Vietnam Streamlines SME Lending; Promotes Innovation and Value Chain Integration

Vietnam has streamlined how its Small and Medium Enterprise (SME) Development Fund allocates loans, with an emphasis on channeling funds towards innovative startups, along with enterprises participating in industry clusters and value chains.

Decree 45/2024/ND-CP modifies the rules surrounding SME funding, aiming to generate broader economic benefits.

The changes indicate a shift away from a "spread thin" approach to SME support. By stipulating that firms must fully repay existing loans before accessing new ones, the government encourages focused use of funds and helps assess the success of prior projects.

A major highlight is the targeted support for “innovative small and medium-sized startups."

To qualify, these ventures must satisfy existing criteria for innovative SMEs, demonstrate project feasibility, and contribute at least 20% equity capital. This focus aligns with Vietnam's drive to move up the value chain and embrace a more innovation-driven economy.

Decree 45 also incentivizes participation in industry clusters and value chains - key themes in Vietnam's industrial policy. SMEs already part of such structures will have access to loans provided they have viable projects within their specific sector and meet collateral requirements.

Experts in Vietnam's business community have generally welcomed the decree. "This is a positive step, showing the government understands that SMEs need more than just capital – they need to be embedded in the right ecosystems," remarked Nguyen Hoa Binh, an independent economist in Ho Chi Minh City.

Some stakeholders, however, caution that the new rules may add to the administrative burden for smaller firms. "The equity contribution requirement for innovative startups could be a hurdle, especially in the very early stages," noted Tran Van Linh, founder of a Hanoi-based software startup.

The emphasis on prior loan repayment is also expected to impact certain sectors. "Businesses that typically have longer project cycles, like those in infrastructure, may find it challenging to navigate the new regulations," said Le Minh Duc, director of a construction SME in the central coastal city of Danang.

Overall, Vietnam's Decree 45 signals a maturing of its SME support policies. By targeting funding towards high-potential areas and emphasizing project results, the government hopes to maximize the impact of its SME development fund as part of its broader industrial transformation strategy.