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Small business group dismisses possible interest-subsidy fund

Update: January, 30/2012 - 09:45

HA NOI — Viet Nam Association of Small- and Medium-sized Enterprises chairman Nguyen Xuan Son is calling impractical a ministry plan to set up a development fund for small businesses.

The Ministry of Planning and Investment is seeking Government approval for the plan, which would aim to support small- and medium-sized enterprises (SMEs) to enter or expand into overseas markets. The fund would support SMEs in the fields of manufacturing, information technology, seafood processing, bio-technology, marine services, food processing and tourism.

The fund, if approved, would come into operation this year and would provide loans to SMEs at preferential interest rates at 80 per cent of prevailing market interest rates.

But with prevailing interest rates of over 20 per cent per year, Son said, the fund assistance would still leave SMEs struggling under crippling credit costs.

With the Government to entrust the fund capital to commercial banks to offset their interest reductions to SMEs, Son warned that the money could end up being retained by banks or allocated to the wrong purpose.

"Many SMEs are on the brink of bankruptcy, and foreign funds clearly lack money to invest in Viet Nam," Son said. "The Government needs to do something else to increase capital inflows."

Earlier, the Government approved a corporate income tax deferral for SMEs and labour-intensive enterprises in a bid to help them through the hard economic times. But Nguyen Trong Hieu, deputy head of the ministry's Enterprise Development Agency, noted, "Corporate income tax deferrals or reductions wouldn't even help SMEs much at a time when they can't access bank loans and interest rates are still high."

According to Ministry of Finance figures, the private sector alone was spending VND220 trillion (US$10.47 billion) annually in interest on bank loans, while their combined net profits are only VND25 trillion ($1.2 billion), Hieu added.

"It is obvious that businesses run mainly to feed the banks," he said.

Hieu urged the Ministry of Finance and other relevant authorities to come up with stronger assistance for SMEs.

"We have proposed that the Government provide initial capital of VND3 to 5 trillion ($148 million to 248 million) for the fund, with funding in the long term to be provided by foreign development assistance," he said.

Son also said the Government needed to select social banks that could be entrusted to use the funds to help SMEs access loans. Audit teams would also be needed to verify the uses of the funds. But the key measure, he said, would be to lower lending interest rates to cut business costs.

"The Association was not asked for advice about setting up this fund," Son added. "The fund still is a draft with no clear regulations for its operation. It will be difficult to make it a reality." — VNS

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