Project Title

Upgrading MSMEs' Access to Finance in a Digital Age 

Project Year

2017   

Project Number

SME 06 2017A 

Project Session

Session 1   

Project Type

Standard 

Project Status

Project in Implementation   
View Budget TableView Budget Table
|
PrintPrint

Project No.

SME 06 2017A 

Project Title

Upgrading MSMEs' Access to Finance in a Digital Age 

Project Status

Project in Implementation 

Publication (if any)

 

Fund Account

APEC Support Fund 

Sub-fund

ASF: Micro, Small and Medium Enterprises (MSME) 

Project Year

2017 

Project Session

Session 1 

APEC Funding

120,000 

Co-funding Amount

60,000 

Total Project Value

180,000 

Sponsoring Forum

Small and Medium Enterprises Working Group (SMEWG) 

Topics

Small and Medium Enterprises 

Committee

SOM Steering Committee on Economic and Technical Cooperation (SCE) 

Other Fora Involved

 

Other Non-APEC Stakeholders Involved

 

Proposing Economy(ies)

Viet Nam 

Co-Sponsoring Economies

Indonesia; Japan; Malaysia; Philippines; Russia; Chinese Taipei 

Expected Start Date

01/08/2017 

Expected Completion Date

31/12/2018 

Project Proponent Name 1

Nguyen Thanh Le 

Job Title 1

Head of International Cooperation Division 

Organization 1

Agency for Enterprise Development, Ministry of Planning and Investment 

Postal Address 1

6b Hoang Dieu Street, Ha Noi, Viet Nam 

Telephone 1

84-8043231 

Fax 1

Not Applicable 

Email 1

nguyenthanhle@gmail.com 

Project Proponent Name 2

Not Applicable 

Job Title 2

Not Applicable 

Organization 2

Not Applicable 

Postal Address 2

Not Applicable 

Telephone 2

Not Applicable 

Fax 2

Not Applicable 

Email 2

Not Applicable 

Declaration

Nguyen Thanh Le 

Project Summary

There are several factors contributing to MSMEs’ lack of access to finance. One is the inadequate legal and institutional infrastructure to support risk-based lending against a broader range of collateral and using non-traditional data. Another is the evolution of capital, liquidity, customer due diligence and similar rules that create disincentives for lenders to cater to MSMEs. Others include the lack of enabling environments for equity-based financing of small innovative enterprises and the lack of access of vulnerable micro- and small enterprises to risk management tools including insurance. There are great potentials for technological and financial innovations to upgrade MSMEs’ access to funding, but inadequate understanding of their implications on the stability, integrity and fairness of financial systems constrain many policy makers from harnessing them. 

This project is designed to promote a better understanding and cross-economy exchange of the latest digital innovations and financial infrastructure reforms in support of MSME finance through seminars, conferences and a final report.

Relevance

Micro, small and medium enterprises (MSMEs) are the engines of growth and innovation in the APEC region. MSMEs account for over 97 percent of all enterprises and employ over half of the workforce across APEC economies. MSMEs contribute significantly to economic growth, with MSMEs' share of GDP ranging from 20 percent to 50 percent in most APEC economies. 

Many of SMEs are involved in international trade – either through their participation in overseas markets or by selling services to foreign firms within their domestic markets. However, financing is still one of the most significant barriers to growth and internationalization of SMEs. The World Bank Enterprises Survey 2015 report indicated that 57% of formal SMEs do not have access to loans from formal financial institutions. If informal SMEs and microenterprises are included, the ratio will be higher, reaching approximately 65%-72%. 

This project is designed to strengthen the understanding and cross-economy exchanges among the policy-makers and practitioners about the latest digital innovations and financial infrastructure reforms in the space of MSME finance. Activities will be done in collaboration with the APEC Financial Infrastructure Development Network (FIDN). As a key initiative under the Cebu Action Plan (CAP), FIDN was formally launched on November 12, 2015. The 2015 APEC Finance Ministers Meeting recognized that FIDN seeks to promote the development of effective credit information systems, secured transactions and insolvency frameworks that would provide a better foundation to enable financial institutions to support MSMEs. Further, the 2015 APEC Economic Leaders Meeting welcomed the establishment of FIDN under CAP, recognizing the importance of MSMEs’ access to finance as a key enabler for MSME growth, internationalization and productivity improvement. 

The project will support SME Development, including access to regional and global markets. Without financing, SMEs will not be able to grow into bigger enterprises. According to the Asian Development Bank (ADB), the various levels of development include: (1) seed; (2) start-up; (3) early; (4) expansion; (5) steadily growing; and (6) mature. Even when an SME is mature and has secured a large contract, it needs bridge financing to scale up production (e.g., secure manufacturing inputs, increase the number of workers and associated salary costs, shipping costs, etc.). There is never a phase in an SME’s growth trajectory that does not require financial support. 

Improving financial infrastructure addresses the key constraint to access to credit, particularly for smaller firms and farms. Firm-level surveys conducted by the World Bank in developing economies show that a credit applications by MSMEs are rejected mostly due to insufficient collateral, i.e. unacceptable or unsuitable collateral. In other cases, business owners did not even bother applying for loans because they were certain that they could not meet the collateral requirements requested by banks. An in-depth analysis indicates that unavailability of collateral is frequently not the problem. These MSMEs almost always have assets. However, they cannot use these valuable assets as collateral. While in the developing world 78 percent of the capital stock of a business enterprise is typically in movable assets ("movables") such as machinery, equipment or receivables and only 22 percent is in immovable property, financial institutions are reluctant to accept movable assets as collateral. However, the use of financial infrastructure system (including credit information and secured transactions) as an underwriting and risk reduction strategy is effective only if the secured creditor can conveniently assess their clients’ creditworthiness and cheaply take movables as security, and has the legal right and practical capacity to appropriate the value of collateral to satisfy the outstanding obligations. In many emerging market economies including Vietnam, this legal framework remains insufficient or is weak; and there is inadequate awareness amongst financial institutions regarding the commercial potential of secured transactions.

Objectives

The main objectives of the project are as follows: 

-  To provide a platform for open dialogue between the public and the private sectors on the current state-of-play as well as opportunities and challenges of access to financial services by MSMEs in Vietnam and the region;

-  To promote modern secured transactions including movables secured finance and an advanced credit reporting system;

-  To provide an opportunity for networking among MSMEs experts from the public and the private sectors;

-  To link the extensive work that the APFF has completed on SME financing, and the numerous financial institutions that are members of the APFF with SMEs (including particularly those owned by women entrepreneurs) seeking financing; and

-  To advocate digital financing platforms which are the fundamental to help lending institutions reduce credit risks thus increasing access to finance by MSMEs.

Alignment

In the 2016 APEC Economic Leaders’ Declaration, it is said “We commend ABAC for its contributions in 2016 for the implementation of the CAP, including the activities undertaken in the Asia-Pacific Financial Forum (APFF) and the Asia-Pacific Forum on Financial Inclusion. We welcome ABAC’s report and recommendations on access to finance.”. In addition, APEC Leaders also reiterated “the focus work on the promotion of a digital ecosystem for financial services, the development of financing mechanisms for micro, small and medium enterprises (MSMEs)” 

This project will help to implement Leaders’ instructions as it will contribute to increase access to financial services for further development of MSMEs through public-private dialogues, dissemination/promotion workshops and conferences on the development of the digital eco-system for financial services. 

The project is aligned with the APEC 2017 theme “CREATING NEW DYNAMISM, FOSTERING A SHARED FUTURE”.  Fostering SMEs’ participation in regional and global markets is very crucial for the development of the region in general and of each APEC Economy in particular. 

SMEs account for approximately 97 percent of business in the APEC region but account for only 35 percent or less of direct exports, excluding their participation in global value chains where financing is a significant challenge even when a contract is secured. The APFF has also analysed supply chain financing and has important information to share on factoring; finance mechanisms when an SME has secured a contract but has to manufacture and ship the product prior to payment. Therefore, with the objective of the project, we will advocate digital eco-system for financial services including e-financing platforms and cross-border credit information exchange.

TILF/ASF Justification

The project will cover two aspects of financial infrastructure, including:

-  Credit Reporting: Credit bureaus are essential to reduce information asymmetry and transaction cost, which facilitate lending to a significant share of the population. Credit bureaus collect information on a borrower's credit history from various sources including financial institutions, non-bank lenders, telecoms, courts and other sources. The information is then merged and analyzed to form a comprehensive credit history record for each borrower and is sold to lenders in the form of credit reports, credit scores and other value-added services. In many emerging market economies including Vietnam, agencies that compile and distribute credit and personal information to creditors are underdeveloped or non-existent. Yet, research has shown that credit bureaus are critical to the expansion of credit for both individuals and small businesses, since access to credit information is needed when applying modern financial technologies to credit decisions for these market segments. As microfinance expands in many economies in the region, improving credit information, and expanding access to credit information to MFIs and other non-bank financial institutions, will be essential for reducing the risk of over-indebtedness. Credit bureaus support the retail and micro-lending business by providing organized information on the credit worthiness of individual customers or small businesses. 

-  Secured Transactions, including movables finance: Movables Financing often involves a cultural change for the lenders. By evaluating and monitoring the movables security, lenders obtain a lot of information about the borrower and the borrower's operations. Similarly, by linking the amount of outstanding loans to the debtor's borrowing base, a borrower is incentivized to expand its operations and its operating assets, which help to generate cash to repay the loan. Such "information" and "incentives" give lenders the necessary confidence to lend to the seemly more risky MSMEs. It is normally not the collateral per se which enables lending to MSMEs; it is the associated information and incentives which make a difference. To build up a movables lending industry in APEC Economies, extensive training, knowledge dissemination and targeted assistance to the pilot lending institutions will be required in addition to the legal and regulatory reforms. 

This project tends to promote a modern financial infrastructure to the lending industry and to borrowers. At a deeper level, extensive knowledge will be transferred to lenders to facilitate their making appropriate use of credit data in MSME lending and structuring efficient movables financing. 

Incorporation of data into underwriting and monitoring processes and rolling-out movables-based lending often involves a cultural change on the part of lenders. For example, a good lender needs to think what a flow of movables information reveals about the business of a borrower, instead of the change in value of the collateral. Hence, the dissemination activities are critical to ensure that lenders get the best out of financial infrastructure development, ultimately benefiting a large number of MSME clients. 

The Project will also support peer-to-peer knowledge transfer and experience sharing in: 

-  How to develop a solid financial infrastructure which enables lenders to make faster and more accurate credit decisions, thereby lowering their default rates and increasing their credit lending volumes.

-  The extensive work that the APFF has completed on SME financing, and the numerous financial institutions that are members of the APFF with SMEs (including particularly those owned by women entrepreneurs) seeking financing; and

- Digital financing platforms which are the fundamental to help lending institutions reduce credit risks thus increasing access to finance by MSMEs.

Beneficiaries and Outputs

Outputs: The project aims to organize workshops/conferences on financial infrastructure development to share knowledge and experience among APEC economies and developed economies. 

The following indicators will be used to assess the success of the project: 

-  Al least 4 workshops/conferences to be organized

-  700 relevant participants in events (including representatives from public and private sectors

-  350 female participants in events

-  600 satisfied feedbacks collected through evaluation forms from participants of events

-  16 qualified and experienced speakers joining events – The quality of speakers will be assessed through comments provided by participants through evaluation forms.

-  A summary report under the proposed APEC funded activities will be prepared in English 

Outcomes:  The Project expects to have the following outcomes: 

-  The development level of financial infrastructure system of Vietnam including secured transactions, credit reporting and insolvency systems;

-   The increase of lending portfolio secured by movables – This number will be assessed by the number of new registrations recorded in the secured transactions registration system and by reports from banks who will be speakers of events;

-  The high quality of events’ material and publications will be widely distributed in the market; and

-   Relevant and influenced reform steps and business practices adopted or planned to be adopted by the government agencies and market players in the relevant APEC economies.

Beneficiaries: Access to Credit still is the great constraint to the development of micro businesses and SMEs. To facilitate better access to credit for MSMEs, Vietnam Government might consider to develop movables finance market. International experience shows that among total of outstandingly loans, about 80% are secured loans. Among this 80%, there are about 80% is secured loans involving movable collateral. And among 80% of secured loans involving movables collateral, about 80% of loans secured by inventory and accounts receivable. While SMEs do not always have real estates to mortgage at banks, their great available assets are movables. Having said that, movables finance provided by banks will benefit MSMEs significantly. 

Commercial Banks in Vietnam, now are relying on real estates which do not have high liquidity. They do not have enough resource and incentive to diversify their products. Understanding well about modern secured financing will help them to change mind set of traditional lending to move toward innovative lending. 

To further develop movables finance market in Vietnam, the project will involve both public and private sectors, regulators and market players, suppliers and end-users during discussion. While implementing the project, the team will leverage national and international expertise from APEC economies, international organizations such as ABAC, OECD, WBG, UNCITRAL, UNIDROIT, HCCH, etc. In addition, the project will also advocate for digital financing platform and other supporting industries (i.e collateral management industry) which do not exist in Viet Nam. 

The Project will bring together: policy-makers/regulators/practitioners of APEC economies, experts from international organizations such as ABAC, IFC/WBG, OECD, UNCITRAL, UNIDROIT, HCCH, etc. to disseminate and advocate digital ecosystem for financial services. 

The direct beneficiaries of the project are MSMEs, as they are the segment having difficulties to access financial services. Public sector representatives from the relevant APEC Economies can also benefit from understanding the opportunities and challenges of upgrading financial services for MSMEs in a digital age. 

The Project also will arrange business associations such as Vietnam Banks’ Association, SMEs Association and others to coordinate with each other for better understandings of SMEs’ needs, including lender-borrower dialogues. 

In addition, financial services providers from across the Region will benefit from the project through the events, final report and the interactions with the more advanced APFF members. 

The Project does not have a focus on gender issues but during project implementation, we will get involvement of women individual, and women business as much as possible. Among the participants of the workshops/conferences/dialogues, we will ensure the number of female will reach at least 50%.

Dissemination

The project material including events’ material, articles on digital ecosystem for financial infrastructure, electronic report/book on the modern secured transactions will be distributed to all participants and posted into the website of APEC events for APEC economies public access. 

The project tends to develop a book on secured transactions in English to describe fundamentals of secured financing mechanism including secured transactions creation, attachment, perfection, priority rules and enforcement. This book will provide analysis of international best practices in secured transactions based on UNCITRAL Model Law and UCC-9. This book will be in English, and in the form of electronic book. It will be published on the APEC Publications Database for access by all APEC Economies and can be used as a reference document for regulators, judges, researchers, lecturers, bankers and student as young generation of bankers/regulators. We expect that knowledge on the modern secured transactions will be spread our as wide as possible.  While developing the book, the project will refer APEC IP, Publications and Logo Guidelines to ensure the compliance. 

Since project will focus on dissemination and advocacy work, no outputs will be arisen for sale.

Gender

As mentioned in the Section 7 on Beneficiaries, the project does not have a focus on gender specifically. However, the project team is aware of gender priority as a recent trend. Having said that, while implementing the project, the team will involve women individuals and businesses in every dialogues, workshops and conferences. 

The Project team will leverage their networking with Vietnam SMEs’ Association, Vietnam Banks , Vietnam Women Union, Vietnam Women Entrepreneurs Council to invite women entrepreneurs or business women to join every event of the project. 

We expect that among events participants, at least 50% of them will be female. 

In Viet Nam, the credit reporting and secured transactions registration systems are in place. Under credit reporting system, there is no statistic on women borrowers but in the secured transactions system, the project team will work closely with the National Registration Agency for Secured Transactions to track the ratio of gender access to credit. The Project will make a report on the ratio frequently.

Work Plan

The Project is aiming to have the following activities with very specific milestones: 

a. September 11, 2017: SME Finance Forum with a focus on digital finance platforms in Ho Chi Minh City. 

This event will be jointly organized by Department of Enterprise Development, Ministry of Planning and Investment, ABAC, and IFC. 

We expect the participants of the Forum will be from Vietnam other APEC Economies. 

The Forum will promote digital finance platform which will be a tool to connect lenders and borrowers for sustainable growth. 

The following milestones are identified: 

-  Mid-August, 2017: Agenda to be finalized
-  Mid-August 2017: Invitation letters to be sent out
-  Late-August, 2017: Contracts for events to be signed
-  Late-August, 2017: Finalize event materials
-  September 9, 2017: Check logistics for event
-  September 11, 2017: Event to be organized

b. May 2018: Fifth FIDN Conference 

This conference will focus on new style SME lending supported by data, participated by other APEC Economies. 

The co-host of event will be identified later. However, IFC, ABAC and State Bank of Vietnam are potential partners. 

The following milestones are identified: 

-  Early-March: Identified dates for event
-  Mid-March 2018: Agenda to be finalized
-  Mid-March 2018: Invitation letters to be sent out
-  Late-March 2018: Contracts for events to be signed
-  Mid-March 2018: Finalize event materials
-  May 2018: Check logistics for event
-  May 2018 (exact dates to be confirmed): Event to be organized

c. August 2018: Workshop on digital supply chain finance platform 

It will be annual forum on supply chain finance with a focus on digital supply chain finance platform. 

We expect to jointly with SBV, IFC and ABAC to organize the event. 

Participants of the event will be from Vietnam and other APEC Economy representatives. 

The following milestones are identified: 

-  Early-April: Identified dates for event
-  Mid-June 2018: Agenda to be finalized
-  Mid-June 2018: Invitation letters to be sent out
-  Mid-July 2018: Contracts for events to be signed
-  Mid-July 2018: Finalize event materials
-  August 2018: Check logistics for event
-  August 2018 (exact dates to be confirmed): Event to be organized 

d. October – November 2018: A workshop - topic to be defined with relate to Financial Infrastructure

e. Late 2018: A summary report under the proposed APEC funded activities will be prepared in English

Risks

While developing the project, we found no major risks might happen since we will work closely with IFC and ABAC to leverage their resources. 

However, a low risk might arise, relating to the lack of Viet Nam’s government commitment and/or resources to carry out the activities. 

This low risk may affect on project implementation. Without fully support from the Government, project implementation will be difficult and the impact will be limited.

To mitigate the risk, we have discussed with relevant authorities and found that they all have strong interest to work with us on the project. We will conduct regular dialogues with the authorities and work closely with ABAC and IFC’s expertise during the project implementation.

Additionally, thee is a medium risk of funding. APEC fund might be not available for the first activity in July 2017.  To mitigate the risk and to ensure the proper implementation of the activity, we will mobilize other funding sources (i.e. from IFC). If we have fund from APEC after July 5, 2017, we will save money for additional activities in 2018 to ensure the project outputs.

Monitoring and Evaluation

The project will be evaluated through satisfactory level of participants. We will collect feedbacks from all participants after each event then consolidate their feedbacks for further analysis. 

We will also work closely with ABAC and IFC to invite qualified and high reputational expertise in several economies for the events. 

After each event, we will consolidate the list of participants to have statistics on gender. 

By the end of the project, we worked closely with our speakers and specific Vietnam’s banks to have their reports on level of development using modern ecosystem financial infrastructure.

Linkages

Project organizers will bring together: policy-makers/regulators/practitioners of APEC economies, experts from international and APEC organizations such as ABAC, FIDN, IFC, World Bank, ADB, UNCITRAL, industry associations, etc. to disseminate and advocate for upgrading MSME financial services with deeper financial infrastructure reforms and under digital context. 

Project organizers will also circulate draft agendas of major events to SMEWG, APFF, FIDN, etc. for comments and suggestions. On completion of the project, a final report with recommendations will be circulated to relevant APEC sub-fora (SMEWG, APFF) for reference. 

This Project is built on the successful of the third FIDN in Manila in December 2016. It will be very critical to follow to development trend of FIDN, thus supporting all APEC Economies to further develop their own financial infrastructure. The Project will not be duplicate with any other on-going APEC initiatives, since FIDN is leading by only ABAC but no other councils. 

APEC will be the best source of funds for this project since the project is mapping to Cebu Action Plan. In addition, this project will help to implement Leaders’ instructions as it will contribute to increase access to financial services for further development of MSMEs through public-private dialogues, dissemination/promotion workshops and conferences on the development of the digital eco-system for financial services. 

The Project will consult with ABAC on lessons learnt from previous SMEs Financing Project. Under the coordination with ABAC in this matter, the project team might contact other APEC Economies (i.e. Philippines) to discuss on their experience in implementing SME Financing Project, to learn more about their challenges, and their approaches to overcome identified challenges.

Sustainability

Financial infrastructure development usually is led by government institutions. Government agencies often are wary about private sector participation in market-level infrastructure reforms, due to data privacy, consumer protection and other legitimate concerns. This is especially true in larger economies in the region, such as Indonesia, Vietnam and China. Yet, Global experience shows that the greatest progress in increasing access to finance through Financial Market Infrastructure reform occurs through public-private partnerships. With knowledge workshops, stakeholder consultations and promotion conferences will help to increase knowledge for all APEC Economies. Knowledge transfer and experience sharing will support APEC Economies to have better directions for their reforms. Therefore, the impacts of the project will be increasing. 

The Project will have a summary completion report on the project achievements. To measure the project outcomes and impacts, we will track and report annually to SMEWG the number of relevant and influenced reform steps and business practices adopted or planned to be adopted by the government agencies and market players in the relevant APEC economies. 

After each workshop, a brief report which includes discussion during the workshop and follow-up activities. Agency for Enterprise Development (Ministry of Planning and Investment) considers the reports and recommendations of project as important inputs for implementing the recently adopted SME Law in Viet Nam. 

From Ministry of Planning and Investment side, we will keep the SMEWG informed about the project progress and achievements. Since the project will last till December FIDN Conference in 2018.

Project Overseers

Agency for Enterprise Development, Ministry of Planning and Investment will manage the project.

Contact details: 

Name:  Nguyen Thanh Le
Title:  Head of International Cooperation Division
Organization:  Agency for Enterprise Development, Ministry of Planning and Investment Viet Nam

Postal address:  6b Hoang Dieu Street, Hanoi, Vietnam

Tel: 848043231
E-mail:  nguyenthanhle@gmail.com

Cost Efficiency

Not Applicable.

Drawdown Timetable

Not Applicable.

Direct Labour

Not Applicable.

Waivers

Not Applicable.

Are there any supporting document attached?

No 
Attachments
Version: 2.0 
Created at 11/07/2017 16:55  by Lucy Phua 
Last modified at 11/07/2017 17:00  by Lucy Phua 
Version HistoryVersion History

Project No.

Project Title

Project Status

Publication (if any)

Fund Account

Sub-fund

Project Year

Project Session

APEC Funding

Co-funding Amount

Total Project Value

Sponsoring Forum

Topics

Committee

Other Fora Involved

Other Non-APEC Stakeholders Involved

Proposing Economy(ies)

Co-Sponsoring Economies

Expected Start Date

Expected Completion Date

Project Proponent Name 1

Job Title 1

Organization 1

Postal Address 1

Telephone 1

Fax 1

Email 1

Project Proponent Name 2

Job Title 2

Organization 2

Postal Address 2

Telephone 2

Fax 2

Email 2

Declaration

Project Summary

Relevance

Objectives

Alignment

TILF/ASF Justification

Beneficiaries and Outputs

Dissemination

Gender

Work Plan

Risks

Monitoring and Evaluation

Linkages

Sustainability

Project Overseers

Cost Efficiency

Drawdown Timetable

Direct Labour

Waivers

Are there any supporting document attached?

hdFldAdmin

Project Number

Previous Fora

Secretariat Comments

Reprogramming Notes

Consolidated QAF

Endorsement By Fora

PD Sign Off

Batch

Forum Priority

Committee Ranking Category

Committee Priority

PDM Priority

Priority Within Funding Category

Monitoring Report Received

Completion Report Received

PMU Field 1

PMU Field 2

PMU Field 3

On Behalf Of

Proposal Status

Originating Sub-Forum

Approval Status
Attachments
Content Type: Standard Proposal
Version:
Created at by
Last modified at by
Go Search