Despite Accounting for 94% of Enterprises, 70% of MSMEs in Vietnam Struggle to Access Capital Solutions – Validus Vietnam CEO Shares at the Investor Conference 2024 by VinaCapital

*Note: This article is originally written in Vietnamese, to read the article in Vietnamese please click here.

On October 9, 2024, the Investor Conference 2024 organised by VinaCapital, brought together experts representing leading companies in finance, technology, and consumer goods manufacturing, including Validus, Quickom, Kido Group, and Vinh Hoan Corporation.

Additionally, Mr. Hoang Duc Trung, Head of VinaCapital Ventures, moderated a panel discussion on recent divestments alongside the CFO of Huize Holdings and the co-founder of Oxley Bridge Capital.

Mr. Dinh Van Binh, CEO of Validus Vietnam, participated as a key speaker at the Investor Conference. During his presentation, he shared in-depth insights into the current state and potential of the capital market for small and medium-sized enterprises (SMEs) in Vietnam, along with the challenges they face. He also outlined Validus’ vision and missions to support SMEs across Southeast Asia, helping them bridge the gap in accessing vital capital for growth and development, particularly in Vietnam.

Why do SMEs need more attention and support?

Kicking off his presentation, the CEO of Validus Vietnam explained why SMEs are a strategic and high-potential segment that the company has chosen to target with its products and services. According to World Bank data, SMEs account for 94% of enterprises in Vietnam and contribute over 40% of the national GDP. However, the capital market for SMEs in Vietnam still has an unmet funding gap of up to USD 24 billion. Commercial banks, with conservative strategies prioritizing financial safety, tend to focus on large corporations, which represent only 10% of the total value chain. This has left a vast untapped market for SMEs, with up to 70% still waiting to be served.

According to Mr. Binh, banking services for SMEs saw remarkable growth, reaching 16% annually between 2016 and 2019, and are expected to grow by more than 12% annually from 2019 to 2025. SME lending is projected to increase by around 13% annually over the same period. However, forecasts suggest that by 2025, approximately 70% of small and medium enterprises will still face difficulties accessing finance.

Discussing Validus’ motivation, Mr. Binh stated: “We believe SMEs are not only the backbone of the economy but also a key driver of innovation and creativity. By focusing on this segment, we are not only addressing the capital shortfall profitably but also contributing to the sustainable development of the broader economy.”

What’s causing the large capital access gap for SMEs?

Mr. Dinh Van Binh identified the main challenges that SMEs face in accessing capital from financial institutions. One of the biggest obstacles is the lack of collateral, as many SMEs do not possess enough fixed assets to secure loans. Other hurdles include the traditional and manual nature of most existing financing processes, as well as financial management and revenue reporting practices in many SMEs, which often do not meet the required standards of transparency and accuracy.

These issues not only impede the growth of SMEs but also negatively impact the broader economy, underscoring the need for more innovative, flexible, and efficient solutions to help small and medium-sized enterprises access capital more easily.

Mr. Binh emphasized, “SMEs often do not have sufficient collateral to meet loan requirements. This leads to 70% of small and medium enterprises still struggling to access finance, which not only hinders their development but also adversely affects the entire economy.”

What sets Validus apart in achieving success?

To address these challenges, Validus has developed a Hybrid model that uniquely blends technological innovation with creative financial strategies. According to Mr. Dinh Van Binh, Validus has invested in a digital lending platform, applying artificial intelligence (AI) in its underwriting processes. This enables the company to automate lending procedures, saving time and reducing risk.

Moreover, Validus emphasizes the importance of building partnerships with banks, collaborating with suppliers, supply chain partners, and e-commerce platforms to expand its comprehensive ecosystem and offer tailored financial products to SMEs.

To date, Validus has successfully disbursed over SGD 5 billion to more than 120,000 SMEs across Southeast Asia, affirming the company’s strong commitment to supporting small and medium-sized businesses in bridging the capital access gap necessary for growth and development.

He affirmed, “We will continue to scale and provide financial solutions tailored to each business’s needs, helping them overcome challenges and grow sustainably.”

While capital access remains a significant challenge, the evolving market and the growth of the digital economy present numerous opportunities for SMEs in Vietnam. Mr. Binh emphasized that to meet the needs of these businesses, Validus must continuously optimise its model and business strategy, leveraging technology to improve risk assessment capabilities and make fast, accurate decisions tailored to the specific requirements of SMEs.