Key Takeaways:
- Vietnam’s Ministry of Finance has drafted a landmark proposal allowing small and medium-sized enterprises (SMEs) to use digital and virtual assets as valid collateral for bank loans.
- The initiative directly targets an ongoing financing bottleneck where SMEs represent over 98% of national businesses but receive only 20% of banking system credit due to a lack of traditional real estate collateral.
- The draft law also introduces a suite of green business incentives and explicitly urges banks to evaluate credit based on enterprise cash flow, credit ratings, and business plans rather than fixed properties.
Unlocking Capital for the Private Sector
The Vietnamese Ministry of Finance has officially proposed updating the country’s existing Law on Support for SMEs to allow small and medium-sized enterprises to use their digital, virtual, and intellectual assets as collateral for loans from commercial banks. This law would be a step away from using mostly real estate and other fixed assets as collateral for SME loans.
The Vietnam government aims to improve the capital available to technology startups and other private businesses by allowing them to use digital and intellectual assets as loan collateral.
Addressing the Credit Imbalance
Vietnam’s Resolution 68-NQ/TW of the Politburo aims to encourage the private sector to contribute more significantly to the economic growth of the nation. The country faces a credit imbalance; SMEs account for over 98% of the country’s businesses, yet they receive only around 20% of the country’s total loans.
According to the State Bank of Vietnam, SMEs and household businesses received around VNĐ3.8 quadrillion (US$144.2 billion) in loans during the first quarter of the year.
The Ministry of Finance explains this credit imbalance by the limited financial information and transparency of SMEs, the small amount of capital they have, and the fact that most technology and software companies do not have any traditional properties.
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New Credit Metrics & Green Incentives
The Ministry of Finance proposes that commercial banks adjust the criteria for SME loans to focus on different metrics than the traditional ownership and value of their properties.
Banks can use the credit rating of the SME, their business plan, the potential growth of the company, and the company’s expected cash flows to decide on their loan eligibility for SMEs. This would significantly help SMEs in the technology and software space that do not own any properties.
Broadening Sustainability and ESG Support
Vietnam’s Ministry of Finance also proposed giving incentives to SMEs focused on green and sustainability initiatives.
The SMEs that focus on protecting the environment or transforming their industry to be more sustainable will receive credit guarantees, lower loan interest rates for green initiatives, and tax incentives for environmental preservation.
Furthermore, they will also receive incentives for energy-saving projects to accelerate their depreciation schedules and use digital solutions to transform their business operations to improve their sustainability efforts.
Additionally, SMEs will also receive backings for improving their compliance with government regulations regarding sustainability and will also receive support creating their ESG and sustainability reports and receiving their professional sustainability certifications. Currently, the state funds dedicated to these initiatives have yet to provide the level of efficiency that the private sector needs for their operations.
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