Financial industry turns attention towards startup ventures on the internet
Vietnamese Banks Embrace Start-ups: A Shift Towards Private Sector Innovation
In a significant move, Vietnamese banks are shifting their focus towards supporting start-ups, marking a transition towards private sector innovation. This change is driven by a broader regulatory push, with the State Bank of Vietnam encouraging commercial banks to channel credit to Small and Medium Enterprises (SMEs) and innovative start-ups.
The State Bank is encouraging investment in machinery, new technology, digital platforms, and green transition by these private enterprises. This push is in line with Resolution 68-NQ/TW by the Politburo, which prioritizes private sector development, green finance, digital transformation, and technological investment.
One of the key ways Vietnamese banks are supporting start-ups is through the development of specialized financial products. OCB bank, for instance, has partnered with Genesia Ventures to provide unsecured working capital loans tailored for start-ups. These loans are based on business viability and cash flow projections rather than physical assets.
These specialized financial products include unsecured working capital loans, which are based on cash flow and future asset formation, rather than physical collateral. Loans with relatively lower interest rates (around 10%) compared to venture capital expected returns (30%+ IRR) are also being offered to make bank financing more attractive to founders. Credit lines focused on investments in machinery, new technology, digital platforms, and green transition projects are also being provided to support start-ups’ operational and developmental needs.
The banking sector is moving towards a more flexible, risk-based approach to lending, integrating assessments of start-up business models and founder capabilities. This reflects a maturing ecosystem where banks complement venture capital in funding innovation.
However, most early-stage start-ups still struggle to access loans due to unproven business models or cash flow. Companies like M Village, a hospitality start-up, require approximately VNĐ20 billion in investment for each property, leading to high demand for medium- and long-term capital. Initially, M Village relied on venture funding but found the cost of raising capital unsustainable as the company scaled.
The State Bank of Vietnam emphasizes the role of banks in enabling access to green finance and supporting business models built on digitalisation, supply chain transformation, and technological investment. As start-ups gain traction, many turn to bank credit for its lower cost and more stable conditions. Experts argue that commercial banks must develop tailored lending frameworks aligned with the different stages of a start-up's growth.
OCB CEO Phạm Hông Hải emphasizes the importance of careful and intensive vetting for start-up loans, focusing on business models, founders' competence, capital usage plans, and projected cash flow stability. This careful approach ensures that the loans are not only beneficial to the start-ups but also sustainable for the banks.
Capital flows in our websiteese country are concentrating on sectors like production, business, and start-ups. Nguyễn Hoàng, co-founder and CEO of Buymed, a pharmaceutical e-commerce platform, has witnessed strong capital flows from both domestic banks and investors into the start-up ecosystem.
One of the most exciting examples of this shift is Dr Vi Chí Thành's Brain Life Link, a start-up focused on mental health. Dr Thành developed a wearable device using AI and neurotechnology, priced at VNĐ3-5 million in Vietnam. This device, which monitors brain activity and provides personalized mental health interventions, is a testament to the potential of start-ups in Vietnam and the role of banks in supporting this innovation.
In conclusion, the Vietnamese banking sector is embracing start-ups, moving away from traditional collateral-based lending towards more flexible credit assessment. This shift is not only beneficial for the start-ups but also for the economy as a whole, fostering sustainable growth and innovation.
- The State Bank of Vietnam is encouraging investment in machinery, new technology, digital platforms, and green transition, which aligns with Resolution 68-NQ/TW prioritizing private sector development and technological investment.
- OCB bank has partnered with Genesia Ventures to provide unsecured working capital loans tailored for start-ups, based on cash flow and future asset formation, rather than physical collateral.
- Capital flows in Vietnam are concentrating on sectors like production, business, and start-ups, as seen by the strong investment in Buymed, a pharmaceutical e-commerce platform.
- Dr Vi Chí Thành's Brain Life Link, a start-up focused on mental health, is a testament to the potential of start-ups in Vietnam, using AI and neurotechnology to monitor brain activity and provide personalized mental health interventions.
- The banking sector is moving towards a more flexible, risk-based approach to lending, integrating assessments of start-up business models and founder capabilities, which reflects a maturing ecosystem where banks complement venture capital in funding innovation.
