Nuturing and challenging private companies for sustained BUSINESS AND impact, a case of VIETNAM BUSINESS CHALLENGE FUND

Nuturing and challenging private
companies for sustained BUSINESS AND
impact, a case of VIETNAM BUSINESS
CHALLENGE FUND
Author: Vietnam Business Challenge Fund
Country: Vietnam
Sector: Agriculture, Energy, WASH, Infrastructure

CONTEXT

Vietnam has a rapidly growing economy, experiencing nearly a two-digit
growth rate over the last decade. However, Vietnam still has a high percentage
of households in poverty. The hardest to reach to deliver benefits from such
growth and employment are the rural poor. These groups predominantly
rely on agriculture for a living, are highly vulnerable to the impacts of
climate change and are disadvantaged due to a lack of services, inadequate
infrastructure, limited involvement in and access to markets.
Although the most in need, there is little investment and development
addressing the needs of the rural poor; improved availability and access
to services and products, such as roads, energy and improved water and
sanitation, and job creation. Such investments are often associated with
high levels of risk due to substantial costs and uncertain returns; the private
sector is often unwilling or unable to absorb such risks and therefore chooses
not to invest. An external stimulus is needed to support innovative yet risky
private sector investment in areas that can deliver sustainable models of
growth.
Several private sector development initiatives have been conducted in
the last decade in Vietnam, demonstrating the potential of businesses to
effectively generate and lead poverty reduction solutions. However, there are
still several challenges that need to be addressed. They are:

Now that Vietnam is a middle-income country, official development assistance
will continue to fall whilst systemic pockets of poverty remain. There are
donors in Vietnam working on private sector development, but they mainly
play a facilitation role, such as improving access to finance, improving the
business environment and delivering business development services.

1


CLIENTS

METHOD / SNV
INTERVENTION

Private sector companies, both national and multinational operating in
Vietnam.

SNV is the fund manager of the Vietnam Business Challenge Fund (VBCF)
which is capitalised by UKAid through the UK Department for International
Development (DFID). VBCF is a specialised fund designed to support private
sector companies in Vietnam to develop new business models that deliver
both commercial benefits for the company and social impact for low income
populations, including job creation, income improvements and access to
affordable goods and services.
SNV introduces an innovative approach; complementary to private equity
funds and impact investing style funds, which fills the gap between financial
return-oriented funds and social return oriented funds, that not only
promotes an inclusive business approach within agriculture, infrastructure &
basic services and low carbon growth initiatives, but also promotes capacity
building at private sector level, links with public policies and aims to generate

systematic change by scaling up models for sustainable inclusive growth.
VBCF develops and nurtures innovative business ideas from private
companies, which have the potential to generate sustainable benefits for
the low-income population. It provides advisory services, mentoring and
non-reimbursable funding of up to 49% of the total investment in selected
Inclusive Business inititatives in Vietnam through competitive open calls.
VBCF aims to:
• Promote inclusion and innovation in the following sectors: i)
Agriculture, ii) Low Carbon Growth and iii) Infrastructure and Basic
Services;
• Overcome business risks and reduce transaction costs associated with
including low income people in the value chain of companies;
• Remove barriers and improve the operation of value chains to facilitate
inclusion of low income people in the core business of participating
companies;
• Create incentives for companies to offer access to goods and services
that include low income people in their value chain;
• Promote a better business climate for the private sector in Vietnam,
addressing poverty eradication activities under innovative marketbased and commercial mechanisms.
Following two call for proposal rounds, VBCF received and assessed more
than 400 applications, from which 21 inclusive business initiatives were
selected for investment.
1. Increased private sector
VBCF supports companies’ value chains, including:
- Japonica rice
investment into Inclusive
- Corn – biochar
Business initiatives: With a
- F1 hybrid corn seeds
- Medicinal plants

non-reimbursable investment
- F1 horticulture seeds
of approximately GBP 3.5
- MSC certificed sustainable scallops restoration
- USDA certified organic rice
million, VBCF will leverage
- 2nd generation probiotics
a total private investment
capital of approximately GBP
10 million by the end of VBCF. In 2014, over GBP 3.5 million had
been invested by the private sector. This makes an impressive nonreimbursable funding/private investment ratio of 1:3.
2. Successful Inclusive Business models provide market access to low
income people and sustainable supply chains for businesses: In 2014,
eight inclusive and sustainable business models were set up in the
agriculture and food industry.
2


3. Successful Inclusive Business models
VBCF supports the development and
providing basic products and services
distribution of basic products/services:
- Cook stoves
to low income people and new/
- LED light bulbs
market entries to businesses: 4 new
- Recycled plastic based biogas digester
- Mobile banking
products and 4 innovative services
- Centralized water treatment plant

have been introduced to low income
- Others
people. Over 2 million products
adapted or tailor-made to low income
people’s needs have been produced and sold.

IMPACT

Improvement of business growth

VBCF supports inclusive businesses to increase sales, expand markets
or enter new markets, apply new technologies and introduce innovative
products and services to the market. The VBCF portfolio investees profile
competitive and attractive financial and social returns for the commercial and
impact investment industry.

Improvement of living conditions of
low-income people

Low-income groups benefit through the implementation of VBCF investees’
inclusive business projects as producers, suppliers, distributors and
customers. DFID’s expected social return on investment by the end of the
VBCF includes the creation of 5,000 new jobs, 60,000 beneficiaries with
increased income, and 200,000 low income people with access to basic
products and services. In 2014, VBCF business initiatives have created 4,000
new jobs, income increases for 34,000 people and access to basic goods and
services for over 1.4 million low income beneficiaries.

Reduction of environmental impacts

VBCF-invested companies have introduced environmentally friendly products
such as the emission-free brick molding machine, the biomass cookstove, the
biogas digester from recycled materials and power saving light bulbs. Two
businesses under VBCF’s agriculture portfolio contribute to environmental
preservation through (i) restoration of sea resources and (ii) utilisation and
production of biochar from corncobs and agricultural byproducts.

LESSONS LEARNED

Engaging private sector
•

•
•

The Challenge fund is an effective mechanism that can be used to
mobilise private sector resources to leverage limited development
funds for development purposes.
Attracting attention of private sector actors requires professional and
effective marketing communications, especially direct marketing.
Effective communications plays an important role in engaging the
business community, sparking their innovative ideas, to turn these
ideas into reality.

Engaging low income groups
•

•

•

Engaging low income groups in the inclusive business ventures of
companies requires trust building, good knowledge of low income
market needs and preferences, and different kinds of support such
as financial access and hands-on technical guidance.
Economies of scale make the difference in working with low income
people, which often involves high transaction costs and is labourintensive.
The name of the game in low-income markets is not higher prices
for suppliers or lower prices for consumers. It is about aligning
suppliers with market demand and maximising productivity, quality
and value addition; while for consumers it is about developing and
delivering affordable and quality tailor made products and services.

3


Implementation
•

•
•

Innovations involve risks, so it is important to take possible failures
into account and be well prepared, both operationally and financialy, to
make the best use of the funds available.
Markets change rapidly, so planning and implementation should be
flexible to meet the business requirements.
Private companies have limited information on low-income markets;
limited access to finance; can lack skills in sales, supply chain
management, finance and administration specific to operating in low

income markets.

Systemic change and long term impact
•
•

TESTIMONIALS

Priorities should be given to large/medium leading companies to deliver
impact at scale.
Ecosystem development perspective requires long term vision and mix
sources of investment (commercial and developmental).

“We are very excited at DFID to be participating in Vietnam Business
Challenge Fund with SNV. Our objective is to provide the kind of finance that
is not available from other sources, and the kind of technical support that is
difficult for private sector companies to access. This is just the beginning,
from our perspective. All we want to do is to get other people interested in
it, get the government, other donors, and a wider range of private sector
partners to take ideas that have been generated by the Challenge Fund
and move them forward, take them to the next level, deliver them at scale,
unleash the potential of the private sector in a way that hasn’t been seen
before in Vietnam” Jim Carpy, Head of UK Department for International
Development, Vietnam.
“Without VBCF my business idea would never ever have come true” Mr. Ngo
Duy Dong, Director of Green Environment Biogas Company producing
and selling biogas digesters made from recycled plastic.

STANDARD DATA

Project:

Vietnam Business Challenge
Fund

Donor:

UKAid - DFID

Dates:

05/2011 - 02/2014

Budget (GBP):

4,900,000

Program staff to
12/2014

11

Partners

Vietnam Chamber of Commerce
& Industry of Vietnam, SPARK

Contact details
Javier Ayala
Executive Manager - Vietnam Business Challenge Fund

Corporate Lead – Global Inclusive Business Services
Email:
For more about our work in Vietnam, visit: www.snvworld.org/Vietnam

4