Source: FE CREDIT
“Risk comes from not knowing what you’re doing.” Warren Buffet
The main objective of an investor is to maximize the return of his investment. However, as no one is able to tell the future, investing inevitably carries a risk. In the world of consumer finance and unsecured lending, the no.1 risk is bad debt. The challenge: manage risk by controlling bad debts. Besides short-term loss in money, it’s a well-known fact that bad debts cause long-term reputational loss for the lender. Bad debts mean bad news. Bad news travels fast. Reputational loss is hard to put in figures. But every marketer can tell you that a bad customer experience reaches at least 5 times more people than a good experience. All the more reason to prevent bad debt. How? At the gate.
Qualifying the prospect
The ongoing growth of FE CREDIT, now a dominant consumer finance brand in Vietnam, is an evidence of effectively dealing with that challenge. How? First of all, by qualifying its prospects. When a prospect qualifies, he or she can become a customer.
Any person seeking a loan needs to meet a standard. Obviously not everyone meets this standard. Any professional consumer finance company expects its prospects to come up with valid reasons that ensure the loan, plus interest, will be paid back in full. “Convince us you qualify.” However, FE CREDIT’s target customers earn on average 4 – 12 million VND/ month. Often they don’t have a proven income or sound credit track record.
“FE CREDIT targets un-banked and under-served customers. Its higher-than-usual interest rates are primarily driven by the high risks associated with those customers that have unstable income levels and unclear credit track records. The rates will eventually come down once customers’ credit track records are built and adequate market regulations are put in place to protect lenders and reduce credit costs”, says Mr. Kalidas Ghose, CEO of VP Bank Finance Company – FE CREDIT
Qualification criteria are constantly updated and refined. For the Vietnamese Millennials learning about their developing buying needs and financial habits is simply a must. Preventing bad debts indeed starts at FE CREDIT’s gate.
Educating the customer
For FE CREDIT it doesn’t end there. It has been found that customers with troubles paying back their debts, often lack of the skills to manage their own financial situation. When it is noted that a customer is having a problem, FE CREDIT contacts the customer and offers guidance in managing his or her finances. It happens that a customer’s private situation has changed. People can be in a “financial crisis” situation. In some specific situations FE CREDIT can offer to bridge this period, without the debt becoming a bad debt. At the end of the day, the relationship of a customer with FE CREDIT must be “win-win”. Making the relationship work is a joint responsibility. It is in the interest of FE CREDIT and its customers that each and every one of them will experience its good works, make them well known, and recommend FE CREDIT to their family and friends.
Reducing the risk
Mr. Kalidas Ghose added: “We have managed to maintain our bad debt ratio at a lower-than expected level and also lower than the market’s average. Our bad debt level is comparable to the best in the world for similar businesses across the emerging markets.”
In fact, FE CREDIT uses a method of collaborating with its customers to ensure win-win relationships. This method has proven to be successful. FE CREDIT is the fastest growing player in the consumer finance market, and plans to continue this growth. The company has unceasingly improved its policy and procedures to bring about better products and services to customers yet ensured a stringent risk management framework and created powerful human resources in order to secure its sustainable growth. Meanwhile, the company is learning from its experiences, and applies the lessons.
An important measure is Risk Adjusted Return. It serves to find out how much return on investment will result from a given level of risk. It enables the investor to compare high-risk and the low-risk ROI. By calculating risk-adjusted return investors can judge whether they can get the highest possible gains with minimal risk involved and so have a deep insight in the return of their investment. At FE CREDIT applying Risk Adjusted Return is a refined, fact-based balancing act to create profitable portfolios.
This measure and other measures enable FE CREDIT to focus on prevention of bad debt and therefore, reducing the risk. FE CREDIT has proven to be among the best across the emerging markets in risk reduction. Its growing positive reputation among its customers ensures a bright future – for FE CREDIT, for its customers, and for its investors.
Over last 5 years, FE CREDIT has served nearly 3 million Vietnamese customers so far with a wide range of products from personal loans, two-wheeler loans and consumer durables loans with installments. Its simple and quick 3-step procedures have also made a strong impression among consumers and well served the needs of customers who only earn decent incomes across Vietnam and are often neglected by banks.
FE CREDIT was honored and awarded by the Global Banking & Finance Review (GBAF – the United Kingdom) the international award “Best Consumer Finance Company Vietnam 2015” on September 30, 2015.
FE CREDIT has achieved its market leading position thanks to pioneering in providing the most advanced products and services to customers. FE CREDIT is expanding its distribution channels, especially the digital mediums, improving its IT systems and continuously developing its risk management practices by benchmarking with the world’s best practices.