Circular No. 42/2002/TT-BTC guiding certain points of the regulations on the establishment and operation of credit guarantee funds for small and medium-sized enterprises issued together with Decision No. 193/2001/QD-TTg dated December 20, 2001 of the Government Prime Minister.

CIRCULAR

Guidelines on certain provisions regarding the establishment, organization, and operation of the Credit Guarantee Fund for Small and Medium Enterprises issued together with Decision No. 193/2001/QĐ-TTg dated December 20, 2001 of the Prime Minister

________________________

Implementing Decision No. 193/2001/QĐ-TTg dated December 20, 2001 of the Prime Minister on the issuance of the regulations on the establishment, organization, and operation of the Credit Guarantee Fund for Small and Medium Enterprises (hereinafter referred to as Decision No. 193/2001/QĐ-TTg), the Ministry of Finance provides guidance on the implementation of the following contents:

Chapter 1

ORGANIZATION AND MANAGEMENT OF THE CREDIT GUARANTEE FUND

1. Conditions for establishing the Credit Guarantee Fund

- Having a proposal for establishing the Credit Guarantee Fund that has been approved by the Chairman of the People's Committee of the province or centrally-run city. The content of the proposal must demonstrate the demand for credit guarantee from small and medium enterprises operating in the locality, and the organizational and operational plan of the Credit Guarantee Fund for the first three years is feasible.

- Having a minimum charter capital of VND 30 billion contributed by organizations and individuals both within and outside the country to establish the Fund, wherein the portion of the provincial or centrally-run city state budget contribution shall not exceed 30% of the minimum charter capital.

- Having a list of proposed members of the Management Board, Supervisory Board, and Executive Board who have full civil capacity, hold a bachelor's degree, and have at least five years of work experience in economic, financial, or banking fields.

- Having draft bylaws consistent with Article 6 of the regulations on the establishment, organization, and operation of the Credit Guarantee Fund issued together with Decision No. 193/2001/QĐ-TTg of the Prime Minister and other relevant laws.

2. Procedures for establishing the Credit Guarantee Fund

- Based on the demand for credit guarantees from small and medium enterprises in the locality, the Chairman of the People's Committee of the province or centrally-run city issues a decision to establish a preparatory board for the Credit Guarantee Fund (referred to as the preparatory board).

The preparatory board consists of representatives from the Department of Finance, the Department of Planning and Investment, the branch of the State Bank, and representatives of organizations supporting small and medium enterprises.

The preparatory board is responsible for assisting the Chairman of the People's Committee of the province or centrally-run city in researching, drafting the proposal for establishment, preparing conditions to be eligible for establishing the Credit Guarantee Fund, and submitting it to the Chairman of the People's Committee of the province or centrally-run city for consideration and decision.

The preparatory board will dissolve itself after the Chairman of the People's Committee of the province or centrally governed city issues a decision to establish the Credit Guarantee Fund.

- Based on the conditions for establishing the Credit Guarantee Fund, the Chairman of the People's Committee of the province or centrally-run city considers and decides to establish the Credit Guarantee Fund in the locality.

- Within five days from the date of issuing the decision to establish the Credit Guarantee Fund, the Chairman of the People's Committee of the province or centrally-run city is responsible for reporting to the Ministry of Finance about the establishment of the Credit Guarantee Fund in their locality. Attached are copies of related documents including:

+ Decision to establish the Credit Guarantee Fund.

+ Proposal for establishing the Credit Guarantee Fund that has been approved.

+ Related documents proving the fulfillment of conditions for establishing the Credit Guarantee Fund.

3. Conditions for conducting operations of the Credit Guarantee Fund

At the latest within six months from the date of receiving the decision to establish the Credit Guarantee Fund from the Chairman of the People's Committee of the province or centrally-run city, the Credit Guarantee Fund must commence operations. At least thirty days before commencing operations, the Credit Guarantee Fund must publish in newspapers or announce through local mass media for three consecutive times the decision to establish the Credit Guarantee Fund, its activities, scope of operations, and customer base.

4. Operation Management of the Credit Guarantee Fund

4.1. The operation management of the Credit Guarantee Fund's activities is entrusted to the Development Support Fund to implement according to the entrustment contract.

4.2. The Credit Guarantee Fund and the Development Support Fund must sign a service entrustment contract, which must include the entrusted tasks; duties and rights of each party; entrustment fees and payment methods; contract duration; information reporting system; dispute resolution, risk handling, and other terms.

- Entrustment fee:

The entrustment fee agreed upon by both parties shall not exceed the credit guarantee fee stipulated in Article 18 of Decision No. 193/2001/QĐ-TTg.

The amount of entrustment fee paid by the Credit Guarantee Fund to the Development Support Fund is determined based on the following formula:

4.3. Basic contents regarding the responsibilities and rights of the Credit Guarantee Fund and the Development Support Fund in the entrustment contract.

a) For the credit guarantee fund.

+ Establishing rules and procedures to guide the operational activities of the Credit Guarantee Fund to be transferred to the Development Support Fund as a basis for implementation.

+ Providing information on customer credit guarantee policies in each period for the Development Support Fund to consider accepting applications for credit guarantee.

+ Delegating the rights and obligations of the Credit Guarantee Fund in granting credit guarantees to customers as stipulated in Point 1 of Article 21 of Decision No. 193/2001/QĐ-TTg. Delegating the Development Support Fund to sign compulsory loan contracts, recover principal and interest from customers.

+ Paying the entrustment service fee to the Development Support Fund according to the entrustment contract.

+ Inspecting and supervising the Development Support Fund in implementing the rules and procedures of the Credit Guarantee Fund.

+ Transferring sufficient funds to the Development Support Fund to enable the Development Support Fund to fulfill the guarantee commitment after receiving notification from the Development Support Fund when the guarantee commitment needs to be fulfilled.

b) For the Development Support Fund.

The Development Support Fund is responsible for performing all credit guarantee business operations of the Credit Guarantee Fund in accordance with the State's policies, laws, and rules and procedures established by the Management Board of the Credit Guarantee Fund, including:

+ Receiving and reviewing applications according to the credit guarantee rules and procedures of the Credit Guarantee Fund to decide whether to grant or reject credit guarantees to customers.

+ Being able to exercise the rights and obligations of the Credit Guarantee Fund in granting credit guarantees to customers as stipulated in Point 1 of Article 21 of Decision No. 193/2001/QĐ-TTg.

+ Fulfill the guarantee commitment immediately upon receipt of funds from the Credit Guarantee Fund. When implementing the guarantee commitment for customers, the Development Support Fund requires the customer to accept mandatory loans with an interest rate equal to 130% of the loan interest rate under the credit contract signed with the financial institution. The Development Support Fund is responsible for recovering the principal and interest of the mandatory loans.

+ Report comprehensively on the operational management situation to the Credit Guarantee Fund periodically and at any time as required by the Credit Guarantee Fund. Specifically, regarding mandatory loans, the Development Support Fund is responsible for reporting monthly to the Credit Guarantee Fund on the financial status of the debtor, debt recovery status, and debt recovery potential.

+ Perform other tasks agreed upon between the Credit Guarantee Fund and the Development Support Fund.

+ Enjoy service fee for agency work according to the agreement with the Credit Guarantee Fund.

5. Credit Guarantee Contract

- The credit guarantee contract entrusted by the Credit Guarantee Fund to the Development Support Fund to negotiate and sign with the financial institution accepting the guarantee and the guaranteed customer shall include the following main contents:

+ Name and address of the Development Support Fund, the financial institution accepting the guarantee, and the guaranteed customer.

+ Purpose, object, and scope of the guarantee.

+ Total loan amount of the customer at the financial institution.

+ Total value of collateral and pledge assets at the financial institution.

+ Amount of guarantee, term of guarantee, guarantee fee, and method of collecting the guarantee fee.

+ Rights and obligations of the parties involved in the credit guarantee contract.

+ Provisions on debt acceptance and compensation after the Development Support Fund fulfills the guarantee commitment.

+ Resolution of disputes arising.

+ Other agreements.

- The credit guarantee contract may be amended, supplemented, or terminated if the relevant parties agree.

- The credit guarantee contract terminates in the following cases:

+ The guarantee obligation has been fully fulfilled by the Development Support Fund and the customer has fully fulfilled their obligations to the Development Support Fund.

+ The guarantee obligation terminates according to the provisions of the law.

+ The customer has fully fulfilled their obligations to the financial institution and to the Development Support Fund.

+ The term of the credit guarantee has expired as stipulated in the guarantee contract.

+ The financial institution agrees to terminate the guarantee according to the provisions of the law.

+ The guarantee is replaced by another form of collateral provided by the customer at the financial institution as agreed by the parties.

Chapter 2:

MANAGEMENT OF THE CREDIT GUARANTEE FUND

1. Provisions on the management of capital and assets of the Credit Guarantee Fund

1.1. The operating capital of the Credit Guarantee Fund is formed from the following sources:

a) Registered capital: Is the total capital contributed by organizations and individuals and recorded in the charter of the Credit Guarantee Fund. The registered capital of the Credit Guarantee Fund is formed from:

- Capital contribution from the provincial or centrally-administered municipal budget not exceeding 30% of the minimum registered capital. The Chairman of the Management Board and the Director of the Credit Guarantee Fund are the persons authorized to receive state budget capital.

- Capital contributions from financial institutions.

- Capital contributions from enterprises of all economic sectors.

- Capital contributions from industry associations, representative organizations, and support organizations for small and medium-sized enterprises.

b) Financial support from domestic and foreign organizations and individuals (including Official Development Assistance - ODA) for the purpose of developing small and medium-sized enterprises, cooperatives, and agricultural, forestry, and fisheries development programs.

c) Additional capital from the operating results of the Credit Guarantee Fund.

1.2. The operating capital of the Credit Guarantee Fund must be used for its intended purposes, effectively, safely, and for the following objectives:

- Provide credit guarantees to customers as prescribed.

- Invest in and purchase fixed assets to serve the operations of the Credit Guarantee Fund according to the principle that the remaining value of fixed assets does not exceed 7% of the registered capital of the Fund. All investment and procurement activities of fixed assets of the Credit Guarantee Fund must be carried out in accordance with the State's regulations on investment management and construction. Annually, the Credit Guarantee Fund must develop an investment and procurement plan for fixed assets to be reviewed and approved by the Management Board and implemented within the approved plan.

- Deposit at the National Treasury and domestic financial institutions located in the same province or centrally-administered municipality.

- Purchase government bonds.

- Fulfill the guarantee commitment of the Fund towards financial institutions when the customer cannot repay the debt or repay it incompletely to the financial institution.

1.3. Business reserve fund.

- The business reserve fund is established from costs equal to 50% of the credit guarantee fees collected from customers after deducting the service fee paid to the Development Support Fund. The business reserve fund is used for:

+ Mandatory lending to customers according to the Fund's guarantee commitment responsibility in case the customer cannot repay the debt or repay it overdue to the financial institution. The recovered principal and interest of the mandatory loans made by the Credit Guarantee Fund will be reimbursed into the business reserve fund.

+ Compensate for debts that have been lent to customers but not recovered. The financial treatment of mandatory loans that are unrecovered is carried out according to the regulations issued by the Management Board of the Fund.

- In case the business reserve fund is insufficient to provide mandatory loans to customers and compensate for unrecovered mandatory loans, the Credit Guarantee Fund can use its operating capital to fulfill the guarantee commitment on behalf of the customer.

1.4. The Credit Guarantee Fund implements the establishment of accounting books, tracking all current capital and assets; handling cases of damage, loss of assets; transferring, liquidating assets; inventory, valuation of assets in accordance with the laws applicable to state-owned enterprises and general laws.

2. Income of the Credit Guarantee Fund

The income of the Credit Guarantee Fund includes actual receipts in the year, including:

- Collect credit guarantee fees.

- Collect fees for reviewing applications for credit guarantees.

- Collect interest on deposits at the National Treasury and domestic financial institutions.

- Collect interest on government bond investments.

- Collect overdue loan interest (mandatory loans) from customers.

- Other income, including income from the transfer and liquidation of fixed assets.

All revenues of the Credit Guarantee Fund must be fully recorded in income and must have valid invoices and supporting documents.

3. Expenses of the Credit Guarantee Fund: Are the necessary actual expenditures for the operation of the Credit Guarantee Fund, with valid invoices and supporting documents. The level of expenditure and the objects of expenditure shall be implemented in accordance with the provisions of the law. In cases where the law has not provided for such provisions, the Credit Guarantee Fund shall base its financial capacity to establish standards, decide on expenditures, and bear responsibility under the law. All expenses must be within the annual financial plan approved by the Management Board, including:

3.1. Expenses for guarantee operations.

- Payment of service fees to the Development Support Fund according to the service agency contract between both parties.

- Establishment of a reserve fund.

- Other expenses arising during the process of providing credit guarantees to customers.

3.2. Expenditures for employees directly working at the Credit Guarantee Fund include:

- Wages, salaries, and other payments of a wage or salary nature.

- Allowances for members of the Management Board and Supervisory Board working part-time.

- Expenses for meal allowances, female employee expenses, labor protection, transaction uniforms, severance pay for employees as stipulated.

- Social insurance premiums, health insurance premiums, and union dues.

3.3. Expenses for administrative management activities:

- Purchase of office supplies: materials, printing paper, stationery.

- Postal and telecommunications charges.

- Water and electricity expenses, office sanitation, environmental protection, and office healthcare.

- Fuel expenses for the operation of the organization.

- Travel expenses for staff traveling domestically and internationally.

- Reception, external transactions, ceremonial events, conferences, publicity, and advertising expenses.

- Training, seminar, and scientific research expenses.

- Other management expenses.

3.4. Expenses related to assets.

- Depreciation expenses for fixed assets applied in accordance with state regulations for enterprises.

- Insurance premiums for assets, maintenance, repair, leasing, and purchase of labor tools.

- Expenses for the sale and liquidation of assets (including the remaining value of liquidated and sold assets).

3.5. Expenses for tax payments, fees, and levies.

3.6. Other reasonable and legitimate expenses.

4. Revenue and Expense Differential: The surplus or deficit of income and expenditure of the Credit Guarantee Fund in a year is determined as the difference between total income and total reasonable and legitimate expenses, and is handled as follows:

4.1. In the case where income exceeds expenses.

- Set aside 15% to supplement the operating capital of the Credit Guarantee Fund.

- Set aside 10% to form a financial reserve fund. The financial reserve fund is used to offset losses and damages to assets occurring during the operation of the Credit Guarantee Fund after being compensated by organizations and individuals causing the loss, insurance organizations, and business reserve funds.

- Set aside 30% to form a development investment fund. The development investment fund is used to expand the scale of operations and modernize equipment and working conditions of the Credit Guarantee Fund.

- Establish two reward and welfare funds up to three months' salary for the year.

The reward fund is used to periodically or unexpectedly reward employees working in the Credit Guarantee Fund; to reward individuals and organizations outside the Credit Guarantee Fund that have economic relations with the Credit Guarantee Fund and have effectively contributed to the activities of the Credit Guarantee Fund.

The welfare fund is used to invest in building, repairing, and maintaining welfare facilities of the Credit Guarantee Fund. Expenses for sports, cultural welfare activities for the collective of employees of the Credit Guarantee Fund. Assistance for regular and emergency difficulties for employees of the Credit Guarantee Fund.

- The remainder is used to distribute profits to organizations participating in the establishment of the Credit Guarantee Fund's capital.

4.2. In case of income less than expenses. The Credit Guarantee Fund may transfer the income deficit to the next year, with the transfer period not exceeding five years. After five years, if the income deficit is not fully transferred, the Credit Guarantee Fund shall report to the Chairman of the People's Committee of the province or centrally-administered city for consideration and decision on reducing operating capital, restructuring, or dissolving the Credit Guarantee Fund.

5. Tax Obligations of the Credit Guarantee Fund

The Credit Guarantee Fund is exempt from paying taxes and other national budget contributions for credit guarantee activities, including: VAT on credit guarantee activities, corporate income tax, and the use of local government budget capital contributions.

Other taxes, fees, and charges arising during the operation of the Credit Guarantee Fund shall be implemented in accordance with current laws.

6. Accounting System for the Credit Guarantee Fund

The accounting and tracking of guarantees issued by the Credit Guarantee Fund shall be carried out according to the accounting system issued by the Ministry of Finance.

Chapter 3

INFORMATION REPORTING AND AUDIT REGIME

1. For Customers

Customers are responsible for reporting to the Development Support Fund and being subject to periodic or random inspections by the Development Support Fund and the Credit Guarantee Fund regarding their operational situation related to guaranteed transactions. The content of the report and inspection procedures of the Credit Guarantee Fund are agreed upon by the parties and recorded in the Credit Guarantee Contract.

2. For the Credit Guarantee Fund

Reporting on the operational situation of the Credit Guarantee Fund to organizations and individuals contributing capital to the Fund shall be carried out in accordance with the Charter of the Fund.

- The Credit Guarantee Fund is responsible for compiling the situation of credit guarantee operations and overall operations to prepare and submit to the People's Committee of the province or centrally-administered city and the Ministry of Finance quarterly and annually the following reports:

+ A third-level account balance sheet, including off-balance-sheet accounts.

+ Financial statement explanations including several contents: Income - expenses; Changes in fixed assets; Changes and fluctuations in sources of capital and capital usage.

+ Situation of credit guarantees provided to customers.

+ Status of mandatory loan balances and recovery ability.

- Deadline for submitting reports: Quarterly reports must be submitted no later than 45 days after the end of the quarter. Annual reports must be submitted no later than 60 days after the end of the year.

- The Credit Guarantee Fund is subject to inspection and audit by the People's Committee of the province or centrally-administered city and the Ministry of Finance in accordance with current regulations.

3. For the Development Support Fund

The Development Support Fund shall regularly and promptly report to the Credit Guarantee Fund on the management and operation of the Credit Guarantee Fund according to Point 4 of Chapter I of this Circular.

Chapter 4

DISPUTES - LITIGATION - DISSOLUTION - LIQUIDATION

1. All disputes and litigation between the Credit Guarantee Fund and legal entities and individuals directly or indirectly related to the activities of the Credit Guarantee Fund shall be resolved in accordance with the current laws of the Socialist Republic of Vietnam.

2. The restructuring or dissolution of the Credit Guarantee Fund shall be carried out pursuant to the decision of the Chairman of the People's Committee of the province or centrally governed city and the current legal regulations applicable to enterprises.

Chapter 5

IMPLEMENTATION

1. The Chairman of the People's Committee of the province or centrally governed city, and the Chairman of the Management Board of the Credit Guarantee Fund shall be responsible for implementing the establishment, organization, and operational regulations of the Credit Guarantee Fund issued under Decision No. 193/2001/QĐ-TTg of the Prime Minister and the guidance content provided in this Circular.

Regularly and promptly, the Chairman of the People's Committee of the province or centrally governed city shall report to the Ministry of Finance on the results and operational situation of the Credit Guarantee Fund at the local level, and propose solutions to address difficulties in the operation of the Fund.

2. The Credit Guarantee Fund shall be responsible for issuing specific business guidance documents in accordance with Decision No. 193/QĐ-TTg of the Prime Minister and the guidance content provided in this Circular.

3. During the implementation process, the Ministry of Finance will inspect and supervise the establishment, organization, operation, and compliance with national legal regulations of Credit Guarantee Funds in provinces and centrally governed cities.

4. This Circular shall take effect fifteen days from the date of signature. Any issues encountered during implementation should be reported to the Ministry of Finance for review, supplementation, and amendment.