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Nations Aim for Inclusive Trade; Vietnam Uses Small-Business Loans to Get There

Vietnam is encouraging banks to lend to small businesses, like this furniture store in Ho Chi Minh City. (VOA/Ha Nguyen)
Vietnam is encouraging banks to lend to small businesses, like this furniture store in Ho Chi Minh City. (VOA/Ha Nguyen)

When politicians try to win votes by blaming foreigners for stealing jobs, economists say they ignore technology, which is what is really replacing many of these jobs.

However the issue remains that many workers and small businesses do not benefit from foreign trade as much as corporations do, and that is something Vietnam hopes to fix.

Hanoi is trying to avoid the mistakes of the U.S., Britain, and other countries where lower income citizens felt left behind by global trade, and one part of its approach is to focus on small business loans. Vietnam hopes to make loans available to family businesses and other small businesses, which in many cases do not have the right connections or the expertise to get these loans.

Last week the State Bank of Vietnam cut interest rates in an effort to encourage banks to lend to the less advantaged. The central bank said short term loan rates for small and medium size businesses would decrease to 6% from 6.5%. This decreased rate also applies to other priority areas, such as agriculture, high tech businesses, and supporting industries.

That last category, which can include small businesses, is important because Vietnam hopes to get more domestic companies to supply to foreign ones. That would get them involved in foreign trade, thus spreading the benefits of trade more widely across the Southeast Asian nation.

“Local producers and suppliers urgently need efficient financing to support their trade cycles with global partners,” Julius Caesar Parrenas, who coordinates a financial forum under an Asia-Pacific Economic Cooperation business organization, said.

He added that there is a need to establish a finance ecosystem for “emerging markets like Vietnam, where trade is growing.”

Organizations like his should provide “government agencies with good insight to improve an effective regulatory framework for supply chain finance in Vietnam,” Ha Thu Giang, who is deputy director of the credit policies for economic sectors department at the State Bank of Vietnam, said.

The government is also working with donor agencies to increase accessibility of loans. It worked with the U.S. Agency for International Development in Hanoi, for instance, to have a guide published this year that helps small businesses find sources of financing.

Advocates say financing is needed because small business sometimes do not have the capital needed to expand, or to tide them over so they can cover the cost of meeting large orders and wait for payment. However, critics caution that too much focus on financing is risky, and that small businesses are right to worry about taking on more debt than they can handle.

The private sector is interested in lending to Vietnam’s mom and pop businesses too. Validus Capital is a peer-to-business lending platform based in Singapore that expanded to Indonesia and Vietnam this year.

“We want to provide growing SMEs [small and medium enterprises] faster access to zero-collateral financing," Vikas Nahata, who is co-founder and executive chairman of Validus Capital, said.

A lot of nations say they want "inclusive trade" so that less advantaged people do not feel left out of the benefits of globalization. For Vietnam, small business loans are one way to get there.