Credit guarantee fund model fails completely

Credit guarantee fund model fails completely

Tens of credit guarantee funds have been established in many localities which aim to help small and medium businesses access bank loans. However, the funds remain helpless, and people wonder why the funds still exist.

Most Vietnamese businesses are thirsty for capital because they cannot access bank loans with no asset to mortgage for the loans. Therefore, credit guarantee funds are functioned as the bridge that connects banks and businesses.

However, businesses still cannot expect the help from the funds so far, because the funds themselves are not big in scale and powerful in capability to help businesses.

Established in 2006, the HCM City Credit Guarantee Fund has only become guarantee for 100 projects from 30 businesses to borrow loans from banks, totaling 200 billion dong.

The HCM City Business Association’s Secretary General Nguyen Phuoc Hung said that a lot of businesses asked for the guarantee from the fund to be able to borrow money from banks, but they felt disappointed.

Also according to Hung, the fund would agree to become guarantee if businesses can satisfy the strict requirements. One of the requirements is that businesses have feasible business projects and have mortgaged assets for the loans. Meanwhile, if businesses can satisfy the requirements, they would rather come directly to banks to ask for loans instead of expecting the help from the guarantee fund.

A director of a food processing company said that banks refused to provide loans to the company, because the company has mortgaged their assets at banks for long term loans already, and it has no more collateral for new working capital.

“I was told to contact the credit guarantee fund. However, I found out that businesses would have to follow even more complicated procedures to get the nod from the fund,” he said.

“Especially, I was asked to show the mortgaged assets. If I had collateral, I would not need a guarantor,” he continued.

Becoming a guarantee for business and trembling with fear for capital lost

Tran Buu Long, Deputy Director of the HCM City Credit Guarantee Fund, has also admitted that the credit guarantee funds have been operating ineffectively.

The government’s Decree No. 90 was promulgated in 2001, but only after five years, in 2006, did the guarantee fund was established.

Long said the problem is that credit guarantee fund is a non-profit organization which collects low fees. However, credit institutions and businesses try to optimize their profits. Therefore, it is very difficult to call for the capital from banks and businesses.

Under the current regulation, every commercial bank in the locality has to contribute 5 billion dong at least to the fund. However, in fact, only one state owned bank has contributed 1 billion dong, while other banks have contributed hundreds of millions of dong only. The capital contribution is considered a kind of “donation,” because banks anticipate that they would not make profit from this.

“As the financial capability is not strong enough, the economic potentials remain modest, we always fear that the capital would be lost,” Hung said.

“The fund has only 200 billion dong. Therefore, we dare not become guarantee for businesses, if businesses do not have assets to mortgage,” he explained.

Meanwhile, commercial banks prove to be not interested in the credit guarantee funds. They both do not want to contribute capital to the funds and do not want to provide loans under the guarantee of the funds.

“Banks even refuse to provide loans to businesses even when other big banks become guarantee for businesses, let alone the guarantee funds which have smaller operation scale,” said Lawyer Truong Thanh Duc from Maritime Bank.

vietnamnet