Vietnamese Green Growth Strategy: Promoting SME Growth
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Transcript of Vietnamese Green Growth Strategy: Promoting SME Growth
Vietnamese Green Growth Strategy:Promoting SME Growth
Dr. Jason KasselLecturer, RMIT University Vietnam (Hanoi)
Centre of Commerce & Management
Vietnam National Green Growth StrategyLaunched in 2012
Action Plan launched in 2014
Three focal points:
Low carbon growth
Greening of production
Greening of lifestyles
Directive 03/CT-NHNN
March 2015, the State Bank of Vietnam (SBV) enacted the Directive No. 03/CT-NHNN “On Promoting Green Credit Growth and Environmental-Social Risks Management in Credit Granting Activities”
Encourages credit institutions to
Actively develop green credit programmes
Implement management systems for environmental and social risks in credit granting activities
None of the stipulations made in Directive No. 3 are mandatory
Green Finance
From the financial institutions’ perspectives comprises financial products and services that
1. Promote environmentally responsible investments
2. Stimulate low-carbon technologies, projects, industries and businesses
Green finance products financial institutions usually consider environmental factors in their internal procedures, e.g. loan sanctioning, monitoring or risk assessment
Green finance covers not only investment costs but also operational costs such as production preparation or land acquisition costs for green projects
Sustainable Production and Consumption (SCP)
Aspects of SCP most relevant for SMEs are:
1. Reduction of energy and material intensity of goods and services production
2. Reduction of waste and emissions from raw material extraction, production, consumption, and disposal
3. Application of life-cycle thinking in all stages of product life
The Vietnam Environmental Protection Fund (VEPF)The VEPF was established in 2002; since then it has spent VND 1 trillion (EUR
41.2 million) for over 180 projects in various sectors
Supports conservation and pollution control projects - soft loans and interest rate support
Eligible projects - waste management, emissions reduction, nature conservation and biodiversity protection, etc.
Loans given at an interest rate of around 5% (in 2015 the VEPF announced that it would further reduce interest rates to 3.6%)
Loans can cover up to 70% of a project’s investment costs
Other VN Government Sources
National Foundation for Science and Technology Development (NAFOSTED) provides interest-free or low interest loans as well as loans guarantees for SMEs
Vietnam Green Growth Strategy Facility channels funding to green investments projects (MPI and Belgium Government)
National Technology Innovation Fund (NATIF) - Promotes SME access to finance for technology innovation, preferential loans and loan guarantees for technology research, transfer, innovation and improvement in SMEs and start-ups.
German Agency for International Cooperation
German Agency for International Cooperation (GIZ) is cooperating with Vietnamese public and private stakeholders to develop a green credit policy
In preparation of the policy, a pilot programme is being developed for green financing of SMEs focusing on waste management, organic agriculture and renewable energy management.
Piloting of the green finance approach will be completed by the end of 2017.
The green financing policy will be based on the results of the pilot phase.
Green Investment Facility (GIF) Supported by the Danish Government
Aims at promoting the uptake of energy efficiency measures by SMEs in the brick, ceramic and food processing sectors
Offers loan guarantees and grants for SMEs with fewer than 300 employees that invest in energy efficiency measures
In order to be eligible for funding
Reduce the company’s energy consumption or greenhouse gas emissions by at least 20%.
The investment sum has to be between VND 400 million and 4 billion
GIF can guarantee 50% of the value of a loan
If the savings achieved through the investment exceed 20%, the SME will receive a grant covering between 10 and 30% of the borrowed amount depending on the savings achieved
Vietnam Green Credit Trust Fund (VGCTF)Supports medium- and longterm investments of Vietnamese SMEs in cleaner
production technology
Financed by the Swiss Secretariat for Economic Affairs and coordinated by the Vietnam Cleaner Production Centre
VGCTF cooperates with three commercial banks - Techcombank, Asia Commercial Bank, Vietnam International Bank
Provides loan guarantees and performance-based grants
VGCTF guarantees 50% of the capital borrowed by SMEs if loan amount is in the range of EUR 9,000 – 942,000
Qualifying projects relate to climate change mitigation and adaptation, energy efficiency, fuel switching, low-carbon development, water efficiency and technology change
Vietnam Inclusive Innovation ProjectFunded through a EUR 51.8 million loan by the World Bank’s International
Development Agency (IDA)
Targeted at promoting inclusive innovations
SMEs will be given loans and/or grants for
1) upgrading, scaling up and commercialisation of inclusive technologies
2) acquisition, adoption and use of modern technology
Vietcombank and Vietinbank have been selected to channel loans of up to EUR 471,000 to eligible SMEs
Borrowers have to pay at least 20% of the project cost using their own capital resources
Matching grants are to be provided through National Foundation for Science and Technology Development (NAFOSTED)
Demand-Side Barriers
Complex and resource-intensive application procedures prevent SMEs from accessing financing sources
SMEs lack status and adequate documents to produce convincing funding proposals
SMEs do not create enough demand for green finance due to a lack of
1) pressure from government and customers
2) awareness on investment potentials and funding sources
Supply-Side Barriers
As banks are risk averse and classify SMEs as risky customers, they are generally hesitant to provide SMEs with financing
Financial institutions offer unattractive loan conditions
The sanctioning process of financial applications often takes too long
Lack of continuity of donor-financed programs
High transaction costs for establishing business relations and trust make SMEs and green investments less profitable and attractive for financial institutions
Lack of knowledge on green investment concept and green technologies makes financial institutions hesitant to make more green finance available for SMEs
Directive No 3 and Next Steps
The only dedicated push for green finance by the government has been the Directive No. 3
With the Green Growth Strategy government has made clear that green topics matter
With the further development of the financial sector in Vietnam, green issues should be considered in more of the government programmes that relate to SME financing
The effect of the Directive No. 3 on the green financing landscape remains to be seen.
Necessary to make the Directive’s provisions mandatory.