Wokai Adventures

Giant Steps: Great Overview of Current State of China Microfinance

Leslie Forman

Leslie is Wokai's Marketing Director. 

I just came across this excellent article from China International Business that gives a concise overview of the current state of microfinance in China.  Jonathan Haagen profiles PlaNet Finance's work with the Ningxia Yanchi County Association for the Advancement of Women, which Casey and Courtney have visited, and quotes Wokai alumna Kira Dubas. 

The article addresses the main tensions in the field of microfinance: individual success stories vs. macro impact, poverty alleviation vs. commercial viability, large loan sizes vs. vast local outreach, etc.

An excerpt:

historically China’s microfinance institutions (MFIs) have not had the same success as their counterparts in places like Bangladesh, where Nobel Peace Prize winner Mohammad Yunus pioneered the industry with the Grameen Bank. While many MFIs in South Asia have clients numbering in the millions, most of China’s organizations remain small, generally servicing in the region of 3,000 clients.

NO LEGAL STATUS

China’s relative underdevelopment in this sector can be largely attributed to an issue of legal status. Since their inception in the mid-90s, traditional MFIs in China have not been officially recognized as legal entities and have thus been unable to take on any sort of debt investments.

While demand for microcredit services is immense — an estimated 228 million people in China have no access to financial services — regulatory and legal hurdles have prevented the sort of growth seen in other countries.

Last year, however, the Chinese government granted official status to microcredit and microfinance companies. This presents tremendous opportunities and daunting challenges for existing NGOs, which must now transform themselves into regulated financial institutions.

The regulatory changes, which allow organizations to take on debt, are already catalyzing rapid growth in the sector, increasing both the number of people with access to financial services and the size of the loans they can receive. Some in the industry, however, fear that increased opportunities for profits in microfinance may compromise the original mission of poverty alleviation.

Click here to read the rest of the article. 

Credit Certificates, Cotton, and Marriage Prospects in Xinjiang

Hongqing Chen

Hongqing Chen, a Portfolio/Risk Manager, recently joined Wokai’s Seattle Chapter. The article below is a translated version of this article from the Xinhua Daily Telegraph.  You can reach her at hongqingc @ gmail.com. 

Niaz, a 40 year old peasant, lives with his family in Shaoyiluke village, in the Xin He County, Xinjiang Uighur Autonomous Region.  This is China’s vast northwestern province, which borders on Kazakhstan.  He grows cotton on about 3 acres of land. 

Photo of cotton in Xinjiang from chanmelmel on Flickr.

In 2007, he sold his cotton harvest for RMB 26,000.  After paying off a loan for seeds, fertilizer, and pesticides, his net profit was RMB 7,000.  His family used this income to pay for their two children’s school expenses and their daily expenditures.  At the beginning of 2008, he needed a new loan to purchase more seeds, fertilizers, and pesticides.

By normal banking standards, Niaz would not be eligible for a loan, since he does not have collateral or a guarantor.  Shaoyiluke’s agriculture credit union, with two loan officers, serves peasants like him.  Those two loan officers could not know every peasant family well as there are several thousands of families like Niaz’s. 

Photo of Uigher men in Xinjiang by centralasiatraveler on Flickr. 

In order to provide effective evaluation without a huge staff, Xin He County has developed a village credit system.  The village, town government, and credit union jointly elect trustworthy people to form a credit evaluation group.  They look over lending records, production and business process, and lawfulness of each peasant to determine a credit grade in three levels (1A, 2A, and 3A) and issue each peasant a credit lending certificate. 

In Shaoyiluke village, every family has a prospective credit grade nailed to their front door.  1A signifies a lending limit of RMB 10,000, 2A signifies 20,000, and 3A 30,000.  At the end of 2007, 23,900 families (about 91% of total residents in Xin He County) had credit records and grades.

Now, peasants like Niaz can go to credit union and present their certificates to get a loan within half a day.  Xin He County Agriculture Credit Union lent out RMB 353 million with zero default rate in the past three years.  Peasants are very diligent in paying back their loans.  As the Shaoyiluke village leader put it: “Peasants actually are the most trust worthy people.  Who does not care about face?  Those families with no credit certificate on their doors cannot even get girls to marry their sons.”

Stories from Inner Mongolia: Photos from Qiqiga

George Scott

George spent about a month in Chifeng, Inner Mongolia, as the first Wokai Fellow.  Here are his photos from a visit to a borrowers' group meeting in the village of Qiqiga.

The village of Qiqiga just outside Daban.

Rurenqu, the head of a borrowing group in Qiqiga

The whole group in Qiqiga outside Rurnequ's home.

Cu Ye teaching her loan group about various simple cures and measures to help insure they won't get ill during the winter.

A loan repayment of RMB137 being made. In the foreground a mike tea and "milk tofu" what we know as Cheese. The Milk tea is made with salt instead of sugar and cows milk and a kind of tea which originated around North East China in Tibet or Xinjiang, The milk tofu has a similar texture to halumi.

Rurenqu in the doorway to her home. The corn on the left is used to supplement the animal feed during the winter and is stored in the great big icebox that is the Inner Mongolian winter.

Lessons for China from Seattle's Community Capital Development

Hongqing Chen

Hongqing Chen, a Portfolio/Risk Manager, recently joined Wokai’s Seattle Chapter. You can reach her at hongqingc @ gmail.com. 


Jim Thomas, CEO of Seattle's Community Capital Development, has created a great model that could be the answer for many developing countries like China. 

Shown waving in this 2006 photo from USA Today, Jim is a funny, warm, and sharp businessman.  I contacted him via email first on December 16, 2008.  Then a snowstorm hit Seattle area long and hard.  When ice and snow finally gave away to our normal marine climate, I finally had the change to visit him on December 30, 2008.

Unlike Washington CASH, which I profiled here, microfinance is not the sole focus of Community Capital Development (CCD).  Rather, it would be a step up for its graduates. This page outlines its lending terms.  Whereas Washington CASH focuses on helping people to move out of poverty by utilizing their skills, CCD hopes to take them onto prosperity by providing them with more resources.  He took the rein of a HUD (Housing and Urban Development under US Treasury) community development grant of $2.5MM at City of Seattle in 1994 and turned it into a $14.5MM community development lending operation today. Obviously he’s done something right!

“Our mission is job creation.” Jim explained that, for every $35,000 financed by CCD, he expects one job to be created.  His model combines training and financing (similar to Washington CASH).  However, not all applicants are taking the same training courses.  In fact, CCD requires all applicants to attend a seminar first, to assess their needs for further training.  This can last from several hours to several years, depending on the student’s level of business experience.  He estimates that about 1,100 to 1,200 people attend seminars every year, but only 60 to 70 microfinance loans are made in the end. Through the training process, most people come to realize that they are not ready to run their own businesses. 

(This is very true, confirmed by statistics and my own experience.  It is not easy to start a business.  It is even harder to grow it into a profitable venture.  Once it is successful, the business needs to stay on top of its competition in order to sustain itself if not to grow.  It’s hard!)  Through this “self-weeding” process, as Jim put it, CCD suffers very low default rate (5%, less than half of the loss rate of WaMu Home Loans’ portfolio!)

I thought about what I learned from phone calls to friends and family members in China in the past months.  “The major problem in China today is not poverty,” said one high ranking official friend, “It is how to create jobs amid factory closures that is most urgent.”  The other family friends followed such a line.  Apparently, poverty is an old issue that government would like people to overlook until it fixes it somehow someday.  More visible to the outside world now is China's urban development.  A large influx of unemployed workers, including millions of migrant workers who do not want to return to rural villages, is a cause for concern.  From this perspective, Jim Thomas should be a guest of honor to Chinese government at all levels. 

P.S. To read more about the impact of factory closures in China, we recommend this article from the Wall Street Journal , this reaction from our friend Grace Chiang of the Social Venture Group, and this story from Time Magazine. 

Photo from CCTV. 

Social Media Advice from Grandma Ginny: Review Wokai on GreatNonprofits.org!

Leslie Forman

Leslie is Wokai's Marketing Director. She cross-posted this article on Social Actions.

My grandmother, Virginia Swanberg, loves microfinance.  At the age of 85, she frequently sends me emails about interesting articles she's read about the field.  Today she sent me this email:

Leslie

I read an article on the scoop on nonprofits.  It said  there is new web site to check on them.  so I just checked on Wokai.   The Web site is  www.greatnonprofits.org  I just did this and found they were mostly in the USA.  So I hit San Francisco and the word Wokai  The answer was there is no report on Wokai but one in Oakland.   Be the first to write about Wokai !   I did not feel qualified to do this.  Why not try this Website  The article was written by Perla Ni, the founder,. Greatnonprofits.org which reviews nonprofits.

I did not know what category this fit in  as nothing fit it on the side bar--you are better at this than grandma.

Two emails in one hour is pretty good for me.

Grandma Ginny

So, of course, I went straight to GreatNonprofits.org and followed her advice!  I created a profile for Wokai and I invite you all to review us.  Here's the link: http://www.greatnonprofits.org/reviews/profile2/wokai

You can also read more about GreatNonprofits.org in this recent article from the San Francisco Chronicle. 

Here's a recent picture of me with my grandparents and mom at San Francisco's new Academy of Sciences.  I am so lucky to have such an amazing family supporting me and Wokai!  I love you!