Regulations on credit guarantee fund for small and medium enterprises in Vietnam

Regulations on credit guarantee fund for small and medium enterprises in Vietnam (Internet image)

1. What is the Credit Guarantee Fund for Small and Medium Enterprises?

According to Clause 1, Article 2 of Decree 34/2018/ND-CP, the credit guarantee fund means an off-budget financial fund which is established by the People’s Committee of province or central-affiliated city (hereinafter referred to as province) and operates for non-profit, capital maintenance and development purposes; extend credit guarantees to SMEs as prescribed in Decree 34/2018/ND-CP and relevant laws. 

2. Beneficiaries of credit guarantees in Vietnam

- Beneficiaries of credit guarantees in Vietnam as prescribed in Article 15 of Decree 34/2018/ND-CP are:

Beneficiaries of credit guarantee funds are SMEs prescribed in the Law on support for SMEs and its guiding documents, which have growth potential but are not eligible for access to credit in the preferential sectors as prescribed in Decree 34/2018/ND-CP.

- SMEs taking out loans for investment and business purposes in the following sectors are given priority to be granted extend credit guarantees:

+ Preferential sectors for credit extending under guidance of the State Bank of Vietnam in each period;

+ Sectors or projects in the preferential sectors of local socio-economic development in each period.

- According to Clause 2 of Article 15 of Decree 34/2018/ND-CP, the People's Committee of province shall issue a list of preferential industries and sectors for local socio-economic development in each period that the Fund considers to extend credit guarantees as prescribed in  of Decree 34/2018/ND-CP.

3. Conditions for extending credit guarantees for Small and Medium Enterprises in Vietnam

According to Article 16 of Decree 34/2018/ND-CP, beneficiaries of credit guarantees in accordance with Section 2 are only granted credit guarantees when they meet the following conditions:

- Prepare their effective and creditworthy investment projects, production and business plans.

- Investment projects, production and business plans shall be assessed and subject to the decision to extend the credit guarantee in accordance with provisions set out in of Decree 34/2018/ND-CP.

- There is an investment or business plan in which owner’s equity accounts for at least 20% at the time when the credit guarantee fund considers the beneficiary for guarantee granting.

- When applying for the guarantee, the beneficiary does not incur any tax debt for 1 year or longer as prescribed in the Law on Tax Administration and non-performing loans at credit institutions. If the tax debt incurred due to objective reason, the beneficiary must have a certification of its superior tax authority.

- There are security interests for loan guarantees as prescribed in Article 25 of Decree 34/2018/ND-CP.

4. Scope of credit guarantee for Small and Medium Enterprises in Vietnam

Article 17 of Decree 34/2018/ND-CP stipulates the scope of credit guarantee for small and medium enterprises as follows:

- The credit guarantee fund considers granting a credit guarantee up to 100% of loans (including working capital and medium or long-term capital) to a SME.

According to the feasibility, level of risks of the beneficiary, project, business plan and financial resources of the credit guarantee fund, the credit guarantee fund shall decide specific amount of guarantee for the beneficiary.

- The guarantees of the credit guarantee fund include:

+ Guarantee for the principal of a loan taken out by the obligor from a lender;

+ Guarantee for the interests of a loan taken out by the obligor from a lender;

+ Guarantee for the principal and interests of a loan taken out by the obligor from a lender, specified in the credit guarantee contract.

- According to its own financial resources and administration, feasibility and level of risks of the beneficiary’s project or business plan, the credit guarantee fund shall decide the scope of credit guarantee as prescribed in Clause 2 of Article 17 of Decree 34/2018/ND-CP, specified in the credit guarantee contract.

5. Credit guarantee term for small and medium enterprises in Vietnam

The credit guarantee term is specified in Article 18 of Decree 34/2018/ND-CP as follows:

- The credit guarantee term shall be determined in conformity with the term of the loan agreed upon between the obligor and the obligee in the credit contract and specified in the credit guarantee contract and the guarantee certificate entered into between relevant parties as prescribed in Decree 34/2018/ND-CP.

- During the credit guarantee term, if the obligor has no longer been classified as a SME as prescribed by law, the credit guarantee fund must keep granting the extend credit guarantee to the obligor based on the credit guarantee contract between them until the expiry of the credit guarantee term.

Van Trong

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