Hanoi, 14 June 2006 — The International Finance Corporation’s Mekong Private Sector Development Facility (IFC-MPDF) and the Ministry of Justice (MOJ) have signed an agreement that will improve access to finance for private companies in Vietnam. Through this agreement, IFC-MPDF, in cooperation with the World Bank Group’s Foreign Investment Advisory Services (FIAS), will provide the Ministry with technical assistance to improve the legal and institutional framework for financing movable assets. These assets include the equipment, inventories, and receivables of a business.
According to Adam Sack, General Manager of IFC-MDPF, banks in Vietnam rarely lend without collateral in the form of property. “The ability of companies to borrow in order to invest, and so create jobs, is limited by the amount of capital in their fixed assets. However, many businesses, particularly small and medium sized enterprises, have considerable capital invested in movable assets such as inventory or receivables. The current regulatory and institutional environment is not conducive to banks lending against these movable assets. This project will improve the regulation and the registry such that businesses can access additional sources of funds to finance their growth”.
To make lending based on moveable assets possible, the Ministry of Justice has requested IFC-MPDF’s assistance to review the legal and institutional framework for movable asset financing (also called secured transactions) and recommend how this can improved, based on international best practice.
These recommendations will then be provided to the Ministry of Justice which is currently drafting revised legislation, including the Decree on Secured Transactions and the Ordinance on the Registration of the Secured Transactions. IFC-MPDF will also undertake a financial sector survey in order to analyze the current lending environment in Vietnam and identify the technical, institutional and legal shortcomings of the current registry.
As part of this reform process, the Ministry of Justice is planning to upgrade its current registry for secured transactions from one that is paper-based to one located on the Internet. This will greatly speed up the time required for banks to check whether would-be borrowers have already obtained loans against their moveable assets. In line with best international practice, IFC-MPDF is going to advise the Ministry of Justice on possible options with regard to how the system should be designed and operated in order to achieve optimum efficiency.
To assure the best possible results from the work planned by IFC-MPDF, FIAS and the Ministry of Justice, they will collaborate in raising awareness and facilitating recommendations from major stakeholders, including banks. This will help stakeholders to understand the constraints of the current system and also solicit their ideas for reform.
Foreign Investment Advisory Service
The Foreign Investment Advisory Service (FIAS) of the World Bank Group advises developing country governments on how to attract and retain foreign direct investment (FDI) and maximize their impact on poverty reduction. FIAS specialists identify practices that impede productive FDI, they design plans of action that are financially and politically practical, and support their clients through all phases of transition and implementation.
