SMEs Access to Finance

1. SMEs Access to Finance Food Processing - Wooden Products Manufacturing - June 2015 Food Processing - Wooden Products Manufacturing - Textile and Garment Manufacturing

2. Content • Research’s objective and methodoly• Research’s objective and methodoly • Working Capital Financing • Experience of using external finance (formal) • Experience of using external finance (informal) • About MarketIntello 2 © 2015 MarketIntello. The copyrights of this report belong to MarketIntello. The results of this survey can be publicly used, but must be cited and sourced from MarketIntello.

3. Research’s Objective and Methodology This research is done by MarketIntello to measure the status of SME financing in Vietnam Research’s objectives This research encompasses Total samples of 208 Small & Medium enterprises in 05 provinces of Vietnam 10% 11% Hà Nội Firm size Small 64% Medium 36% 23% 38% 61% 10% 9% Bắc Ninh Hồ Chí Minh Bình Dương Đồng Nai Food Processing 23% Textiles & Garments 39% 38% Wooden Manufacturing 3

4. 4 Working Capital Financing Enterpises rely on four main sources of finance as working capital.

5. Companies main finance source for working capital needs comes mainly from 04 sources: Banks or formal credit institutions, Retained earnings, owner’s equity and families and friends. 57% 54% 53%54% 56% 54% 60% 62% 56% 53% Total Food processing Textile and garment manufacturing Wooden products manufacturing 40% 54% 53%54% 33% 42% 54% 45% 52% 40% 53% 5 Q. F1: Please estimate the primary sources of your working capital needs (salaries, inventories, materials, etc?) (multiple choices, one firm can use more than one source of finance) 3% 3% 3% 0%0% 2% 8% 0% 4% 6% 0% 1% 5% 1% 4% 0% Banks or formal credit institutions Other financial organizations Family and friends Customer credits Supplier credits Retained earnings Owner's equity Other

6. 6 Experience of using external finance (formal) Nearly haft of enterpises surveyed seek for external finance with very little obstacles.

7. 93 90 100 Nearly haft of enterprises participated in the survey said they need external finance for working capital and most of companies apply for external finance said they have difficulties access to finance but not much. 42% Food Processing 48% Textile and Garment Manufacturing 37% Wooden products manufacturing 24 76 7 25 75 32 68 0 10 20 30 40 50 60 70 80 90 Yes No Total Food processing Textile and garment manufacturing Wooden products manufacturing 43 % of companies apply for external finance, those in textile and garment manufacturing is the largest number. 7 Q. F2: Did you apply for external finance in the last three years (2013-2015)? Textile and garment manufacturing Wooden products manufacturing Q. F6: Do you have any difficulties in applying for an external finance? Those in wooden products manufacturing had more difficulties accessing to finance than other sectors.

8. Loans from state commercial banks and joint-stock commercial banks are main sources of external finance 0%Joint venture bank0%Joint venture bank0%Joint venture bank0%Joint venture bank Food processing Total Textile and garment manufacturing Wooden products manufacturing 29% 37% 0% 0% State Commercial Banks Joint-stock commercial bank 100% foreign-invested bank Joint venture bank 30% 27% 1% 0% State Commercial Banks Joint-stock commercial bank 100% foreign-invested bank Joint venture bank 38% 29% 4% 0% State Commercial Banks Joint-stock commercial bank 100% foreign-invested bank Joint venture bank 32% 31% 1% 0% State Commercial Banks Joint-stock commercial bank 100% foreign-invested bank Joint venture bank 8 Q. F2b: Which external financial source did you apply in the last three years? 0% Other financial organizations 2% Other financial organizations 2% Other financial organizations1% Other financial organizations

9. Complicated process/procedures and do not have enough collateral are main reasons that enterprises are facing when apply for external finance. For specific sectors, the reasons are quite vary. 13% 31% Bank officers asked for kickbacks Time consuming procedures 18% 18% Bank officers asked for kickbacks Time consuming procedures 0% 0% Bank officers asked for kickbacks Time consuming procedures 14% 24% Bank officers asked for kickbacks Time consuming procedures Food processingTotal Textile and garment manufacturing Wooden products manufacturing 19% 13% 50% 6% 13% 0% 6% 13% Banks demanded a detail business plan Financial report did not meet the bank demands Complicate process/ procedure Loan sizes were too small Interest rates were too high Poor skills of bank officers Bank bias/favoritism to other firms kickbacks 45% 0% 55% 9% 27% 0% 0% 18% Banks demanded a detail business plan Financial report did not meet the bank demands Complicate process/ procedure Loan sizes were too small Interest rates were too high Poor skills of bank officers Bank bias/favoritism to other firms kickbacks 50% 0% 0% 0% 50% 0% 0% 0% Banks demanded a detail business plan Financial report did not meet the bank demands Complicate process/ procedure Loan sizes were too small Interest rates were too high Poor skills of bank officers Bank bias/favoritism to other firms kickbacks 31% 7% 48% 7% 21% 0% 3% 14% Banks demanded a detail business plan Financial report did not meet the bank demands Complicate process/ procedure Loan sizes were too small Interest rates were too high Poor skills of bank officers Bank bias/favoritism to other firms kickbacks This information is intentionally left blank, please contact us for more details 9 Q. F6.1: What were the main difficulties in applying for external finance? (multiple answer possible) 25% 38% 13% 0% Other Not enough collateral No proof of asset ownership Limited management capacity business plan 9% 55% 9% 9% 45% Other Not enough collateral No proof of asset ownership Limited management capacity business plan 0% 0% 0% 0% 50% Other Not enough collateral No proof of asset ownership Limited management capacity business plan 17% 45% 14% 3% 31% Other Not enough collateral No proof of asset ownership Limited management capacity business plan

10. The most frequently approved rate for companies seeking for official external finance in 2013 is among 80- 100%, it is noted that 2% of companies got the loans even higher loan than their proposed amount 4% 12% 2% 12% 82% 0-40% 40%-80% 80%-100% Over 100% 98% 10 Q. F4: What was the amount of external finance approved in 2014? Rate of loan approval Q. F3: Was the financing you applied for in 2014 approved?

11. 11 Experience of using external finance (informal) More than one third of enterpises surveyed seek for informal external finance.

12. Main sources of informal finance comes mainly from personal connections at the rate of 32% for all companies surveyed. Food processing Total Textile and garment manufacturing Wooden products manufacturing 12% 34% Pawnshop Personal connections (family/relatives/friends) 7%Pawnshop Personal connections (family/relatives/friends) 6%Pawnshop Personal connections (family/relatives/friends) 9% 32% Pawnshop Personal connections (family/relatives/friends) 26% 35% 12 Q. F8.1: Your company apply for informal external finance from Whom? 0%Other2%Other2%Other1%Other

13. The main reasons why companies applying for inofficial external finance is mainly because this formality is much easier, 61% companies stated that. No collateral required and flexible payback are also two main reason for enterprise to choose informal finance 24% Couldn's get a formal credit21% Couldn's get a formal credit 14%Couldn's get a formal credit Food processing Total Textile and garment manufacturing Wooden products manufacturing 21% Couldn's get a formal credit 34% 62% 21% 24% No collateral required Easier fomalities Most favorable interest credit 45% 61% 33.33 21% No collateral required Easier fomalities Most favorable interest credit 50% 57% 29% No collateral required Easier fomalities Most favorable interest 42% 61% 28% No collateral required Easier fomarlities Most favorable interest 13 Q. F10: What are the main difficulties in applying for external finance? (single main reason) 7% 34% Others Flexible payback 3% 64% Others Flexible payback 7% 43% Others Flexible payback 5% 49% Others Flexible payback

14. Most of informal loans required neither collaterals nor guarantors Some loans requiredSome loans requiredSome loans requiredSome loans required Food processing Total Textile and garment manufacturing Wooden products manufacturing 11% 14% 4% Loans required guarantors only Loans required collaterals only Some loans required collaterals and some loans required guarantors 12% 9% 12% Loans required guarantors only Loans required collaterals only Some loans required collaterals and some loans required guarantors 7% 21% 0% Loans required guarantors only Loans required collaterals only Some loans required collaterals and some loans required guarantors 11% 13% 7% Loans required guarantors only Loans required collaterals only Some loans required collaterals and some loans required guarantors 14 Q. F11 Did your finance need collateral or guarantors? 71% Loans required neither collaterals nor guarantors 67% Loans required neither collaterals nor guarantors71% Loans required neither collaterals nor guarantors 69% Loans required neither collaterals nor guarantors

15. For most of companies, formal external finance is much more important than that from informal source* 80% 90% 75% 80% 80% 90% 100% Formal sources Informal sources 75% 20% 10% 25% 20% 20% 30% 40% 50% 60% 70% 15 Q. F12:Which source of loan is more important to your business? *The average amount of loan from informal source s varies from VND 1 billion to VND 2 billion for three sectors comparing to VND 3 billion to VND 6 billion from formal sources 10% 0% 10% Total Food processing Textile and garment manufacturing Wooden products manufacturing

16. 16 Future Financing Is an annual interest rate of 7% attractive enough for SMEs to apply for external finance?

17. Even at the very low interest rate (7%), not many enterprises would like to apply for external finance 58% 28%7% 7% Do not borrow Under VND 1 billion VND 1 – 10 bilion Over VND 10 bilion 17 Do not borrow Under VND 1 billion VND 1 – 10 bilion Over VND 10 bilion The main reason for not having intention to apply for external finance lies in the fact that these industries’s financial needs are very much depending on customers’ orders which cannot be foreseen by most of enterprises when being asked Q. F7: How much would you like to borrow if banks offer an annual interest of 7% for loan?

18. Related Reports SMEs Access to finance: Sector survey 2015 Labor management and development in SMEs Research Development and Innovation in SME Overview on competition among Business development services for SMEs Other sector reports 18 competition among SMEs (Infographic) services for SMEs (infographic) Other sector reports

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SMEs Access to Finance

SMEs Access to Finance

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