Opportunities and Challenges for Vietnamese Small and Medium Enterprises in the Process of International Economic Integration

In addition, the decentralization of management of SME support in our country is still quite inconsistent . According to Decree No. 90/ND-CP of the Government, the Department of SME Development was established with the main task of promoting the development of SME but does not manage support funds... State credit support is mainly implemented through two policy lending agencies, the Vietnam Development Bank and the Bank for Social Policies. The Credit Guarantee Fund for SME is managed by the People's Committees of provinces and centrally run cities while the National Science and Technology Development Fund is managed by the Ministry of Science and Technology. This has led to many overlapping directives as well as the implementation and guidance of Government Decrees being quite slow.

Second is the limitations of the financial environment in Vietnam.

The financial environment in Vietnam is still in its early stages of development, so the scale of financial resources is still relatively small. The ratio of bank credit to GDP in Vietnam is still very small compared to other countries in the world. Official non-bank financial resources (including financial leasing, factoring, stock market, etc.) are still relatively small.

Up to now, there are 13 financial leasing companies operating in Vietnam. Of these, 3 are 100% foreign-owned, 1 is a joint venture, and 8 out of 13 are subsidiaries of state-owned commercial banks [51], small in scale, dependent on commercial banks, so financial leasing activities have not been widely implemented. The outstanding financial leasing debt of these companies as of July 2007 has reached nearly 10,000 billion VND, but this figure is still quite modest compared to the number of about 300,000 enterprises in the economy. The average charter capital of a financial leasing company is only 150 billion VND, which is very small compared to the charter capital of commercial banks (usually over 1,000 billion VND), and has not had much effect in supporting enterprises while this is considered a channel.

The best source of capital for SMEs is because even without collateral, businesses can still borrow up to 90% of the asset value [5].

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Factoring and discounting of valuable documents are still only services of commercial banks, and there is no specialized company providing this type of service to SMEs regardless of the benefits. The stock and bond market - a direct funding channel for businesses - has not really developed. Especially due to the impact of the global financial crisis, 2008 witnessed a sharp decline in stock and bond trading at the Securities Trading Centers. Therefore, bank loans seem to be the only option for the official funding channel for SMEs in Vietnam.

In addition, there are limitations in the ability to access information between enterprises and State policy-making and implementation agencies. Without a clear understanding of information about SMEs, State policy-making agencies cannot come up with appropriate and timely policies to support enterprises. Banks and financial leasing companies do not have information about enterprises, so they are hesitant to lend capital to enterprises. The company's financial statements are basic information for banks to assess credit risks, but in reality, many SMEs today still lack basic financial knowledge, cannot provide reliable financial statements or realistic business plans. On the part of enterprises, they also do not promptly grasp changes in State support policies, leading to missing out on many business opportunities.

Third is the slow implementation of Credit Guarantee Funds for small and medium enterprises in localities.

Credit guarantee funds for SMEs in localities are still very slow to be implemented. Although the regulations on the establishment, organization and operation of credit guarantee funds for SMEs were issued in 2001, through

For many years, the number of funds established nationwide has remained modest - 9/64 provinces and cities, unable to meet the needs of current SMEs.

The main reason is the difficulty in mobilizing capital to establish the Fund. According to Decision No. 193/QD-TTg, the capital for the Fund is mobilized from the capital allocated by the provincial and municipal budgets; capital contributed by credit institutions, enterprises and professional associations... However, in reality, most business associations currently have no capital to contribute. Local budgets, for cities with large revenue sources such as Hanoi and Ho Chi Minh City, contributing capital to meet the charter capital requirement of 30 billion VND is possible. But for provinces with difficult revenue sources, capital allocated by the budget is a problem. The State Bank of Vietnam has also issued a Circular guiding commercial banks to contribute capital to establish a credit guarantee fund for Vietnamese SMEs, but so far only a few banks have participated due to concerns about the effectiveness of the fund.

In addition, the current confusing, inconsistent and uncoordinated management methods among the Funds have not attracted much attention from businesses and credit institutions, and have not met the requirements and goals set by the Government.

Fourth is the overlap in tax incentives.

Although many tax incentives have been implemented, SMEs still have to pay many tax rates like large enterprises, and there are no tax incentives specifically for SMEs. According to the law, there is currently only one method of calculating tax for all entities subject to corporate income tax, regardless of business sector or business scale. The regulations on revenue and expenses lack specificity, leading to incorrect understanding for businesses, and implementation is also difficult.

In addition, the regulations and procedures for tax payment and refund are too cumbersome, causing a lot of time loss for both payers and tax collectors. Tax incentives are too complicated and overlapping due to the integration of too many different tax policy objectives, making implementation very difficult. At the same time, corporate income tax incentives are applied at both preferential tax rates and tax exemptions and reductions, and then preferential taxes are applied based on criteria such as industry, export rate, level of application of new technology, etc., making it difficult for Vietnamese SMEs to grasp what incentives they are entitled to, missing out on their benefits. The current Value Added Tax still stipulates many tax rates and cumbersome tax exemptions and refunds, causing inconvenience and confusion for many small businesses.

Fifth are the difficulties in implementing interest rate support for businesses borrowing capital.

It can be said that the Government's policy of lending with a 4% interest rate support is a correct and timely policy in the period when our country's economy is affected by the global financial crisis. However, at present, the credit capital of commercial banks is still focused on state-owned enterprises and large-scale limited liability companies because these enterprises have had long-term relationships with banks. As for small enterprises that have never borrowed from a bank, the procedures and documents of the bank's loan as well as the lack of understanding of the lending process, appraisal, conditions for interest rate support... make them quite hesitant when wanting to access this source of capital. The interest rate support period for the Government's first stimulus package is short, banks usually take about 1 month to conduct appraisal, so in reality, there are only 7 months left for enterprises to build, deploy or promote a project and complete the capital turnover to repay the bank. Time pressure forces many businesses to

Projects turn around quickly, affecting the effectiveness of projects.

In addition, interest rate support has not had any effect on all SMEs: those that are losing money cannot borrow capital. In the context of economic difficulties, for those businesses that are profitable, this is an opportunity to access preferential capital to expand their business market. As for those businesses that are not operating effectively and are still struggling to find a direction for production and business, if they have access to bank capital, they do not dare to borrow capital because of concerns about product output.

On the banks’ side, they also face many difficulties in determining the subjects eligible for loans. For example, the case of enterprises whose main business belongs to 13 industries and fields that are not entitled to interest rate support but have “secondary” business projects that are eligible for support, or the case of borrowing capital to expand production and business, including the need to buy real estate to build factories… has caused many difficulties for banks. This requires more specific instructions from the State Bank.

Furthermore, the connection between commercial banks is currently loose. With the current attractive 4% interest rate support capital, the possibility of many businesses taking advantage of the situation to roll over debt is very worrying. Roll over debt is lending to businesses to repay debts to this bank, or to pay debts to other banks. Many businesses have borrowed capital from banks before the implementation of the interest rate support policy, now seeing that interest rates have been lowered, they take advantage of borrowing low-interest capital to repay higher-interest capital.

These concerns stem from the outstanding debt of the entire banking system in February 2009, at the time the interest rate support mechanism began to be applied, which increased by only 0.23%. While the loan amount reached over VND157,000 billion, meaning

The loan-repayment cycle has been accelerated and the possibility of using interest-supported loans to pay off old debts is not excluded [60].

Sixth is the difficulty in implementing investment credit and export credit programs.

Regarding the implementation of investment credit and export credit programs, the activities of the Vietnam Development Bank and the Social Policy Bank have not contributed much to the development of SMEs. In fact, these two policy lending agencies of the Government are not fully specialized in financial support for SMEs but also implement poverty reduction policies. The complicated lending and appraisal procedures of the Vietnam Development Bank make many businesses hesitate to access this preferential loan source.

By early 2009, the Prime Minister's Decision 14/2009/QD-TTg was issued, which was expected to open up capital flows to Vietnamese SMEs lacking collateral. But after just two months, implementation remains difficult for businesses, commercial banks and the Vietnam Development Bank itself. If following the new regulations, the loan guarantee procedure is even more complicated than borrowing directly from commercial banks: to receive a guarantee, businesses must wait up to 20 days for the bank to assess the effectiveness of their business and production projects. At the same time, it takes up to 60 days for the bank receiving the guarantee to agree on whether or not to perform the guarantee obligation. Thus, businesses must wait for many months to see if they are guaranteed or not, by which time the business opportunity has passed.

In addition, the conditions for enterprises to receive credit guarantees are still strict. The Vietnam Development Bank not only requires an assessment of the effectiveness of business methods, the ability to pay interest and repay capital, but also requires enterprises to mortgage 100% of the value of assets formed from guaranteed loans and 10% of equity. Enterprises are also not allowed to have debts exceeding

With these strict requirements, loans will be more difficult to reach businesses, and the goal of stimulating demand will be difficult to achieve.

The Vietnam Development Bank also has difficulty in identifying loan recipients, and distinguishing which businesses are guaranteed loans and which are not... In fact, up to this point, the State Bank has not yet provided specific, detailed instructions to the Vietnam Development Bank, so the program is still difficult to implement quickly.

Seventh is the delay in implementing the policy of financial support for technological innovation and human resource training of enterprises.

Financial support for technological innovation and human resource training for enterprises in Vietnam has only stopped at the policy level and has been slow to be implemented. In fact, the Government has issued a Decree on the establishment of the National Science and Technology Fund since 2003, but it was not until early 2008 that this fund was launched to officially finance scientific research activities of enterprises. The delay of ministries and branches in implementing the State's policies and guidelines has greatly limited the support for enterprises.

In general, in addition to the results achieved from financial support programs in the past, it is inevitable that there are some difficulties and limitations in the implementation of the State's support policies. This requires active solutions to gradually overcome those difficulties and effectively support Vietnamese SMEs.

CHAPTER III: SOME RECOMMENDATIONS AND SOLUTIONS TO IMPROVE THE EFFICIENCY OF FINANCIAL SUPPORT FOR SMALL AND MEDIUM ENTERPRISES IN VIETNAM

I. Opportunities and challenges for Vietnamese small and medium enterprises in the process of international economic integration

Vietnam officially became the 150th member of the WTO on January 11, 2007. This is considered an important turning point in the country's international economic integration process. Over the past two years, thanks to adjustments in economic policies to comply with WTO commitments, the Vietnamese economy has recorded remarkable achievements in exports, attracting foreign investment... For businesses, especially SMEs, joining the WTO also opens up many opportunities for production and business activities, but there are also many challenges and obstacles that businesses must overcome.

1. Opportunity

- More favorable business environment

In compliance with multilateral commitments and WTO commitments to open up goods and services, along with many synchronous reform measures, the legal environment in Vietnam has been increasingly improved in a more open direction, increasing incentives and favorable conditions for SMEs. Economic management and administration policies have changed towards greater transparency and clarity, gradually reducing discrimination between economic sectors.

As a result, the business environment for enterprises in Vietnam has been significantly improved. According to the World Bank's Doing Business 2008 Report, Vietnam was ranked 91st out of 187 surveyed economies, up 13 places from the previous year [42]. In particular, the Report assessed Vietnam's reforms in regulations and procedures for establishing

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