

Following footsteps

It may well be the beginning of a long road for the Vietnamese SME sector, yet the country can always learn from neighbouring nations who have been long focusing on promoting the sector.

Take Thailand, for instance. For the past 15-20 years, the country’s SME sector has profited from the opening of its economy and its WTO treaties, according to Manopchai Vongphakdi , Ambassador of Thailand to Vietnam.

“Many of them have faced a lot of difficulties on how to adopt to the new environment and compete with the foreign companies that flock into Thailand,” Vongphakdi said on the side-lines of the mid-June Vietnam Business Forum.

“For the government’s role, we have held a lot of seminars introducing new ideas to SMEs on company management and improving their personnel performance, as well as changes in some of the regulations that accommodate SMEs,” he added.

“From what I have been seeing in Vietnam, it is not much different from what has happened in Thailand. There is also competition coming from abroad, so a lot of Vietnamese companies, SMEs or whoever, have to adapt to the new environment. So what is happening [here] will be a similar process the private sector in many developing countries, even in Malaysia or inTaiwan, has undergone before—it is the same thing.”

Financial resources

Would-be exporters of agricultural products like Son can now have more than one option to access finances, which they would traditionally obtain from domestic lenders. International lenders are keen on lending a hand when it comes to helping scale up SMEs for export purposes.

“If an SME buys in Danang and sells in Hue, Standard Chartered Bank is not the right bank for them. It would be better to go to a local bank,” said Nirukt Sapru, CEO of Standard Chartered Bank Vietnam. “It makes no sense for Standard Chartered Bank or any other international bank to get involved. There the local banks have to play a role.”

“But whenever these companies are buying or selling from international companies, that is when international banks—not just Standard Chartered—come in. So we have to look at the sectors, we cannot support everything.”

Standard Chartered has been deeply involved in the Vietnamese SME sector for quite some time. It has had discussions with the government SME team to make policy recommendations around strengthening the role of the government in providing guarantees and support to SMEs.

“Standard Chartered operates in 70 countries. In about 35 countries we have SME customers, so we have a lot of understanding of the politics [needed] to make SMEs succeed,” said the CEO of the UK-based lender. “Policy framework has to firstly enable SMEs to succeed. It could be things like providing guarantee schemes or helping create a business agency which supports particular SME sectors. So we, Standard Chartered, are helping the government think around that area.”

“My head of Commercial [Banking] recently went to Taiwan, again, to talk about connecting with the ASEAN. For SMEs typically, going to Europe or the US is more difficult, it is easier to stay within the intra-regional area.”

This revolution does not stop with local SMEs—it extends to the international companies who are investing in Vietnam to create domestic supply chains.

Sapru said, “On this aspect, we have recently done a lot of work: we are doing what we call a vendor payment service. So these 300 local vendors, we are helping them to make direct payments. These vendors we are on-boarding as Standard Chartered Bank’s clients to help them grow, because this will then help the SME link up to a foreign company.”

Indirect support

For French-backed BNP Paribas operating in Vietnam through its two branches in Ho Chi Minh City and Hanoi, lending to local SMEs is not part of its strategy. The banking group focuses on serving corporate clients, including large Vietnamese corporates, large Asian corporates with subsidiaries in Vietnam, and multinational companies.

“We do not directly lend to SMEs in Vietnam,” said Aymar de Liedekerke Beaufort, Ho Chi Minh City-based country head for Vietnam at BNP Paribas.

Nevertheless, BNP Paribas’ clients do embrace local suppliers, according to de Liedekerke Beaufort. “We enter into programmes where we help our clients to finance their suppliers in an efficient way, in terms of costs and tenors. So we are indirectly supporting SMEs.”

The current support from the lender to local SMEs is not direct, yet BNP Paribas is more than happy to assist those with larger ambitions, particularly those interested in being exporters to foreign countries, de Liedekerke Beaufort stressed.

“I hope that Vietnam’s growing success will not only be measured by foreign direct investment, but also by the capacity of the Vietnamese corporates to export. And this might start with the corporates reaching out to other countries,” he said.

Support from the government will always be essential, but alone it is not enough to help SMEs move beyond their roots. It now comes down to credit institutions, foreign ones to be specific, who can help local SMEs to better participate in the global supply chain, with their global experience and strong financial backbone.