Government offers incentives to spur green, circular economy projects

Government offers incentives to spur green, circular economy projects

New financial incentives will provide interest rate subsidies from state funds to encourage businesses and individuals to invest in green and circular economy projects, driving greater sustainability.

The Ministry of Finance is drafting a new decree to provide interest rate support for private enterprises, small- and medium-sized enterprises (SMEs), household businesses, and individual entrepreneurs who secure loans from off-budget state financial funds to implement green and circular economy projects.

According to the draft, the decree will apply to off-budget state financial funds engaged in lending activities, which are established and operating in accordance with legal documents.

It will also apply to borrowers whose loans meet all the eligibility criteria for state interest rate subsidies.

The off-budget state financial funds cover the SME Development Fund; the Vietnam Environmental Protection Fund; the Environmental Protection Funds of localities; the Vietnam Cooperative Development Support Fund and its local branches; the Vietnam Farmers Support Fund and its local branches; the Development Investment Funds of localities; and other similar funds established by competent state authorities as permitted by law.

Under the draft decree, borrowers from these funds will be eligible for interest rate support from the state budget if their loans meet the following conditions:

First, the loan must be used to implement a project that has been verified by a competent authority as meeting the criteria for green or circular economy initiatives and follows the environmental, social, and governance (ESG) standards framework as defined in a decision by the Prime Minister.

Second, the loan must not already benefit from other state-subsidised interest rate policies and must carry a minimum interest rate of 2 per cent, per annum.

Third, the loan must be disbursed and have an outstanding balance from the effective date of this decree.

Fourth, the borrower must use the loan for its intended and approved purposes.

The draft decree clearly stipulates that interest rate support will not apply in the following cases: if the loan has overdue principal or has been granted a repayment extension, or if the project is no longer listed among green, circular, or ESG-compliant projects.

The duration of the interest rate support will be calculated from the disbursement date to the point at which the borrower repays the loan principal and/or interest in full, according to the agreement with the respective fund.

The level of interest rate support for borrowers will be 2 per cent, per year, calculated on the outstanding loan balance and applied for the duration specified above.

The state budget will directly subsidise borrowers through the off-budget state financial funds, reimbursing these funds for the total interest support amounts paid out.

On a monthly basis, the funds will calculate the amount of interest support applicable to each loan and deduct it directly from the interest payments owed by the borrower.

Funding for interest rate subsidies through centrally managed off-budget state financial funds will be allocated from the central public investment budget. For locally managed funds, the subsidies will be covered by the local public investment budgets.

According to data released by the International Finance Corporation (IFC) at an international conference on unlocking the international green capital market for Vietnam’s sustainable and inclusive finance held on September 5 in Ho Chi Minh City, Vietnam faces an enormous financing demand for its green transition – but this also presents a significant opportunity.

Estimates by the World Bank suggest that in order to achieve net-zero emissions by 2050, Vietnam will require an additional $368 billion between 2022 and 2040, equivalent to around 6.8 per cent of the country’s GDP annually.

The IFC is supporting Vietnam through a combination of investment and advisory services, having already committed more than $2.8 billion to the financial sector, including $400 million for green projects in the Vietnamese market.

VIR