Tài liệu SOME IDEAS ON POLICY-MAKING TO SME IN VIETNAM pptx

SOME IDEAS ON POLICY-MAKING TO SME IN VIETNAM
(Referential document supplementary for presentation at Vietnam-Japan workshop:
“policies on SME of Vietnam under the impact of globalization”, Hanoi, August 31
st
–
September 1
st
, 2006

Nguyễn Ngọc Tuấn
General secretary of Hasmea
1, Policy design, making and administrative formalities:
Policy making has a pivotal role because of its large sphere of influence related to
all fields of social economic life. It may also create advantages or disadvantages to
enterprises in terms of land, square, capital, labour, etc.
a/ The existing thinking: There are some view points of local and central agency
and industries that short-comings in enacting, implementing policies, mechanisms and
administrative formalities in Vietnam presently are resulted from two sides: The first side
is state agencies and authorities that are responsible for managing, don’t manage well; the
other side is enterprises that must bear full responsibility for following the laws and
obeying the state management, don’t implement well. At present, Vietnamese enterprises’
knowledge and responsibility of following the laws are still low, bringing unexpected
consequences. Thereby, it is required to have administrative procedures more strictly
enforced to restrict and prevent those consequences.
The above concept is not absolutely wrong; however, it reflects the out-dated
thinking and old working methods. In recent year, they are of reasons that lead to
inefficiency and non-operation in renovating and upgrading business environment in order
to foster development of enterprises:
Firstly, it is necessary to change thinking on management: enterprises are wealth
producer of society, the main force for economic development, are tax payers for state
budget to ensure the operation of state machinery, police, military and payment for social

well-fares. So enterprises must be regard as “customers” of state agencies, but not only a
controlled object of state management. From these changes in notion will lead to changes
in behaviour manner of state officials to enterprises that are in accordance with
Vietnamese government’s lines: “our state is state formed by the people, belong to and
benefits the people”.
Secondly, the low level of law awareness of enterprises: if enterprises don’t know
or insufficiently know about government policies, it is partially mistake of policy-making
agency: may be it was not good propaganda and communication of enacted legal
documents, may be it was lack of policy publicity and transparency, or lack of effective
and consistent mechanism in providing enterprises necessary information (for example: no
effective information providing network of service centers for enterprises ). Some legal
normative documents are still so vague, unclear or complicated that make enterprises
difficult in understanding or even can not be able to understand. (At present many
Vietnamese SMEs have low-level of knowledge).
Thirdly, the law obeying of enterprises: Once enterprises could not access to
enacted legal regulations or did not know them thoroughly, they can not follow and abide
by those rules. Moreover, it is general phenomenon not only in Vietnam, to enterprises,
but also in other countries and to other sectors that if there is a lack of controls in rule
making and obeying, a lack that create opportunities for abuses and mistake, enterprises
will immediately make use of these gaps to break the law. Thereby, once enterprises break
the law, it is not faults absolutely caused by enterprises, but also from the rule-makers and
controllers side: the law may be deficient and ineffective; the supervision of legal
implementation and punishing any law breaking may be not strict and not works;
supervising and implementing agencies may still abet and screen errors of subordinate
officials.
Fourthly, the idea that it is needed to make administrative procedures more strict in
order to avoid and limit serious consequences caused by enterprises’ law breaking, is
really out-dated and unreasonable, because the supervision of regulation implementation
and punishing law-breaking is responsibility of a specialized organization; if not, what this
organization will do? In fact, this above idea reflects the incapability and the fear of

responsibility of policy making bureaucrats: “can’t manage, so to ban”. This is a kind of
attitudes that are popular and “convenient” for Vietnamese policy makers now as it takes
no time and power to study, research of practice. It is easy for them to completing their
task of policy making given by superiors, to dodge the responsibility for any fault in case
rule-breaking happens. (because the fault-ball has been kicked to the law implementer
foot). In fact, these behaviour reflected the irresponsibility of policy maker to work
results and consequently, causes trouble to implementing subjects, create a troublesome,
complicated, unfavourable environment that hinder the development of enterprises and of
the whole national economy.
b/ Shortcomings in policy-making and implementing those enacted:
The general circumstance is that many enacted policy and mechanism is late or
never-implemented, having bad impact on the habit of law implementation of both the
normal people and state officials. Whether this is because of “excessive democracy” that
the situation of “Higher asks, lower not obeys” becoming popular in law and policy
implementation in Vietnam today. As my point of view, the reason is not only the non-
strict punishment measures to non-obeyers but also the bad designed policy and
mechanism. These shortcomings are emerged in following tendencies:
The first tendency: some regulation and articles of policy and mechanism is given
unspecific and unclear; in many case, even formalistic, incentives in calling slogans that
have little instructive value in practice. On one hand, it takes time and makes enterprises,
the people and event state officials difficult to follow and implement concretely, especially
in case enterprises would like to be beneficiaries of policies. On the other hand, unspecific
and not transparent policies also make gaps and opportunities for abuses and distortion
intentionally of implementers in ways that benefit themselves, for corruption and other
negative phenomena of both enterprises and state officials.
The second tendency: short-sighted, non-thoroughly enacted policies and
mechanisms, on one hand, lead to inflexible, one-side implementation causing troubles in
practice as reality of life is diverse, plentiful and often changeable. On the other hand, in
order to implement in practice it is needed to amend some next legal documents of
implementing instruction that create a complicated, contradict, and cumbersome system of

acts that are difficult to remember and follow by both implementers and supervisors.
The third tendency: bureaucracy in policy making makes issued policies and
mechanisms inconsistent with practice, not to be accepted by the real life. This happens
because policy-makers lack of information and knowledge about real situation, don’t
investigate and research before compiling policy; lack of debate and consultation of
related parties.
All of those above tendencies reduce and even make policy and mechanism lose
their efficiency of implementation. Once enacted policies aren’t followed and
implemented many times, there will be a “cheeky” phenomenon to laws that means no
respect to laws and government policies, and that is the phenomenon “Higher asks, lower
not obeys”.
In recent time, in central and local authorities there is a fact that some urgent
problems of enterprises are only resolved when provincial or central government leaders
directly issued directives on these problems. It is good for enterprises as they are resolved
problems and barriers to develop. However, it also shows shortcomings in enacted legal
normative documents. Those directives are only short-term, temporary solution and only
resolve particular case one by one, but waste lots of time of enterprises; creating bad
precedent in law implementation: “directive has more power than laws”. The long-term
solution is to improve the implementing efficiency of general normative document of law
in ways that they themselves can regulate economic activity performing smoothly,
normally, and fairly to all enterprises.
2, Some ideas on credit policy for SMEs:
Lack of capital now is one of the most urgent matters within Vietnamese SMEs
while many commercial banks have a lot of redundant capital that cannot be made for a
loan. This is clearly irrational because both demand and supply in capital are very high.
So where is reason? Maybe in environment element: the condition for making deals
between two sides. These conditions may not be favourable or also have obstructions.
First, about loaning conditions according to the regulations in state bank and credit
organization Law: Enterprises wanted to borrow with capital must ensure sufficiently the
following conditions: having feasible project, having minimum joining own capital of

15%, having collateral property and having trust between banks and customers.
Outwardly, above loaning conditions are completely rational; however, if analyze
deeply, it will show that SMEs do not easily overcome those obstacles, especially with
very small enterprises and start-up enterprises:

• Regulation of having feasible project: This is a sound and necessary regulation to
guarantee that borrowing enterprise has earnest business plan, ensures the profit to be
able to refund borrowed capital. However, in order to rate whether a project/ plan is
truly feasible, it is required that banking officials must have enough technical level
and professional morality, unless maybe it leads to some cases: project is only feasible
on paper (in formal face) leaded to lose capital of banks; or cannot rate the project, so
the bank dare not make for a loan, disadvantaging enterprises who have actually
feasible project, profitable business and capability of capital refund for banks; or it
may have unspoken collusion between banking officials and enterprises who ask for
capital to approve an unfeasible project leaded to lose capital of banks.

On the enterprise’s hand, at present almost enterprises, especially SMEs, don’t
appreciate making business plan, thereby the difficulty of banking capital approach is
obvious. This is required that enterprises must really appreciate their own business plan
development, not only to borrow banking capital but also to make efficiency for their own
business operation. However, with very small enterprises (such as household enterprise),
it may be beyond their ability to develop a business plan. In this case, within some
developed countries (example Swiden), very-small enterprises can borrow loans with
certain capital capacity from banks without having business plan, but they must have
clear, transparent accounting record system, prove the stable increasing profit every year.

• Regulation of that enterprise must have the 15% minimum own capital when borrow
loans: The regulation is proposed in order to associate the functions of borrowers with
their business operation. This desire is proper, but it is not actually necessary and does
not bring the positive efficiency in fact: with enterprises who have no feasible

business plan, the loss chance of banks when making loans is very high (85%)
compared to loss of enterprises (15%), while 15% of loss cannot be the barrier with
people who have intention to swindle bank; consequently the correct definition of
whether business plan of enterprises is feasible or not remains the essence. In contrast,
for the enterprises who start-up business from two blank hands, who have very good
business idea, having truly feasible plan, then 15% of own capital is a big obstacle
with them, sometimes cannot be overcome, and therefore, this regulation restricted,
even crushed enterprises that could be successful in future, instantly from budding.

• Regulation of ensuring collateral of enterprises when borrowing capital (stipulate for
having security): this may be the most difficult issue of Vietnamese enterprises in
general, especially SMEs and private sector in particular when they want to borrow
loans (except some state owned enterprises because of their granted state land used as
collateral). Meanwhile, if enterprises do their business unprofitably, then the bank is
not able to sell that collateral property to reclaim capital (such as land, premises ), or
very hard to sell (such as automobiles, machinery ). So, practically, this regulation on
collateral only obstructs the approach of enterprises to banking capital, but not having
much sense of capital-borrowed reclaimation

• Finally, regulation of having trust between banks and customers: this should be only a
recommendation to both sides, but not to bring out as legal regulation, because it is not
obvious that how the trust is, how the trust rate is enough, and if an enterprise was not
enabled to borrow loans at the first time then when it would have the trust in
banks? On the other hand, banking officials are also too difficult to implement this
regulation and they can follow their personal feeling to do, this is just the aperture for
negative behaviour between people who approve to make loans and the capital
borrower.

By analyzing conditions to borrow capital above, we realized that the difficult
approach of Vietnamese SMEs to banking capital is easy to understand. If banks still keep

up these loan-making principles, then maybe very few SMEs can borrow capital, and
banks are also difficult to be able to trade by making for a loan.

Particular discussion about guarantee by belief: This is the confidence between
banks and borrowers. It probably be a worth exit for the current difficult circumstance of
collateral of SMEs. Why between organizations which have legal entity such as
enterprises and banks, with Government as the justice balance arbitrator in the middle,
cannot make loans to each others by credit guarantee while individuals in society can do
this: they have already been borrowing from each others (perhaps with higher interest
rate, but people who needed capital still accept easily) without any collateral, without any
other third-party and also without government agency come forward as a referee. So the
problem here is how to create belief between two sides, what mechanism to support,
strengthen this belief at the same time with resolving the conflict (if there is) properly and
equally.

The trust, firstly bases on business plan/project of loan-receiving enterprise, if
they are actually feasible or not, if they have ability to do business profitably and refund
borrowed capital or not. If enterprises prove this and persuade the banks, and in contrast,
banks believe in possibility of plan/ project of enterprises, then the belief between two
sides will be created. In other countries on the world, SMEs are also in the situation like
ours that they do not have enough collateral to borrow capital; however, banks still enable
them to borrow based on their feasible business plan. The belief can be created based on
long-time partnership relation between enterprises and banks, trust of enterprises in
repaying debts, their prestige in community about earnest business and development
perspectives. Certainly, in order to create mutual belief, both sides need to try: enterprises
really appreciate developing business plan and must have the entirely efficient business
plan; at the same time, have clear, transparent financial management methods (enterprises
need to learn to gain above things); keep the trust to customers, counterparts, focus on
building and maintain prestige in community. In contrast, banks also need to regard
enterprises as customers (that is an evident), but not the favour-granted person, try to find

out, sympathy and support enterprises; at the same time also need to self-improve their
skill level in order to appraise business/project plan of enterprises, observe, supervise,
update information about enterprises to restrict possible risk.
About supporting policy mechanism: Government, enterprise community
(association of enterprises) can make the loans-making relation between banks and
enterprises smooth and favourable. For example: credit guarantee policy of State for
enterprises who do public benefit activities, undertake the political task or perform in
special field (example environment preservation ); building credit guarantee fund for
enterprises who have enough criteria. Business association comes forward to guarantee its
members under many various forms; build mechanisms to ensure the deals
implementation, mechanism for solving conflicts between two sides effectively and
equally , services of providing information about enterprise situation, training enterprises
and banking officials in developing method of business plan/ project, managing
enterprises finance, appraising business/project plan ./.

Translated by huelinh_nguyen02
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