The Dong Nai Young Entrepreneur Association has more than 500 members and most are small enterprises with revenue of just several billion dong a year. The enterprises have little capital, just enough to lease workshops and buy machines for production. 

In order to have capital for production and operation, they have to borrow money. But it is difficult to access bank loans because they don’t have collateral. As a result, they have to seek capital from non-bank credit sources at very high interest rates. Lacking capital, the enterprises cannot grow.

Lack of capital access is the most common difficulty of many private Vietnamese enterprises. Only 17.8 percent of polled private enterprises said they had received loans from banks in 2022, according to the Vietnam Confederation of Commerce and Industry (VCCI). The majority of businesses cannot access bank loans.

The problem is that the number of private enterprises with credit access is on the decrease. In 2017, nearly 49 percent of enterprises got loans from banks, while the figure fell to 45 percent in 2018, and 43 percent in 2019 and 2020. It continued to decrease to 35 percent in 2021 and 18 percent in 2022.

The Provincial Competitiveness Index (PCI) 2022 survey found that over 79 percent of businesses lack assets to use as mortgage for loans and this was the biggest obstacle.

In 2022, nearly 76 percent of enterprises said they had to borrow money from friends and relatives, compared to 51 percent in 2021. 

Particularly, 13 percent of enterprises had to seek loans via black credit at exorbitant interest rates, compared to 4 percent in 2021.

Lack of capital is the most serious problem facing enterprises. To help enterprises get loans more easily, it is necessary to remove two bottlenecks.

Land access

Among the mortgaged assets accepted by credit institutions, land and assets on land are the most common. If enterprises can more easily access land, they will have assets to mortgage when they want to get bank loans.

However, land access has become more difficult for private enterprises, especially since 2013.

The VCCI’s annual survey found that the proportion of private enterprises having land-use rights was highest in 2008, with 81.2 percent. The figure has decreased gradually, and now hovers around 40 percent. 

There appears to have been no improvement in land management in localities since 2013.

Not having land-use rights means that enterprises lack a type of asset that can be used to get capital. As enterprises cannot access credit, they won’t be able to expand business and miss new investment opportunities. 

This becomes a vicious circle which hinders the long-term development of small and medium enterprises (SMEs).

The Law on Supporting SMEs allows enterprises to enjoy many rights, including the right to access land. However, no one knows how many SMEs can enjoy the benefits as prescribed by the law. 

The problems that make it difficult for enterprises to access land include unreasonable land-use planning, which results in the lack of a "clean land bank"; lack of transparent data about land; complicated procedures; high prices of land; slow site clearance; and long periods needed to handle dossiers about land.

While private enterprises have to struggle to access land, FIEs are given priority to access production and business premises. This creates an unfair business environment for different economic sectors.

Property rights

Currently, Vietnamese law is not clear about the definition of property rights. This makes it difficult for individuals and legal entities to use property-related rights. For example, there are many types of property rights that have not been explicitly recognized, such as the right to rent real estate, the right to exploit minerals, the right to exploit natural resources, and the right to receive insurance money.

If property rights are well protected by law, people and businesses will always try to maximize advantages and functions of properties to achieve the highest possible productivity and efficiency. They can use assets as collaterals for loans or transfer to other people in order to carry out investment and business activities. 

By contrast, property rights, if not effectively protected, will limit people's opportunities and creativity in exploiting the value of assets.

Property rights are one of the important criteria when considering the business environment in every country. However, the property rights in Vietnam in nearly all rankings by international institutions is at a low level.

Tran Thuy