Vietnamese Green Growth Strategy: Promoting SME Growth

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Vietnamese Green Growth Strategy: Promoting SME Growth Dr. Jason Kassel Lecturer, RMIT University Vietnam (Hanoi) Centre of Commerce & Management

Transcript of Vietnamese Green Growth Strategy: Promoting SME Growth

Page 1: 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

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Vietnam National Green Growth StrategyLaunched in 2012

Action Plan launched in 2014

Three focal points:

Low carbon growth

Greening of production

Greening of lifestyles

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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

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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

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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

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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

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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.

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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.

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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

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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

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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)

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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

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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

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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.