Challenges in implementing the credit guarantee scheme for small and medium-sized enterprises: The case of Viet Nam

Access to credit is still one of the greatest obstacles to the growth of small and medium-sized enterprises (SMEs) in Viet Nam, and, to date, only 39% of SMEs have bank loans. SMEs' loans account for 22% of the total bank lending for the overall economy, whereas SMEs constitute 97% of the total number of enterprises (NCIF 2017). To cater to SMEs' need for financial sources, especially formal sources such as the banking system, the Vietnamese government has implemented a large number of supporting programs, including the credit guarantee scheme (CGS) for SMEs, which it established in 2001. However, until June 2017, only 2000 out of 507,640 SMEs had loans with CGS guarantees, with a total outstanding guaranteed value of US$66.1 million (NCIF 2017), which equals only 0.12% of the total outstanding loans of SMEs from banks and 0.03% of the GDP: much lower than the figures for Thailand (over 1% of the GDP) and Malaysia (1.5% of the GDP). It is possible to state that the contribution of CGSs in Viet Nam to accelerating bank credit for SMEs is minor and not in line with the original expectation (NCIF 2017). Through collecting, synthesizing, and analyzing data, the paper aims to study the challenges involved in implementing CGSs for SMEs as well as the causes of their poor performance. The fundamental reasons that the study finds include the strict and impractical conditions for issuing credit guaranteed loans; the lack of adequate professional competence of staff involved in the credit guaranteeing task; the fragmented relationship between the credit institution and the CGS; and the lack of a credit database platform that facilitates access to finance for SMEs by providing comprehensive and reliable creditworthiness.