Local investment funds provide long-term capital for businesses

Several provinces and cities are using local development investment funds to support businesses in borrowing medium- and long-term loans for infrastructure, technology, and social development projects.

With the increasing need for infrastructure expansion and production upgrades in many localities, access to capital with suitable terms and conditions has become a crucial factor for businesses. Besides commercial credit and the state budget, the local development investment fund is one of the supplementary capital channels being widely deployed.

Businesses need capital to expand production and business. Illustrative photo: Giang Huy

Fund operating mechanism

The local development investment fund is a non-profit state financial institution established by the provincial People's Committee (UBND). The fund has legal entity status, its own charter capital, operates independently of the budget, and has financial autonomy. The legal basis is Decree 147/2020/ND-CP, effective from 2/2021.

The fund is allowed to provide medium- and long-term loans, contribute capital, or receive entrustment to invest in projects belonging to the local socio-economic development portfolio. The maximum loan term is 15 years. Interest rates are flexible for each project, based on the principles of capital preservation and accumulation for development.

Businesses seeking access to capital need to submit project documents, demonstrate financial capacity, and provide a repayment plan. After appraisal, the fund will sign a contract and monitor the capital flow throughout the project implementation.

Deployment models

As of 30/6/2023, 42 units nationwide are operating this model, including 40 development investment funds, one state capital company (HFIC), and one dual-function land development fund. According to the Ministry of Finance, by the end of 2023, the total operating capital reached 42,623 billion VND; of which, 22,235 billion VND has been used for loans, investments, and capital contributions.

In addition, 28 funds are also assigned to manage extra-budgetary financial resources such as the Land Development Fund, the Environmental Protection Fund, the Science and Technology Fund, and the Credit Guarantee Fund, helping localities mobilize and allocate development resources effectively.

Recently, Bac Ninh province established a development investment fund to expand public capital channels, accompany businesses, and serve new growth stages.

Previously, in Ho Chi Minh City, the State Financial Investment Company (HFIC) was the unit implementing this model. After being approved for a loan, businesses can also register for the interest rate support program under Resolution 09/2023/NQ-HDND.

In Da Nang, the Urban Development Investment Fund (DDIF) recently financed 90 billion VND for an office project combined with tourist apartments, with a loan term of 11 years and an interest rate of 6.1% per year. Many other localities such as Hanoi and Quang Ninh are also using the fund to provide capital for priority areas.

Besides direct lending, some funds also receive entrustment from the budget, international organizations, or thematic development programs such as digital transformation, clean energy, and high-tech agriculture, helping businesses access preferential capital or technical support in line with long-term orientations.

Annual conference of local development investment funds. Photo: HFIC

Annual conference of local development investment funds. Photo: HFIC

Capital channels for businesses

In addition to the development investment fund, businesses can access other capital channels such as bank credit, the state budget, or ODA capital to implement investment and production activities. Each channel has its own characteristics regarding the purpose of use and borrowing conditions.

Capital Channel

Management	Purpose of Use	Borrowing Conditions
Development Investment Fund	Provincial UBND	Infrastructure development projects, social housing, technology...	Borrowing businesses must have projects in priority sectors that are feasible and meet loan security requirements.
Commercial Banks	Commercial Banks	Loans for business and consumer needs	Businesses borrowing from commercial banks need feasible projects, transparent finances, secured assets, and no bad debts.
State Budget	Provincial UBND, Department of Finance	Public investment, welfare, policy support	Businesses are only granted budget capital if assigned public tasks by the State or participate in public investment projects through ordering, bidding, or task assignment.
ODA Capital	Ministry of Finance, ODA Project Management Board	Infrastructure, social, and sustainable development	Businesses can receive ODA funding through PPP if they participate in public-private partnership projects using ODA capital according to government regulations and meet capacity, financial, and technical requirements.