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ADB loan to help small businesses

The Asian Development Bank (ADB) has approved a loan package of US$100 million that will help create a more favourable business environment to support the development of small and medium-sized enterprises (SMEs) in Viet Nam. ADB’s first policy loan in Viet Nam is designed to promote an enabling environment for the SME sector.

It will undertake inter-governmental co-ordination and stakeholder consultation to systematically identify and resolve constraints facing businesses, an ADB spokesperson said.

The project will enhance the policy and regulatory framework, improve SME access to finance and land-use rights, and help increase their access to domestic and international markets by improving industrial and technical standards.

"The Government, ADB, and the aid community agree that it is urgent to support SMEs to sustain economic growth," said Shigeko Hattori, an ADB senior financial sector specialist.

"The traditional approach to assisting SME development by addressing funding and technical gaps through subsidised credit or services has achieved mixed results. Therefore, SME support programmes are increasingly shifting to improving the business environment."

SMEs in Viet Nam, defined as establishments with a registered capital below VND10 billion (about $670,000) or with annual permanent employees of less than 300, comprise more than 90 per cent of all private enterprises.

The domestic private sector has led the country’s economic growth since 2000, with an annual growth rate of almost 20 per cent, but the economy is still dominated by the State sector.

The project will assist the Government in establishing a national SME development strategy, which includes defining SMEs more specifically, developing a modern data collection system on SMEs through the National Business Information Network, and formulating an inter-ministerial action programme for SME development.

It will improve access to finance, the most often cited problem of SMEs, by reducing the costs and risks of lending to SMEs through the development of an SME accounting system, increasing the effective use of collateral such as land-use rights certificates and movable properties, and improving the operational environment for financial leasing companies.

Since many SME surveys in Viet Nam point to limited access to land as the foremost constraint to growth, the project will complete the legal framework to make land-use rights transferable through market-based transactions. The project will also help disseminate information on land-use planning and zoning.

The project will also help the Government develop industrial and technical standards that conform to international best practices, and assist in making this information readily available to SMEs through an online database.

A $1.4 million advisory technical assistance grant included in the loan package will provide key technical inputs for the project and institutional capacity-building support to implementing agencies.

ADB will finance $500,000 of the technical assistance cost, the Danish Consultancy Trust Fund will finance $300,000, and $600,000 will come from the Swiss Consultant Trust Fund.

The project loan is divided into two back-to-back subprogrammes. The first subprogramme, to be undertaken from November 2004 to May 2006, will be financed by a $60 million loan from ADB’s concessional Asian Development Fund (ADF). After the successful completion of the first subprogramme and based on resource availability, a $40 million loan for the second subprogramme will be processed.

The project will be co-financed by the Agence Francaise de Develop-pement with about $29.8 million, and by the Kreditanstalt fur Wieder-auflbau with $23.8 million.

The Ministry of Planning and Investment will carry out the project.

VNS - (26/10/2004)

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