Vietnam Business Challenge Fund (VBCF) recently organised an introductory seminar and officially called for second business proposals in Hanoi. VBCF is financed by the UK Department for International Development (DFID) and administered by SNV Netherlands Development Organisation. The total budget of the fund is £7 million, or US$10 million. On the sidelines of the seminar, Vietnam Business Forum has an interview with Mr Javier Ayala, VBCF Managing Director. Anh Phuong reports.
Could you introduce more about VBCF?
For the time being, the concept of “challenge fund” is quite new in Vietnam. However, the organisational structure of this type of business has existed and operated efficiently in countries around the world. In Vietnam, VBCF is specifically designed for the overall purpose of supporting the private sector in Vietnam to develop innovative inclusive business models that deliver both commercial benefits for the private sector and developmental benefits for poor people.
However, we need to note that VBCF is not a private equity investor or a venture investor and does not offer loans like commercial banks. VBCF funds only specific business projects that aim to bring benefits to the poor in Vietnam.
In addition, VBCF does not charge any interest or fee for the granted funding. What it needs is that the candidate company proves the feasibility of projects. The fund does not operate for profit or make profit from the success of projects. Profit, as defined by VBCF, is the improved income of the poor in Vietnam. Therefore, the practical benefits brought by VBCF may include job creation, income improvements and availability of more affordable goods and services.
So, what kinds of projects is VBCF interested in?
Our purpose is to encourage companies operating in Vietnam to look for business ideas that meet the challenges VBCF puts forth. Accordingly, those challenges will be found in such fields as agriculture, low-carbon growth, infrastructure and basic services. We are most interested in agriculture which has a huge impact on the poor in Vietnam. Specifically, in the agricultural field, proposals must ensure to: Create added values for agricultural product value chains in the country and/or in the world while benefiting low-income people; introduce environment-friendly production methods and technologies at household scale; introduce infrastructure solutions (irrigation, storage, drying, collection, etc) for household-sourced product chains.
In the low-carbon growth field, proposals must ensure to: Introduce energy solutions and sustainable development that benefits low-income people; reduce environmental pollution and improve economic conditions of low-income communities by converting waste into energy. In the field of infrastructure and basic services, proposals must ensure to: Provide solutions to housing, clean water, sanitation services, rural infrastructure (roads, bridges, irrigation systems, etc.) for low-income people; introduce mobile solutions to improve access to value-added services (information services, financial services, etc.) to rural households.
What benefits will VBCF bring to pro-poor projects?
In fact, VBCF only funds high-risk business projects because low-risk ones easily access bank loans or other capital sources. By co-financing such projects, VBCF bears certain risks and facilitates the realisation of projects.
How are project procedures?
Candidate companies must submit executive summaries of innovative business ideas, usually presented in 3-4 pages. Then, a panel of independent experts will assess and select appropriate projects. Qualified companies will be given a time for more detailed planning and to submit it to the council for the next assessment. After that, VBCF will invite the companies to come for discussion on financing terms and project implementation processes. As agreed, the two sides will sign a formal contract.
When the project is being implemented, VBCF will not make any intervention in management or any support for the project, but VBCF is entitled to monitor the implementation progress of the project by asking the financed company to send regular reports on progress. If the project fails to fulfil contract requirements, VCF has the rights to end funding. But if the project is successful, the VCF also has the rights to multiply that model on a greater scale in Vietnam or in other countries.
VBCF is also committed to keeping all business initiatives secret, preventing them from being leaked or plagiarised. All the VBCF staff and evaluation board shall abide by the VBCF rules which prevent any act of power abuse to seek personal interests from initiatives submitted by candidate companies.
In addition, VBCF will provide technical assistance, mentoring and non-reimbursable funding of up to 49 percent of the total investment in selected inclusive business projects in Vietnam through competitive open calls. VBCF will provide funding based on the following ranges: small project (US$100,000 – 300,000), medium project (US$301,000 – 500,000) and large project (US$501,000 – 800,000).
To be qualified for VBCF funding, candidate companies must be committed to contributing at least 51 percent of total investment in inclusive business projects and the higher ratio of contribution is appreciated. In the 2009 – 2012 period, seven VBCF-funded agricultural projects created more than 2,000 jobs and increased incomes for nearly 18,000 low-income people. The call for second proposals is set to last from April to August 2013.