smes access to finance

SMEs Access to Finance

Food Processing - Wooden Products Manufacturing -

June 2015

Food Processing - Wooden Products Manufacturing -Textile and Garment Manufacturing

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.

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 & Garments39%

38%

Wooden Manufacturing

3

4

Working Capital Financing

Enterpises rely on four main sources of finance as working capital.

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

Experience of using external

finance (formal)

Nearly haft of enterpisessurveyed seek for external finance with very little obstacles.

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.

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

TotalTextile and garment

manufacturingWooden products

manufacturing

29%

37%

0%

0%

State Commercial Banks

Joint-stock commercial bank

100% foreign-invested bank

Joint venture bank

30%

27%

1%

0%




Joint venture bank

38%

29%

4%

0%




Joint venture bank

32%

31%

1%

0%




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

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%



0%

0%



14%

24%



Food processingTotalTextile and garment

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%








kickbacks

50%

0%

0%

0%

50%

0%

0%

0%








kickbacks

31%

7%

48%

7%

21%

0%

3%

14%








kickbacks

This information is intentionally left blank, please contact us for more details

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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




business plan

0%

0%

0%

0%

50%

Other




business plan

17%

45%

14%

3%

31%

Other




business plan

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?

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Experience of using external

finance (informal)

More than one third of enterpises surveyed seek for informal external finance.

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


12%

34%

Pawnshop

Personal connections (family/relatives/friends)

7%Pawnshop


6%Pawnshop


9%

32%

Pawnshop


26% 35%

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Q. F8.1: Your company apply for informal external finance from Whom?

0%Other2%Other2%Other1%Other

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

credit14%Couldn's get a formal credit

Food processing


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%


Easier fomalities


credit

50%

57%

29%


Easier fomalities


42%

61%

28%


Easier fomarlities


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

Most of informal loans required neither collaterals nor guarantors

Some loans required Some loans required Some loans required Some loans required

Food processing


manufacturingWooden 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%



Some loans required collaterals and some loans

required guarantors

7%

21%

0%





11%

13%

7%





14

Q. F11 Did your finance need collateral or guarantors?

71%Loans required neither

collaterals nor guarantors67%Loans required neither

collaterals nor guarantors71%Loans required neither

collaterals nor guarantors69%

Loans required neither collaterals nor guarantors

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


16

Future Financing

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

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

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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?

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smes access to finance

Small Business & Entrepreneurship