Source: FE CREDIT
To grow grain you need seed. To get seed you need something valuable as an exchange. When you want to get more seed, you need more valuables. This marks the beginning of investment. The finance provider developed a common sense-thinking process to guide an investment. This process we now call a mindset, includes 10 defined steps.
Investors have a long history, started some 4,500 years ago. To please their gods people would bring valuables to the temple. These were kept in storage. One day a temple’s high priest decided to help a farmer to buy seeds by lending him some of the temple’s valuables. He proposed the farmer to pay back the loan after selling the harvest, with interest. The farmer agreed. This priest became the first investor; this farmer the first credit customer. As long as disaster or war didn’t destroy the harvest, it was a genuine win-win for both the priest and the farmer. Commercial credit was born.
From tradesmen to Emperors, many followed this system, which has worked for many centuries. Some call it the “financing of civilization”.
The investors’ mindset
What went on in the mind of the temple’s high priest is essentially similar to what goes on in the modern investor’s mind. Ten steps:
- I have funds I don’t need for living expenses.
- I wonder if I can somehow grow my funds.
- I look around for companies who need money to grow something.
- I find opportunities to lend money to companies I trust will pay me back on time and with interest.
- With each opportunity I estimate the risk I will lose my money and the possibility to make money.
- As there is always some amount of risk, I choose a risk that suits me.
- I communicate with the company’s decision makers about the amount and the terms. We come to agreement & sign a contract.
- I make the amount payable.
- I follow developments to see if the company keeps their side of the agreement until the full amount plus interest is paid back.
- I evaluate the investment. If I’m happy with the result, I will most probably invest again.
When investors become gamblers
Some investors like high risks. They like a game with high stakes. In the world of start-ups there is little or no certainty the investment will be profitable. It’s all based on the investor’s belief in the entrepreneur and his willingness to support him. We all know the stories of start-ups that become a big success and start-ups that don’t. Still the 10 steps are the same. It’s just a matter of choosing a risk that suits you – Step 6. For these investors – sometimes called “angels” – the balance between gambling and investing is what makes it interesting for them. They like the game-factor. They like the “adrenaline rush” that comes with an investment without real certainties. They learn from both winning and losing.
Consumer finance: investment in people
While an investor is focusing on companies, a consumer finance company focuses on individuals. It is investing in people. So what goes on in the investor’s mind is quite similar to the procedures applied in granting credit to a private customer.
Like investors study the companies they consider for investment, consumer finance companies study the market of potential borrowers. Investors enable consumer finance companies to invest in individuals, who don’t qualify for a regular bank loan. To avoid gambling the consumer finance company uses advanced consumer profiling to reduce the risk. It’s up to the consumer finance company to build a reputation of professionalism and trust to convince investors that their relationship is a potential “win-win”.
The dynamics of the consumer finance market
StoxPlus’s Vietnam Consumer Finance Market Report 2016 indicates that the consumer finance market in Vietnam has witnessed the fastest growth in 2015 with a growth rate of 44.1% compared to 18% in 2014. The outstanding loan balance soared from US$10.5bn in December 2014 to US$15.12bn at the end of 2015.
In 2020 the Vietnamese consumers are forecasted to spend a robust 40%+ more than in 2016 according to Tradingeconomics.com. More and more customers become receptive to the idea of leveraging their income to finance the purchase of useful durable goods and avail various types of services to improve their lifestyles. The competitive dynamics in the Vietnamese consumer finance market have also changed significantly with the arrival of new consumer finance companies and increased competition within the traditional consumer finance market.
The proof of the pudding is in the eating
At the end of the day investing is all about producing high-returned results. This is where steps 5, 6 and 7 come in. Only with sound procedures, applied by well-trained and experienced sales professionals risk is minimized, results are maximized.
FE CREDIT understands and applies the lessons learned from the ancient high priests all the way up to present time. It services people who want to upgrade their lives now, and pay back with future income.
Over the past 5 years, FE CREDIT has served nearly 3 million Vietnamese customers, who despite earning a decent income, are often neglected by banks. FE CREDIT has achieved its market leading position thanks to pioneering in providing the most advanced products and services from personal loans, two-wheeler loans, consumer durables loans, credit cards.
FE CREDIT was awarded by the Global Banking & Finance Review (GBAF – the United Kingdom) the title of “Best Consumer Finance Company Vietnam 2015”. The company is expanding its distribution channels, smarter infrastructure and continuously developing its risk management practices by benchmarking with the world’s best practices.
Book: Financing Civilization by William N. Goetzmann, Yale University, School of Organization and Management, published 1994