Vietnam: Management of loans granted under an association contract for agriculture production

Specifically, according to Clause 8 Article 1 of Decree No. 116/2018/ND-CP of Vietnam’s Government, which adds Clause 4 to Article 14 of Decree No. 55/2015/ND-CP, regulations on management of loans granted under an association contract for agriculture production are as follows:

- Management of loans granted under an association contract according to the value chain: According to the value chain-based association contract between the main organization and participants in the association (hereinafter referred to as "the associated party"), the credit institution shall enter into a loan agreement with the main organization and/or the associated party and manage the loan granted under such association contract adhering to the following principles:

+ The main organization and associated party shall open an account at the credit institution granting the loan and make a commitment to conduct all currency transactions related to the value chain through this account.

+ In case the main organization makes advance payment for production cost of the associated party:

• The credit institution shall grant a loan to the main organization to pay for supplies purchased, input service provided to the associated-party in advance, products purchased by the associated-party after the advance is deducted, product processing and consuming by the main organization.

• The credit institution shall collect debts from the main organization according to revenues from sales under consuming contracts between such organization with consumers and other legal revenues.

+ In case the main organization does not make advance payment for production cost of the associated party:

• The credit institution shall grant a loan to the associated-party to pay for supplies purchased and input services provided for association in production.

• The credit institution shall collect debts from the associated-party according to its revenues from sales to main organization.

• The credit institution shall grant a loan to the main organization to pay for product purchased by the associated-party, product processing and consuming by the main organization. Disbursement with the main organization to pay for product purchased by the associated party shall be made in conjunction with debt collection from such associated party.

• The credit institution shall collect debts from the main organization according to revenues from sales under consuming contracts between such organization with consumers and other legal revenues.

- Management of loans granted under an association contract:

+ In case the parties enter into the association contract to complete one or more than one phase in the value chain collaboration as per provisions in Clause 6 Article 3 of Decree No. 55/2015/ND-CP, the credit institution shall enter into an agreement with such parties to complete each phase in the value chain collaboration.

+ The credit institution and parties of the association contract shall enter into an agreement on repayment term in consistent with time for completing each phase in the value chain collaboration. The credit institution shall provide intermediary payment service for parties entering into the association contract who open an account at such credit institution at request of such parties.

View relevant provisions at: Decree No. 116/2018/ND-CP of Vietnam’s Government takes effect from October 25, 2018.

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