Credit guarantee funds set up to support small and medium enterprises have failed to attract funds and thus proved ineffective.

This was revealed by Nguyen Thi Bich Thuy, an official from the Ministry of Planning and Investment's Business Development Agency. She said credit guarantee funds had been established at provincial levels but most of the funds couldn't raise capital.

Because credit guarantee funds were non-profit organisations they failed to interest investors, Thuy said.

Charter capital required to establish a fund was at least 30 billion VND (150,000 USD) but local budgets were limited and even at provincial levels, guarantee funds had largely failed to get off the ground.

"Only three of the 11 funds established operate well," Thuy said.

Vietnam now has 524,200 enterprises, 97 percent of which are small and medium. Thuy said a development fund being set up to support small and medium business was expected to be approved by the Government this year.

Another reason the funds had failed to operate as hoped was the inappropriate categorisation of the businesses in the Government Decree 56, Sai Gon Trade and Production Development Corporation general director Tran Quoc Manh said.

Agro-forestry-seafood was an example. Small businesses were those having 10 to 200 employees and a charter capital of 20 billion VND (100,000 USD) or less; medium businesses had 20-100 billion VND (100,000 USD to 500,000 USD) and 200 to 300 employees.

"This is not practical because some enterprises in the wood sector have 500-700 employees, but they should be categorised as medium businesses due to their lack of management capabilities and capital," said Manh.

"Because their number of employees is over 300 they don't benefit from the government policy."

Manh recommended the decree be modified and Vietnam Association of Corporate Directors president Han Manh Tien agreed.

Tien said the decree's categorisation of businesses in terms of capital was appropriate at the time it was signed when the gold price was about 1,000 USD per tael.

However, the gold price had risen 50 percent and the VND/US dollar exchange rate had changed dramatically, Tien said, therefore, the capital categorisation was no longer suitable./.