Wokai Adventures

Shout Out to Matt

Casey

Courtney and I just came back from dinner with Matt Flannery, Co-founder and CEO of Kiva. This was a big day for us because, on top of having a fascinating conversation and learning a lot from Matt's wealth of insights and experience in innovating the online P2P microfinance model, we found out that Matt reads our blog! After 15 months of work we hit the micro-big time! Since we started, we've alway been in awe of Matt and Kiva. The fact that Matt created this model coding at night in a local doughnut shop and has since turned it into a platform that raises over $3 million in loan capital a month is incredible. To learn more, check out Matt's Blog, Kiva Chronicles.

Go Wokai!

Wokai gets Oriented

Courtney

On June 26, 2008, Wokai Chapters in New York and San Francisco hosted a happy hour with Oriented - a global network of international professionals interested in Asian business and professionals . The event was held at Lava Lounge in San Francisco and at Moomia Lounge in New York.

The Oriented Happy Hour provided a great networking opportunity for Wokai as a Chapter as well as a great team-building event for Wokai Chapter Representatives.

Check out the video of the San Francisco Chapter event below. Thank you to Bay Area located Yummy Porky Productions for creating the video in less than 24 hours!

Is it wrong for Wokai to promote itself as "green"?

Amy Shi

Amy is intern with Wokai headquarters for summer 2008. She is an undergraduate majoring in Economics at Wellesley College.

As some of you may know, Wokai plans to highlight the fact that they promote green borrowers on their website. But without the environment as their core competency, is it okay that they wave the green flag when trying to attract users?

I found myself wondering this a few weeks ago when I attended the Silicon Valley Green Fair to test how Wokai is received amongst "environmentalists". (I am working on fundraising strategy for Wokai this summer. One component of this project is reaching out to potential users to determine their responsiveness to our organization.)  But when I got there, what I found was far from the environmentalists I expected.

Let me paint a picture. Outside, the parking lot was full of SUVs - not the multitude of hybrid cars I expected. Inside, the convention center was filled with not-so-environmentally-friendly companies like Clark Pest Control and AAA  putting on their green hats to highlight the most green parts of their business - not the GreenPeace and Pacific Environment NGOs that I expected to see. 

Seeing this somewhat "two-faced" presentation of self got me thinking: is it hypocritical or wrong to promote sustainability or green when the issue is not an organization's core focus?

Take Wokai. It concentrates on China, not the environment, but the organization does encourage contributors to fund green initiatives. Few would argue that this is a bad policy, as one loan has the potential to benefit two initiatives: poverty alleviation and the immediate environment. But is it right for Wokai to put on its green hat to reach out to environmentalists?

Lets reflect on me for a moment. I am like the AAA. I care about green issues, but often succumb to driving down the block for groceries instead of walking. My hemp sandal wearing friend who attended the conference with me, on the other hand, is like Greenpeace. She is all green all the time. But I don't believe my not-so-green actions rob me of the right to be concerned about the environment. In my eyes, both of us have just as much right to promote sustainability as the other.

In the future, household pests will continue to be extinguished, vacation packages will continue to be sold, and (hopefully) p2p microfinance websites will continue to flourish. It is much better that these trends take a green approach with organic pesticides, ecology education tours, and loans that highlight green borrowers, than not. Any policy that changes the environmental status quo - especially in China - is a good policy in my book.

Calling on Potential Wokai COOs

Casey

Wokai is looking for a COO... The position would be located in Beijing and the major areas that the COO would will on are: planning, management, operations, document publications (writing, supervising and editing), and event planning.

We would appreciate your help in finding the right person for the job. If you know anyone that you think might be a good fit or are a part of a network (say Princeton in Asia or SAIS) that might have individuals who would be interested, would you please refer them on to the job description below?

WOKAI OPERATIONS DIRECTOR

Wokai seeks a responsible, detail oriented, creative, energetic and highly professional individual who is committed to Wokai’s mission for the position of Operations Director. The Operations Director will manage all of Wokai’s Beijing Chinese and international staff and volunteers as well as lead Wokai’s global operations.

OPPORTUNITIES:
•    Learn about and have a positive impact on China microfinance.
•    Be a part of building a dynamic, young, international, web-based nonprofit.
•    Gain a host of new and valuable skills in a range of areas in a short amount of time.
•    Meet interesting people from around the world and across sectors.
•    Work with a fun team in a 200 year-old courtyard.

RESPONSIBILITIES:
Management
•    Recruit and train Wokai staff (typically 3-6 people) and volunteers (ranging between 2-8).
•    Motivate staff and volunteers.
•    Manage all Wokai fundraising, marketing, website, and public relations projects.
•    Create a welcoming, fun, and positive environment for the Wokai Beijing team.

Planning
•    Work with Wokai CEO on long and short term planning.
•    Find creative ways to execute plans.
•    Ensure that staff and organization is meeting planned goals and benchmarks.

Writing & Editing
•    Write and/or edit and finalize all Wokai PR materials, website content, grant proposals, informational documents, presentations, board reports, press releases, and Wokai produced documents.

Operations
•    Oversee everyday operations related to accounting, finance, and reporting.
•    Oversee the maintenance of the Wokai office and China operations.
•    Manage all website activity and immediately respond to all issues that arise.
•    Liaise with Wokai’s Director of US Operations and US Chapters (composed of over 60 Representatives in Seattle, San Francisco, and Beijing)

Event Planning & Outreach
•    Organize and lead Wokai’s monthly Drinks for a Better World networking event.
•    Meet with potential donors, corporate sponsors and supporters.

QUALIFICATIONS
•    Native English ability, with EXCELLENT English writing and editing skills.
•    1-2 years professional work experience.
•    Management and operations experience.
•    Rigorous attention to detail.
•    High tolerance for ambiguity and love of new challenges (someone who needs clear structure will not succeed in this position).
•    Proven time-management and planning skills.
•    Ability to quickly adapt and learn new skills.
•    Willingness to work long-hours and weekends when necessary.
•    Excellent inter-personal skills; positive presence and ability to inspire and motivate others.
•    Ability to come up with innovative solutions to problems and challenges.
•    Excellent creative writing skills.
•    Keen style and design sense.
•    Fluency in written and spoken Mandarin preferred.
•    Interest in finance, accounting, and/or IT would be beneficial.

COMPENSATION
•    8000RMB starting salary (with potential 25%-50% raise over time based off of performance), plus generous international health insurance package.

COMMITMENT
•    2-3 years. There will be an initial 2-month trial period.

START DATE
•    Some time in the next 6 weeks.

TO APPLY
•    Please send your resume, a writing sample, and fill out the attached application form:

Download wokai_application1.doc . Please return your responses to casey.wilson@wokai.org.

Tree Huggers & Techie Geeks

Casey

After almost three months of development, we finally officially signed our website development contract with Zhong Rui Pu Si. I guess this is what happens when you put together open source coding genius’ and an NGO trying to save the world…entertaining. But seriously, it is interesting to see how partnerships form and trusts evolves within Generation (web) 2.0.  Is the traditional idea of a contract no longer as appropriate or relevant?

When we were drafting the contract, and after our last experience having no real legal power to take action against our developer for producing a sub-par site, it became clear that, no matter what language we write into the contract, whether or not we ended up with a quality site that meets our requirements depends on the character and quality of our developers, not the contract that we sign with the red Chinese chop that seals the deal. However, the signing and cool chop ceremony was fun.

The Importance of Measuring Risk

Casey

 I met the other day with Zac Hinton. Zac is starting up a credit risk consulting firm called JZ Consulting to be based in Hong Kong and Mainland China. The new international standard for Financial Institutions in evaluating risk is the Basel II, which measures client credit risk, market risk and operational risk to come up with an overall model for a financial institution’s risk level and calculate the reserve funds that it needs to balance this risk. Technology and IT systems are crucial for analyzing these factors and providing real-time risk measures.

While financial sector regulators in developed countries around the world already require financial institutions to use the Basel II, China’s Central Banking and Regulatory Commission (CBRC) recently implemented new policy that will require the Big 4 Banks to adopt the Basel II standards by 2009 and will conceivably  subsequently impose these requirements throughout the tiers of financial institutions (eventually reaching microfinance institutions…?).

It was interesting talking with the Zac about the potential opportunity that better credit risk measurement systems and techniques could offer to microfinance institutions. He had the logical idea that these tools would allow microfinance institutions to quickly gage each client’s risk and the total amount of risk that they are taking on at any given time with their portfolio of loans. By entering some basic data into a simple computer system MFIs could immediately see a client’s credit score and know how much reserve funds they have to hold to match the level of risk at which they’re operating. The right system could eliminate the need for lots of man hours and financial expertise.

This type of risk rating tool could be powerful for microfinance institutions, but it relies on the key assumptions that the information entered in the system is accurate and that accounting and information systems are in place for tracking and controlling funds. If an employee can falsify information that’s being entered into the system or an institution does not have the risk controls to prevent a loan officer from running away with the MFI’s with funds, risk rating systems are nothing more than cool computer systems. Unfortunately this is the case for the vast majority, if not all, microfinance institutions in China at this point.

An Innovative Model for China's Inclusive Financial Sector

Casey

I had an interesting meeting yesterday with Linda Zhu, Country Director of ADRA (Adventist Development and Relief Agency) China.

ADRA is an international Adventist charity network with affiliate subsidiary branches in over one hundred and twenty countries around the world. ADRA has been operating in China since 1998, when it opened up an office in Beijing. ADRA China has come up with some innovative projects here in China including a initiative in which they introduced straw bales as a cheap, sustainable, and energy saving form of insulation in China's chilly Northeastern provinces of Inner Mongolia, Heilongjiang (bordering Siberia), Jilin and Liaoning. The idea of using straw bales as an insulation technique dates back to the late 19th Century to the US, but it was only in 1998, when ADRA started this initiative, that straw insolation came to China.

Now ADRA China is attempting to make a new innovation in China by starting its own microfinance institution in Anhui Province. They are going have a model that is a mix between the traditional Grameen group lending model, through a network of village centers and branches, and a village cooperative model. Local village committees composed of microfinance clients vote on whether to approve or deny potential clients for loans less than 3000 Yuan (about $400). While, for loans of 3000 Yuan and above, borrower loans must be approved and administered by the MFI staff.

Gao Xiangjun, the Executive Director of ARDY (Association for Rural Development of Yilong County), coined the idea of introducing a tiered approach to China microfinance. In her model, the most micro of micro-credit loans are distributed through village cooperatives in the most hard to reach (and poorest) rural areas. These village cooperatives use capital from their own members and it is the members would decide on their own who will receive loans. The benefit of this model is that it cuts costs to almost zero. Instead of loan officers having to trek 100 kilometers twice a month to villages to hold meetings and collect repayments, lending can be done on site without the need for paid staff. Villager cooperative members can thus use the interest revenue to grow their loan portfolio and extend more credit.

The downside of this model is that members in charge of the funds can literally take the cooperative's money and run. This model has become even more viable in China since the government instituted a policy a few years ago where it agreed to match the money, yuan for yuan, that village members put into their cooperative pool of funds. This provides a partial solution to the obvious capital constraints that villagers in the poorest parts of China are face when they try to solve financing issues using their own capital.

Gao Xiangjun's idea is that these village cooperatives should serve the poorest and hardest to reach that do not necessarily make the best clients for microfinance institutions, due the fact that they are located in such remote areas and their loan sizesare so small that they the costs outweigh any possible interest revenue that can be earned by serving them. She believes that MFIs can then serve the market that is still poor (typically living on three dollars and below a day), but a sustainable client base. Rural Credit Cooperatives can then take on the next tier of clients that might be considered the "middle class" in rural areas, and formal financial institutions can serve the final tier. This is a pretty innovative model for an inclusive Chinese rural financial sector.

Whether or not China's financial sector inclusion/expansion follows this path, China's financial (and micro-financial) sector growth will most certainly take its own unique orm. It will be interesting to watch the other models that develop and how this unfolds.

What is the Grameen's plan for China?

Courtney

Ever since reading Alex Count's article, Forging Ties in China: Grameen Foundation's Alex Counts, on ChinaCSR.com last June, I have been wondering what is Grameen's strategy for China.

Last night I got my answer.

Vidar Jorgensen, President of Grameen America and Consultant for Grameen Trust,  told me Grameen's plan for China in the next year.

Background

Grameen has been involved in China for the past 14 years, through Grameen Trust - a sister organization that was set up in 1989 to promote Grameen principles of extending microcredit to impoverished individuals without credit. Grameen Trust provides funding and support to a network of MFIs arround the globe.

In China, Grameen Trust has dispersed approxamitely $1.63 million in funding, supporting 17 microfinance institutions. Today, 15 of those organizations are still in existence in various provinces across China including Sichuan, Gansu, Inner Mongolia, Henan, Hebei, Yunan, Shaanxi, and Guizhou. Grameen Partners have dispersed more than $54.3MM to over 60,000 impoverished families. The repayment rate is reported to be 97%. See attachment for more details on Grameen Trust Partners: Download wokai_grameen_trust_china_partners.pdf

Wokai's first two Field Partners, ARDY and CZWSDA, are Grameen Trust Partners. ARDY, established in 1997, is located in Sichuan. It services approxamitley 2,250 clients and hosts a 99% repayment rate. CZWSDA, also established in 1997, is located in Inner Mongolia. It services approxamitely 4,000 clients and hosts a 100% repayment rate.

Future

Grameen Trust has found that past methods of providing technical & monterary asssitance to pre-existing microfinance institutions has proven unsuccessful on the whole. In order to create successful microfinance institutions in the most efficient and rapid way possible, Grameen Trust believes they need to have a hands on approach, using their own microfinance professionals. 

With this thought in mind, Grameen Trust developed the Build-Operate-Transfer (BOT) strategy. In BOT projects, Grameen Trust provides the managers for local implementation and Grameen Trust directly supervises the operation of the program in its intial growth period. Over time, Grameen Trust managers train local staff and eventually turn over management to them. To date, Grameen Trust has established BOT projects in 8 countries.

In respect to China, Grameen has altered the BOT strategy to become a Build Operate Manage (BOM) strategy. In BOM projects, Grameen involves the use of Grameen Trust's ownership and directional management on a continual basis rather than just for growing start-ups. This strategy will reduce the probelms that occur after Grameen passes management over to local staff. (I suspect this long-term consulting approach will work best for Grameen in China, as the Chinese governments financial and legal restrictions on MFIs are constantly changing.)

Grameen plans to implement 3 BOM projects in China in the next year. These projects will be located in Hainan, Sichuan, and Inner Mongolia. Each project is estimate to impact 8,000 microentrepreneurs and over 40,000 persons (assuming a family of 5 for each microentrepreneur) over 5 years. Grameen will provide $6 million per project which will have a cumulative impact of almost $25 million per project (as repaid funds are immediately aggregated and re-loaned.)

In total, Grameen is committed to impacting over 120,000 lives and providing over $18 million of its own capital, for a cumulative impact of over $75 million dollars.

Currently, Grameen Trust is still in fundraising mode to obtain the initial $18 million. To date, it has raised a over half that amount. Assuming fundraising is completed in the next few months, Grameen hopes to launch BOM proejct implementation within the next year.

Wokai Perspective

Grameen's next step in China is big for two reasons:

1. NGO-sponsored microfinance institutions first got involved in the China microfinance sector in the mid- to late- 1990s. Since that thime, NGOs have contributed over $125 million to the sector. Therefore, Grameens committement of $18 million is sizeable.

2. Grameen has remained on the sideline of China microfinance for sometime now. They have primarily been involved as a consultant providing training, capacity building, technolgy, and aid. In fact, the first microfinance program in China estabished under the guidance of Chinese Academy of Social Sciences professor Du Xiaoshan was based on the Grameen model. Grameen even provided assistance to professor Du Xiaoshan to establish the Funding for the Poor Cooperative (FPC), using that same strategy.

One of the main reasons Grameen has remained on the sideline is because of regulatory restrictions. The Chinese government has been strangeling the microfinance sector with its restrictions on savings deposits and access to capital markets financing. Microfinance institutions, without legal financial institutions status, have neither of the above options for financing and therefore are unable to scale.

But now the environment is changing and Grameen is ready to get its hands dirty. In the new structure, Grameen Trust will apparently have more flexibility and more legal transparency. However, the savings deposit issue - the bread and butter of the success of the Grameen model - has yet to be determined and looks as though it will not be likley.

While I am excited about the prospects for hands-on involvement of Grameen in China, I am skeptical of the outcome. On one hand, I see the history of a very hands-on Chinese government. And my personal experience in the sector tells me that the Chinese government plans for microfinance to become housed in government banks - namely the Rural Credit Cooperatives (RCCs), not in the NGO sector. On the other hand, Vidar at Grameen tells me that Muhammad Yunus has had some real breakthrough discussions with Madame Wu Yi of the CCP - who was responsible for overseeing China's economy. Yunus told her that the government RCCs are essentially a waste of time and that successful microfinance programs could never be established in them. At first she pushed back, but by the end of their conversation, she saw his point of view and ultimately agreed.

So, once again, we have to chalk the outcome up to "time will tell." Either way, its exciting to think of the possibilities!

Wokai is Official in China

Casey

Almost six months after we starting the Foreign Representative Office registration process, Wokai is finally has official legal status an a Rep. Office in China. In China, it is still impossible for international non-profits to register here is NGOs. The majority of international non-profits operating here therefore simply operate under the radar. Another option in the past was to set up a Foreign Representative Office. This would allow a non-profit to have an office and staff here that would do research and networking but not engage in any direct provision of services, hands on activitiy, or income generating activities.

Our lawyers at Morrison & Foerster here in Beijing had advised that we go the Representative Office route to avoid any doubts that might come from us making repeated fund transfers to our Field Partners. Back in January, we started the application process and the week that we decided to apply, the Ministry of Foreign Commerce changed its Rep Office policy, no longer allowing non-profits to set up rep offices.

Our paths then traversed back to Deleware we set up a Wokai subsidiary holding company (Wokai Inc.) under which we were able to register our rep office two months ago. Two months later, we're an official institution in China...

Check out Wokai China Headquarters:

Thank you Heidi, Auria and Morrison & Foerster for all of your work making this happen!

A glance at China Microfinance

Courtney

Reuters recently published an article about China Microfinance, called China slowly moves to tap microfinance. The article interviewed IFC microfinance guru JinChang Lai, who serves as deputy general manager of the IFC's private enterprise partnership in China.

JinChang recently spoke at the Global Microfinance Investment Conference in NYC on a panel discussion about China Microfinance. The panel highlighted how 2008 will be a critical year for China's rural financial system due to relaxation of restrictions on village banks and microcredit companies as well as the reform of existing institutions. The panel also emphasized that the Chinese government will have a definite role in the large-scale outlay of China Microfinance.

The article gave some updates on the macroeconomic situation in China, which I thought I would ellaborate on.

Q: What does the industry landscape of China Microfinance look like?

A: The China Microfinance industry consists of the following categories:

1.) Government Banks - these include government-run financial institutions involved in microfinance,  which include: a.) Rural Credit Cooperatives (RCC) b.) Postal Savings Bank

2.) Non-Government Organizations (NGOs) - These are microfinance institutions that have been solely or partially started by non-profit institutions. In the case of the latter, an NGO would partner with a local bank to start the program.  Example: Planet Finance

3.) Microcredit Companies - These are the first microfinance programs that are legally recognized in China. There are seven, one of which is foreign-owned called MicroCred

4.) Village Banks - These are organizations that meet the following requirements a.) 20% equity stake held by an established bank  b.) the maximum amount an investor can hold is a 10% equity stake

5.) Networks - These are organizations that provide grants, technical support and ratings systems. They are also responsible for the exchange of ideas via conferences and networking sessions. The one network in China is China Association of Microfinance (CAM)

Q: How many of the above institutions are there?

A: As for government banks, there are over 32,000 RCC branches across China. However not all of those branches participate in microfinance. As for NGOs, there have been over 300 of these organizations since the first pilot program was established in 1994. Today, it is reported that there are about 100 operating NGO microfinance institutions. As for Microcredit Companies, there are about 7. And as for Village Banks, there are about 25.

Q: Who are the big players?

A: In the NGO microfinance world, there are a number of organizations that have been involved including the United Nations Development Program, Planet Finance, Citibank, China International Center for Economic and Technology Exchange (CICETE), Grameen Foundation, Chinese Academy of Social Sciences, and CAMs.

Q: What are the major challenges faced by the industry?

A: There are several issues hindering the sector:

1.) Government is a large constraint on the growth of the microfinance industry. Microfinance institutions do not have a legal status in China. As such, they are not able to mobilize funds through savings deposits (from customers) and/or capital markets (loans from banks or equity offerings).  As a result, microfinance institutions are left reliant on meager government and NGO grants. Many of these grants ae small in size and do not allow microfinance institutions to scale to a size to cover their operating costs.

2.) The microfinance sector is young in China. Microfinance in China started 10-15 years later than it did in other countries like bagladesh and area in Eastern Europe and Latin America. As such, there are few intermediaries to help microfinance institutions with technology, fundraising, training, and capacity building. Therefore microfinance institutions are left to do all of this on their own, which causes various inefficiencies - most importantly a significant drain on funds.