MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending $40 million equivalent to Viet Nam for introducing reforms that untangle a knot of red tape and make doing business simpler and quicker for small and medium-sized enterprises (SMEs) - the lifeblood of the country's private sector.
ADB's Board of Directors today approved the loan for the first phase of the Second Small and Medium-Sized Enterprises Development Program. It follows an earlier ADB loan for an initial reform program that has helped slash the time needed to register a business, and supported a sharp rise in new enterprises and private sector jobs. SMEs make up a large majority of all registered enterprises in Viet Nam and most new jobs in the last decade were generated by the sector.
"The priority for the Government of Viet Nam is to sustain high economic growth to create productive jobs for around 1.7 million new workers each year, and growing SMEs is an essential part of its development strategy," said Edimon Ginting, Senior Economist in ADB's Southeast Asia Department.
Despite strong progress over the past 4 years, problems in accessing medium-term capital, as well as some ongoing regulatory issues, have slowed registration of new SMEs and the expansion of existing ones. Economic overheating and the global financial crisis have created further challenges.
The release of fresh funds for the latest program follows the achievement of key reform milestones by the government. These include steps to develop a comprehensive policy to address constraints to trade and competition, as well as measures to simplify and streamline business procedures, the introduction of a pilot e-customs program in 10 provinces, and the introduction of a web-based national business registration system.
To tackle access to finance problems - the biggest constraint on small business growth - the government has introduced a nationwide credit guarantee system to support commercial bank lending to SMEs, while an Unlisted Public Company market, launched in June 2009, is opening up new equity financing opportunities for smaller businesses.
"The reform supported under the program is targeting a significant cost savings from simpler business procedures, and a doubling in the number of newly registered enterprises over the next four years," said Mr. Ginting.
The latest loan from ADB's concessional Asian Development Fund has a 24-year term including a grace period of 8 years, with an annual interest charge of 1%, rising to 1.5% for the balance of the term. A second phase of the program will provide support to continue reforms to improve business competitiveness, and access to finance for SMEs.
The Ministry of Planning and Investment is the executing agency for the full program with the target completion date yet to be finalized.