Nick Freeman, Senior Advisor to the Vietnam Challenge Fund, tells Thanh Nien Weekly about the role a new US$3 million co-financing grant instrument will play in poverty alleviation.
Challenge funds originated in the UK. Even though the model has been applied to other countries, how can we be sure it will work in Vietnamââ‚¬â„¢s particular circumstances?
Yes, the origins of the challenge fund model are to be found in the UK; a developed and industrialized country, very unlike Vietnam. But over the last decade the challenge fund model has been adapted and applied in numerous developing countries across the globe. Here in East Asia, there have been virtually no challenge funds until very recently, and this is the first time that a challenge fund has been designed to operate in just a single country, rather than a wider region. So, to be very honest, I cannot claim that we absolutely ââ‚¬Å“knowââ‚¬ it will work in Vietnam.
But we do believe that Vietnamââ‚¬â„¢s current economic conditions provide a very promising environment in which to attempt the challenge fund model, and we do have high expectations for the Vietnam Challenge Fund. The ingenuity and innovation already shown by companies and entrepreneurs means that we strongly believe Vietnam is host to many good business ideas, and what we want to do with the Fund is help those ideas become reality. We also recognize that successful businesspeople in Vietnam are often keen to share their good fortune with people that have not been so successful and remain in poverty. So we feel some of the key ingredients exist for a challenge fund approach to be successfully adopted in Vietnam.
How is the fund different from others available in Vietnam?
I am very glad you asked me this question. The Vietnam Challenge Fund is a very different instrument than virtually all other funds in Vietnam. The first thing to stress is that the Fund is focused on one goal: to help improve the incomes of the poor in Vietnam. Everything we aim to do, and the way we do it, is based on trying to achieve that goal.
"Rather, we are looking for projects that are relatively risky, and so would struggle to get normal financing"
NICK FREEMAN, SENIOR ADVISOR TO THE VIETNAM CHALLENGE FUND
Let me be very clear. The Vietnam Challenge Fund does not give out loans. The Fund also does not invest in the shares of enterprises. What we do instead is provide grant funding to innovative business projects that should help improve the incomes of poor people. Those business projects are based on ideas that enterprises have developed, and if we agree that the project has a good chance of success, then we will finance up to 49 percent of the projectââ‚¬â„¢s anticipated costs. The enterprise proposing the idea must finance the remaining 51 percent or more of the projectââ‚¬â„¢s costs. It is important that applicants not only submit innovative ideas for projects, but also demonstrate their ability to actually implement the project they propose effectively.
We are also not interested in helping fund business projects that would easily get a bank loan or some other kind of finance from the normal market. Rather, we are looking for projects that are relatively risky, and so would struggle to get normal financing. We want to help share the risk of pursuing a project that is innovative, and if successful will improve the incomes of as many poor people as possible. We are in the market for good ideas, and what we offer is a willingness to share in the financial risk of turning those good ideas into reality. But we do not get involved in the management of projects we support.
I would strongly urge anyone that is interested to refer to our website (www.markets4poor.org) where all the necessary information can be found, including guidance on how to apply.
Which type of project proposals you are looking for? Should local businesses just focus on agro-processing projects in order to get the grants?
If enterprises go to our website they will see the three challenges that we have set for this first round of applications. Yes, this first set of challenges focuses on the agricultural sector, and getting the poor better integrated into agro-processing value chains. Later rounds will probably see the Vietnam Challenge Fund look at projects relating to labour issues and infrastructure. But for now we are only interested in projects relating to agricultural value chains. This is largely because we think some of the greatest opportunities for helping improve the incomes of the poor are to be found in this sector.
The fund was launched a month ago. Have you received any promising project concepts or proposals?
Yes, the Vietnam Challenge Fund was formally launched in early November. And over the last few weeks we have been travelling through Vietnam to promote the fund and provide information to interested companies. The ââ‚¬Ëœwindowââ‚¬â„¢ for enterprises to submit their initial applications ââ‚¬" which must be in the form of a simple, four-page ââ‚¬Ëœconcept noteââ‚¬â„¢ ââ‚¬" is now open and will stay open until 31st December 2009. Once the window has closed, an Independent Appraisal Panel will then look at the concept notes that have been submitted, and select a short-list of the most promising submissions. The short-listed applicants will then be invited to submit a more detailed project proposal, and we will assist them in doing this.
One of the main reasons why we have this two-stage application process is that we know that enterprise managers and entrepreneurs are very busy people, and donââ‚¬â„¢t have plenty of time to write long applications that may, or may not, be chosen for our funding support. So the four-page concept note is deliberately short, so that not too much time need be invested in making a submission. The aim of the concept note is simply to outline the project idea, so that the fund can get a good sense of whether it is worth taking to the next level of design and analysis.
As this if the first time a challenge fund has been enacted in Vietnam, we really do not know how many submissions we will get. But may I just say that all concept note submissions we receive will be looked at impartially and fairly by the Independent Appraisal Panel.
Are there any initiatives supported by challenge funds in other countries that Vietnamese businesses can learn from?
Yes, there are projects supported by challenge funds in other countries that enterprises here can refer to, if they want to get a better sense of the kinds of things we are looking for. These ââ‚¬" along with information on eligibility requirements, and a host of other relevant information ââ‚¬" can be found on our website, at: www.markets4poor.org
But can I strongly emphasise that we are not looking for Vietnamese enterprises to try and emulate projects that have been pursued in other countries. We want enterprises to come up with innovative ideas that are appropriate to the specific conditions and opportunities in Vietnam, and will help raise incomes of the poor here.
What are the challenges for poverty reduction in Vietnam now? How should poverty reduction programs in Vietnam change when the nature of poverty changes?
It is widely and rightly understood that Vietnam has done an excellent job in bringing many people out of poverty over the last two decades or so, and much of this can be attributed to the economic growth of the country. But some stubborn pockets of poverty still remain, and the recent global economic downturn has probably pushed some of those who were previously just above the poverty line back down below the line again. Therefore poverty alleviation remains a work in progress in Vietnam, and we believe the Vietnam Challenge Fund can play a role in this task.
We would certainly not claim that the challenge fund model is the only way to tackle poverty. But it is a new weapon for Vietnam to use in its fight against poverty. In the past, there has been a tendency for anti-poverty projects to focus largely on the efforts of the government, NGOs or donor agencies. But the considerable skills and expertise of the private sector business community is often overlooked. The challenge fund model tries to address this gap by encouraging enterprises to get involved in combating poverty, by providing some financial support to them.
It is important to stress that all the projects the fund supports should aim to be profitable, because only profitable projects can be sustainable in the long-term. So we are not looking for enterprises to propose projects that do not make sense from a business point of view. If the project is ultimately profitable, then it will be continued, and hopefully can be scaled up and/or replicated by others. As I mentioned at the beginning, our one and only aim is to help improve the incomes of the poor, and we challenge Vietnamese enterprises to come up with viable business projects that can help the country meet this goal. Because these projects are likely to be innovative, and therefore carry some degree of risk, the fundââ‚¬â„¢s job is to help share some of that risk.
By Minh Tri