VIETNAM— Vietnam’s foreign trade volume has increased in recent years, with free-trade agreements opening up new market opportunities for local businesses.
However, lack of working capital and transaction banking services such as supply chain finance (SCF) partially hinders producers and suppliers from accepting large orders or developing new relationships with their value chain actors.
As a result, the share of receivables and inventory interests registered in the total number of security interest registrations in Vietnam is just about 30 percent, significantly lower than those in the more developed markets.
The International Finance Corporation (IFC) which is the largest global development institution focused on the private sector in emerging markets, has however dedicated itself to changing this narrative.
The member of the World Bank Group is helping improve the competitiveness of Vietnamese micro, small and medium enterprises (MSMEs) in the global supply chain by increasing access to supply chain finance solutions.
The IFC hopes that with increased access to financing, Vietnamese MSMEs will be able to grow their businesses, expand into new markets, and drive the country’s economy.
“In an export-oriented economy like Vietnam, availability of SCF products will help local producers and exporters enhance their linkages to global supply chains,” said Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia, and Lao PDR.
Financial services are one of the critical elements for improving the competitiveness of supply chains in Vietnam.
Without SCF solutions, IFC notes that suppliers and distributors are not able to optimize their working capital management by converting their sales receivables and inventories to cash and obtain lower-cost financing.
The financial institution further noted that not only do SCF services enable suppliers and distributors to increase their working capital, but also allow them to conduct more open-account transactions, making them more attractive to global buyers.
IFC, in partnership with the Swiss State Secretariat for Economic Affairs (SECO), is also implementing a multi-year advisory program to facilitate supply chain financing for Vietnamese MSMEs by improving the regulatory framework, sector infrastructure, capacities of SCF providers, and awareness of MSME suppliers.