2) Overview of small and medium enterprises, OECD,2000
In Vietnam, Decree No. 56/2009/ND-CP dated June 30, 2009 on supporting the development of small and medium enterprises defined SMEs as follows: “SMEs are business establishments that have registered for business in accordance with the provisions of law, divided into three levels: micro, small, and medium according to the scale of total capital (total capital is equivalent to total assets determined in the balance sheet of the enterprise) or the average number of employees per year (total capital is the priority criterion) , specifically as follows:
Table 1.2 : Criteria for identifying SMEs in Vietnam
Size/Area
Business microscopic | Small Business | Medium Enterprise | |||
Number of employees | Total capital | Number of workers dynamic | Total capital | Number of workers dynamic | |
I. Agriculture, forestry and fisheries | 10 people or less | 20 billion VND or less | From 10 to 200 people | From over 20 billion VND to 100 billion VND copper | From over 200 people up to 300 People |
II. Industry and construction | 10 people or less | 20 billion VND or less | From 10 to 200 people | From over 20 billion VND to 100 billion VND copper | From over 200 people up to 300 People |
III. Trade and services | 10 people or less | 10 billion VND or less | From 10 to 50 people | From over 10 billion VND to 50 billion VND copper | From 50 to 100 people |
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(Decree No. 56/2009/ND-CP dated June 30, 2009)
On the basis of this decree, relevant agencies have gradually developed appropriate policies to support SMEs in their development.
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1.1.2. The role of small and medium enterprises in the modern economy
1.1.2.1. SMEs contribute significantly to promoting economic growth.
national economy, create jobs, reduce unemployment rate, contribute to social stability.
Widely distributed and not requiring highly qualified human resources, SMEs are able to attract a large number of workers, thereby solving social problems and increasing national income, creating more than one million new jobs each year, contributing to poverty reduction, enhancing social security, contributing half of total export turnover; accounting for more than 30% of total social investment capital... The amount of taxes and fees that private SMEs have paid to the State has increased 18.4 times after 10 years.
1.1.2.2. SMEs contribute to attracting investment capital from the population, taking advantage of all social resources.
With their scale characteristics, SMEs can attract people to invest with small capital sources and idle capital sources. While large enterprises are often located in the economic centers of the country, small and medium enterprises are present in all localities, with a network distributed throughout the country, SMEs can take advantage of all resources, all raw materials combined with the potential of resources and strengths of each locality and each economic region.
1.1.2.3. Contribute to accelerating the process of economic restructuring
economy
Developing SMEs will increase the proportion of the industrial and service sectors.
gradually narrowing the proportion of the agricultural sector in the economic structure. With the network
With a wide network and a tradition of being closely associated with agriculture and rural socio-economy, SMEs will promote agricultural production and have professional impact.
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agricultural industrialization and modernization. Moreover, SMEs also contribute significantly to maintaining and developing traditional handicrafts to produce goods with strong national identity.
1.1.2.4. Contribute to creating a vibrant competitive environment, but at the same time support large enterprises.
With the satellite production model in which SMEs are satellites of large enterprises, supporting and providing inputs for these industries, SMEs cannot disappear in large economic groups, but the ability to cooperate and expand is increasing. At the same time, the existence of many enterprises operating in industries and fields will reduce monopoly and force enterprises to compete with each other, constantly innovate, diversify products, reduce costs, increase quality to survive and develop, and meet the needs of consumers.
1.1.3. Capital of small and medium enterprises:
Capital is one of the three important factors that are indispensable when conducting production and business. Due to weak financial capacity, SMEs face many difficulties when operating in the same market as large enterprises. SMEs hardly meet the conditions to mobilize capital in the stock market, so SMEs can only consider mobilizing capital from the following sources:
1.1.3.1. Informal financial sources
- Borrow from relatives and friends: low interest rates but limited capital and not always available.
- Borrowing from loan sharks: although no collateral is required and can meet the needs of the business, the interest cost is very high.
- Borrowing through deferred payment, appropriation of capital between businesses or between businesses and suppliers.
The advantage of this informal source of capital is that the capital is quite flexible, transaction costs are often low, and transactions are mainly based on trust between borrowers and lenders, so there is usually no collateral.
However, this source of financial capital has limitations such as small scale, short term, high costs, and is only suitable for financing small-scale fixed asset purchases.
1.1.3.2. Official financial sources
- The State's preferential credit capital is mainly implemented through the activities of the Development Bank and the Social Policy Bank.
- Capital sources from the current system of credit institutions include state-owned commercial banks, joint-stock commercial banks, joint-venture banks, foreign bank branches, people's credit funds and financial leasing companies.
- Credit programs of foreign organizations and governments.
- Capital mobilized on the stock market through listing and issuing bonds and shares. This source of capital is considered a highly stable and abundant source of capital, but due to financial difficulties and lack of transparency, it is very difficult for SMEs to mobilize this source of capital.
1.2. BANK CREDIT ACTIVITIES FOR SMALL AND MEDIUM ENTERPRISES
1.2.1. Concept and characteristics of bank credit for SMEs in the current economy
1.2.1.1. Concept of Bank Credit
Bank credit is a transaction of assets (money or goods) between the lender (Bank) and the borrower (individuals, businesses and other entities).
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other subjects), in which the bank transfers the right of use to the borrower for a certain period of time according to the agreement, the borrower is responsible for repaying the principal and interest to the bank when the payment is due.
(Dr. Ho Dieu – 2001)
1.2.1.2. Characteristics of Bank credit for SMEs.
In general, bank credit is a transaction of assets on a repayment basis and has the following basic characteristics:
- Bank credit relationships are based on trust.
- Repayment. The repayment value of a loan must normally be greater than the original value, or in other words, the borrower must pay additional interest in addition to the principal.
- Term: in bank credit relations, loans are granted on the basis of an unconditional commitment to repay within a certain period of time.
- Risk: credit activities always have potential credit risks due to asymmetric information, deterioration of the borrower's financial situation or problems related to goodwill to repay debt...
In addition to the above characteristics, bank credit for SMEs in particular includes the following distinct characteristics:
Firstly, the value of loans is usually small. SMEs are of medium size, the capital demand for expanding production and business activities is not too large, so the demand for each loan for this type of enterprise is not as large as that of enterprises with large production and business activities in the market.
Second, the type of loan is mainly short-term loan. Enterprises often have high demand for temporary loans, meeting the need for working capital financing, with the ability to quickly turn around capital such as purchasing raw materials. Loans
Long-term loans when a business is newly established contain many risks, often SMEs do not have enough assets to secure loans to buy equipment and machinery. Therefore, short-term loan sales still account for the majority due to the fast capital turnover time, banks can quickly turn around capital.
Third, strict credit regulations for SMEs. SMEs often have low market position, small financial potential, and limited management and labor force in terms of qualifications and skills. Lending to SMEs brings many risks to banks, so commercial banks often have stricter credit policies for this type of enterprise. Therefore, we see some of the following characteristics:
- High rate of secured loans: when SMEs borrow capital, banks often require collateral or third-party guarantees. Credit guarantee activities are therefore very necessary for SMEs in the current conditions when these enterprises often do not have collateral. However, the activities of organizations and guarantee funds are currently very vague.
- The number of loan applications of SMEs accepted by banks is relatively low: On average, only about 30% to 40% of loan applications of enterprises are accepted by banks for loans.
- Credit for SMEs always needs supervision, support and advice from banks: due to the limited management level and financial reporting level of enterprises, credit for SMEs needs support and advice from banks.
1.2.2. The role of bank credit for SMEs
In any economic conditions, any stage of development, if a business wants to survive and maintain and develop production and business activities, capital is a prerequisite. For SMEs with small initial capital and weak financial potential, capital becomes even more necessary. Estimated
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It is estimated that 80% of the capital provided to SMEs comes from bank credit. According to the latest figures, by 2014, the country had about 500,000 SMEs. This number requires a large amount of capital to meet. Therefore, the role of bank credit for SMEs becomes increasingly important.
1.2.2.1. TDNH is an economic lever supporting the establishment and development of SMEs, ensuring continuous production and business activities.
Although the initial capital is not required to be large, in order to operate continuously, innovate technology, improve product quality, expand business, increase competition, etc., SMEs always need capital. However, the owner's capital is often very small, and SMEs do not have enough charter capital or reputation to mobilize through the stock market. Therefore, bank loans are still the most important source of funding for the establishment and development of SMEs.
1.2.2.2. TDNH helps improve production and business efficiency and enhance competitiveness for SMEs.
Firstly, bank credit helps businesses increase their financial leverage ratio. In a developing economy like Vietnam, when businesses make a profit, the financial leverage ratio increases, helping to increase the profit per dong of the business's equity, bringing higher benefits to business owners.
Second, when a small and medium-sized enterprise receives a loan from a bank, it also means that the enterprise must repay both principal and interest to the bank on time. Therefore, enterprises must be aware and responsible for using this capital most effectively, creating profits higher than the cost of using the loan, only then can the enterprise make a profit. This requires enterprises to improve production, save costs, improve product quality, diversify designs, improve labor productivity and reduce product prices... thereby enhancing the competitiveness of enterprises in the market.
On the bank side, before and after disbursement, the bank always pays attention to the business performance and financial health of the enterprise to decide on lending and control its capital. The role of inspection and supervision of the bank forces enterprises to be more careful with the use of loan capital, indirectly improving the efficiency of production and business of the enterprise.
On the other hand, banks have relationships with many different entities in the economy, and capture information accurately and promptly, so banks can advise businesses to proactively face opportunities and challenges, thereby finding the best measures to improve production and business efficiency.
Thus, bank credit has contributed significantly to increasing production and business efficiency and increasing the competitiveness of small and medium enterprises.
1.2.2.3. Bank credit is a tool for concentrated capital accumulation to support SMEs in expanding production in both breadth and depth.
In the context of integration, when the economy has the participation of foreign enterprises, the development of large enterprises, the expansion of reproduction in both breadth and depth is an objective requirement for the existence and development of SMEs. If only relying on the accumulated profits of enterprises, it will take a long time and not all enterprises can do it. Therefore, the support of bank credit is needed for that process to take place quickly.
1.3. CREDIT EXPANSION FOR SME
1.3.1. Viewpoints on credit expansion for SMEs
Credit expansion is the increase in sales, outstanding loans, diversification of products and services, and increase in the number of customers and customer objects while ensuring credit quality. Credit expansion is the increase in the volume of bank loans to lending objects in both breadth and depth. Credit expansion is considered in the following aspects:
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