Wokai Adventures

China speeds up development in central region to cope with financial crisis

Julia Lizama

Julia is a Media Analyst Intern at Wokai's Beijing Office.

The central government announced recently that they are pursuing new efforts to push development in central China. Central China includes the provinces of Shanxi, Henan, Hunan, Hubei, Jiangxi and Anhui, which is home to nearly 28 percent of China’s total population. The Central region is significant not only in terms of demographics, but also in terms of economy as well. In 2008, the combined GDP of the six provinces accounted for nearly a fifth of China’s total GDP (19.3%). In anticipation of a worsening financial crisis ahead, the Government announced one key step to sustain the region’s economy.

Plans are underway to improve transportation networks, such as expanding the railway network up to 34,000 kilometers by 2020. I would say that the move is a smart one, given that the region’s industries (such as mining and human labor) heavily rely on land networks. The 25 airports in the region will all be upgraded by 2010 as well. This way, the improved links with major economic hubs in the East may dampen the effect of the financial meltdown on (let alone boost) their industries by facilitating the flow of goods. Moreover, it’s safe to say that improved linkages normally bring about benefits beyond ease of transportation and increased flow of goods. As more goods and people go in and out of the region, it is likely for more services to make their way into the region as well. Perhaps the influx of manufactured goods (from the raw materials that they produced) can finally reach the most remote areas of the region. Perhaps teachers, nurses and doctors can arrive from the highway. Who knows? A migrant worker can return to his family 2 hours earlier than before. The officials held similar goals in anticipation, expressing that the improved networks can bring in more tourists to the area. None of these unforeseen benefits are guaranteed, of course, but improved transportation network is the first step toward heading in a brighter direction.

Source: Xinhua News Agency

Chinese farmers secure loan using land rights as collateral

By George Scott.

Chinese state run news agency, Xinhua, reported on the 10th of April, in Liaonin province 151 farmers secured a collective loan of 300,000RMB from a rural credit cooperative, using 60 hectors of their collective land and their right to farm it as collateral.

This action, as presently described by Chinese law, is illegal. The sale of land or it’s use as collateral is forbidden. However, Faku county in Liaoning has been chosen for an experimental rural financial scheme with the full backing of the Peoples Bank of China, the Central Bank and the Chinese Banking regulatory Commission. If successful, the scheme could be extended to include over 350,000 households over the next two years.

Back in September, during a visit to the historically significant village of Xiaogang in the eastern province of Anhui, President Hu reveled an important new and encouraging policy direction which would allow farmers to freely transfer their land-use rights – effectively allowing farmers the freedom to trade or dispose of land contracts issued to them by the government, either by re-contracting them or selling them. He was quoted by state media as saying, "Not only must the current farmland contract system be kept stable and permanent, we must also grant farmers more rights and protect their rights to contract and manage land," he went on to say. "At the same time, if farmers want to, we'll allow them to transfer land contracts and management rights through various means to appropriately develop larger-scale operations.”

The revealing of this important step in rural policy came just short of the 17th Central Committee of the Chinese Communist Party (CCP) which began on the 10th October 2008. The village of Xiaogang was particularly significant as it was the home of 18 farmers who in 1978, in direct contradiction of communist ideology, signed a contract to divide up the People’s communally owned farmland into individual pieces called household contracts, for each family to cultivate.

From a purely a historical perspective rural reform is a crucial move politically. The rise and fall of almost every dynasty has been related to farmers and land. More recently illegal land seizures have been a major source of rural instability. According to official statistics, there were 74,000 "mass incidents" or public protests in 2004, with 3.7 million people taking part. In 2005, the number of protests with at least 15 participants totaled 87,000, growing to 90,000 in 2006. Many such protests have been sparked off by land requisitions.

Another important factor to consider is the potential financial boost this could give the rural economy, and the knock on effect that would have unlocking domestic demand. Lu Xueyi, a retired professor at CASS was quoted as saying; "There is a lot of demand in the countryside but 70% of the population is too poor to afford things like television sets, clothes, and so forth,". "Only when reform is carried out and rural income is increased and development speeds up, will you generate internal demand."

What does this mean for the Chinese microcredit industry? One of the needs driving microcredit is that for collateral free lending, if farmers will be able to secure loans on their land or farming rights then this could drastically reduce this need. With the recent surplus of cash provided as a result of recent policies by the government microfinance it would be possible for provide a fuller and more effective service, ensuring that help reaches all of those who need it.

SCAMP  - Farmers are finally allowed to use land rights as loan collateral.
Asia Times - Oct 10th 2008, Chinese Farmers can bank on Farmland.

Online Platforms: How Wokai rates!

Julia Lizama

Julia is a Media Analyst Intern at Wokai's Beijing Office.

Logo credit: www.cgap.org, www.wokai.org

In light of the growing number of online lending platforms, the Consultative Group to Assist the Poor (CGAP)* recently published some guidelines that microfinance institutions (MFIs) should consider before clicking “Yes” to their online partners. As you may well know, online platforms (such as Wokai, KIVA and ZOPA) channel funds from donors to borrowers via MFIs (or other NGOs). From the donors’ standpoint, these platforms are valuable in providing a secure venue that they can trust. They are also convenient, since relative information about MFIs are provided on the website, making it easier for donors decide to which MFI they would like to donate.

MFIs benefit from these platforms as well, not only in terms of the breadth of funds but also in terms of the speed with which the funds reach the MFI. Finally, MFIs benefit from the publicity garnered from being featured online. For all these reasons, MFIs show a demonstrated interest in developing a partnership with online platforms. Yet CGAP notes that there are risks associated with choosing the online platforms because they vary in structure (i.e., objectives, methodology, regulatory obligations depending on where they are based). CGAP recommends that MFIs consider the following eight questions before developing a partnership with online platforms.

We decided to take this opportunity to challenge Wokai and see how it rates as an online giving marketplace. Feel free to pipe in and call us out on anything we’re missing!

1. Which online platforms can be counted on to provide funding in the amount and at the time when needed, and what additional support do they offer to help the MFI?

This question is best answered by thinking of Wokai as a service provider that has a duty to deliver “customer satisfaction.” For example, customers value consistency and legitimacy of a company. Wokai ensures consistency because the funds that Wokai raises are distributed with regularity, and the process of collecting and distributing funds is transparent. What’s more, Wokai ensures “customer satisfaction” by providing Field Partners with technical assistance and training.

2. What is the cost and currency of the online funding, and who bears the foreign exchange risk?

The online funding is collected and distributed in US dollars, and the MFIs exchange the currency themselves. This way, we can make sure that the flow of funds between Wokai and the MFIs remain accurate.

3. What are the reporting requirements for the MFI?

Wokai’s periodically sends over members of our team to evaluate our Field Partners. Additionally, MFIs have monthly reporting obligations.

4. How will the MFI manage abrupt and perhaps unpredictable shifts in funding patterns?

MFIs regularly disperse loans to clients regardless of the financial flow, because MFIs have a duty to support their clients with funds. The MFIs first cover the necessary amount with their own money then it will be supplemented by Wokai’s funds.

Photo credit: www.cgap.org

5. How do more traditional lenders to the MFI view borrowing from online sources?

It’s difficult to say, because traditional lenders to MFIs (investment funds, banks, and other financial institutions) and organizations working on online platforms have different objectives. Speaking from Wokai’s experience, we have always been received favorably and have successfully forged partnerships with them. Wokai has several corporate sponsorships, which have allowed us to provide more loans with better quality.

6. What management information system (MIS) is adequate to meet microcredit portfolio reporting needs?

Association for Rural Development of Yilong County (ARDY) uses SWAP, with the help of software developers. Chifeng Zhaowuda Women's Sustainable Development Association (CZWSDA) does not use MIS.

7. What customer privacy and consumer protection concerns are posed by posting client information online?

Aside from the fact that we don’t ask unnecessary personal questions, the information that we receive from our clients (both donors and borrowers) is only used for institutional purposes. We never post information that breaches consumer privacy, such as specific contact information.

8. What due diligence about online platforms should the MFI conduct to satisfy anti-money laundering and anti-terrorist financing rules?

Our policies in the contracts that we sign with donors state that money laundering and anti-trust is illegal. It is made clear that should they be discovered committing illegal acts, they would be subject to contract termination. What’s more, funds are transferred through big institutions that have established credibility.

Well, we’ve gone through all of the questions. We think that Wokai’s scoresheet looks great. How about you? Let us know how you think Wokai rates!

*CGAP is an independent policy and research center dedicated to advancing financial access for the world’s poor.

Wokai's China Microfinance Series: Financial Sector Development in China

Geri Mason & Jason Korsmeyer

The quaint town of Pingyao has been deemed a UNESCO World Heritage site not only for its charm but also for being the first banking hub in China. Strategically located on the Silk Road, it provided an ideal location to develop banking services.  The creation of “piaohaos,” or banking firms, pioneered currency conversion and credit in China during the Qing Dynasty (early 19th century). There were as many as 22 draft banks in the city in the height of its career on the Silk Road, around 1823. (Global Heritage Fund)

 

In spite of these early origins, modern finance in China did not begin until after the founding of the People’s Republic of China in 1949.  The construction of the financial sector can be divided into three distinct eras: the “mono-bank” era, the “experimental reform” era, and the “market liberalism” era.  This article will briefly explain how these three eras shaped the current financial sector.

October 1, 1949 marks the inauguration of the PRC.  Under the direction of Mao Zedong, the PRC embarked on creating a society focused on eliminating class distinctions and disparities. To achieve this end, the Chinese Communist Party (CCP) implemented a centralized planning system that allocated all goods and services within China.  Out of this rigidly planned society, a financial sector was developed.  Due to this unique formation, all financial services were performed by one bank, the People’s Bank of China (PBOC).  Specifically, it allocated and collected funds for all government economic programs.  This period is known as the “mono-bank era.”

While China has maintained a unitary political system, there has been much reform in the financial sector.  In 1978, the CCP launched decentralizing economic reforms, beginning the “experimental reform” era.  The first fiscal reform created a new revenue sharing system.   This system established 3 new categories – national, local, and shared revenue – giving individual provinces greater control over revenue collection and expenditures. Additional state banks were chartered, ending the mono-bank era.

While this reform enabled the government to collect taxes, there were still inherent budgeting difficulties in a centrally planned economy.  Therefore, in 1983 the CCP shifted away from direct grants to interest bearing loans as a mechanism for distributing funds to the provinces.  This change gave the financial system more strength, which in turn shifted the focus of the loans towards performance. 

As policies strengthened local economies, the central government’s budgetary revenues steadily declined. In 1994 the tax sharing system was launched to increase the revenue of the central government and make China’s tax system more transparent.   Thus, the “market liberalism” era began.
It is important to note that while China was reforming economically, it was also adjusting politically. 

The early 1990s saw a shift in Chinese politics.  This was due to a new set of politicians who were willing to adopt market-based approaches to solve China’s financial and economic challenges.   On July 1, 1995, as part of this new approach, China enacted the Commercial Bank and Central Bank laws.  The Commercial Bank law directed the four major state-owned banks to commercialize,  while the Central Bank law made the People’s Bank of China the central bank of China responsible for monetary policy. 

These laws were enacted in order to make commercial banks more economically efficient and less politically motivated.  It was specifically stated in the Central Bank law that these reforms were enacted to be “free from intervention by local governments, public organizations, individuals, or other administrative organs at all levels.”

It is also important to note that in 1994 three “policy” banks were established.  These “policy” banks were responsible for directing government funds devoted to development and welfare objectives.  The creation of these banks was intended to limit the government’s credit allocation, allowing for greater supervision while maintaining a channel for the government to address poverty alleviation goals. 

However, the goal of easing local pressure on state banks was not realized.  Continued pressure to take on bad loans to mitigate poverty and employment concerns caused state banks to accumulate a massive number of non-performing loans.   So, in 1999 the CCP established four asset management corporations (AMCs) which would take over non-performing loans and debts.  The AMCs would repackage these loans and sell them to investors.  Unfortunately, the AMCs were ineffective and by the end of 2003 the four major state owned banks’ non-performing loans totaled 2 trillion Yuan.  

Since 1999, China has continued to liberalize its financial system to correct market inefficiencies.  Highlights include the first bank public offerings in 2000, China’s entrance to the WTO in 2001, and the creation of the China Banking Regulatory Commission (CBRC).  However, the CCP’s regulations still severely hinder the financial market.  As of 2003, less than one percent of the loans from state owned banks were going to private enterprises, leaving a large demand for credit throughout China.   While this abundance of demand is a pronounced indicator of inefficiencies, it also signals a large potential market.  China’s economic reform, while sporadic, has consistently liberalized. Further reform of the banking and financial sector (including the microfinance sector) will improve economic efficiency and strengthen market growth.

Reference:

Global Heritage Fund website. Retrieved March 16, 2009. www.globalheritagefund.org/where/PingYao.html

Jun Zhang, Guanghua Wan, Yu Jin. (February 2007) The Financial Deepening-Productivity Nexus in China: 1987-2001 United Nations University

Lardy, Nicholas (1998) The Challenge of Bank Restructuring in China Brookings Institution Press

Mingming Zhou. Hasan, Iftekhar. (August 2006) Financial Sector Development and Growth United Nations University

Tsai, Kellee. (Fall 2004) The Unintended Consequences of Fiscal Federalism in China Journal of Chinese Political Science, vol.9, no.2

United States Department of Commerce website.  Retrieved October 10, 2007. www.commerce.gov

Yasheng Huang. Saich, Tony. Steinfeld, Edward. (2005) Financial Sector Reform in China. Harvard Univerty Asia Center

Zhicheng Liang. (August 2006) Financial Development, Growth, and Regional Disparty in Post-Reform China. United Nations University

Wokai is featured on the Newsweek blog!!

Casey

We're excited to announce that Wokai was just featured on the Newsweek blog! Please share this article with anyone you can think of who would be interested in learning more about China microfinance and Wokai.

 

Facebook for China's Farmers

Melinda Liu

Take a couple of tech-savvy American college grads, 200 million poverty-stricken Chinese, the internet, a digital camera, and a healthy dose of altruism. What have you got? Nick Mackie reports from rural Sichuan on an innovative scheme to lend money to poor farmers:

Two Chinese rural loan officers –- plus 25-year-old American Casey Wilson, who’s splattered with mud after slipping on a rutted track – arrive by foot at a remote hamlet in Sichuan's Yilong County.  There farmer Xu Guiqiong, who at one point pulls up vegetables for pig fodder, explains she needs about USD $450 to feed her animals.

Xu, 36, has four sows. Two have just had litters; the other two are pregnant. She now needs a micro-loan in order to fatten the piglets up over the next five months and, hopefully, sell them for a handsome profit. The two officers, from the county’s micro-credit association, feel that Xu is a safe bet to lend to.

But they still aim to do their homework. “We will visit neighbours in the area to get a general feeling about the borrower,” explains Chen Lin of the Association for Rural Development of Yilong (ARDY). “For sure, some will speak well and some will speak badly about [the candidate]. Then we can make our own opinions. Basically, in every village we can find someone who knows everybody.”

Xu is one of tens of millions of Chinese who used work away from home -- a rural-born migrant worker. But she and her husband returned to their village of Shenxi in 2007 to care for their parents (now in their 60's) and their two kids. Now they need to break out of the poverty trap. Their plan is to use a loan to develop her animal husbandry venture -- then keep buying more pigs with their profits in order to grow a small breeding business.

So long as market prices don't work against her, the math make sense. “Keep investing! Bank interest is so low, nearly zero,” cries Xu. “But if I invest RMB 10,000 next year, I might double it.” She’s a textbook micro-credit client in a village where the alternative is to borrow from local loan sharks, who typically charge 20 percent interest daily and drag borrowers into a debt trap.

Stifled by Restrictions

The country’s Postal Savings and other rural banks proclaim unsecured loan facilities –- heeding the government’s call to help kickstart countryside enterprises. But, in reality, villagers say these institutions are not interested in amounts much under US$ 3,000. Moreover local managers want loans to be guaranteed.

Compared with rural India and Bangladesh, it's more difficult for China's villagers to procure affordable, legitimate, unsecured, small loans. The micro-credit industry here is both underdeveloped and stifled by restrictive regulations. First and foremost, micro-lenders can only work with donations; they’re not allowed to take deposits.

The ARDY association in Yilong County, manages a US$ 900,000 fund. In the course of 12 months, the money is loaned out and repaid up to 2.5 times. There’s a one percent bad debt default rate. “The majority of our funds come from projects of international organizations and government donations,” says Li Shibing, ARDY’s Vice General Secretary, “When the farmer pays backs a loan, we’ll lend it out again, immediately, either to someone else or to the same person.” ARDY’s own overheads are financed from interest payments of between 16 and 20 percent per year.

With tens of millions of unemployed city factory workers returning to the townships, demand for small loans is growing. But because of current legislation, micro-credit can only expand in China if there are more donations. The trouble is, in this global economic crisis, donor fatigue abounds as do concerns about misused pledged cash.

Facebook for Farmers

So China needs innovative and nimble ways round the funding roadblocks.  One promising solution is offered by Wokai -– which translates as “I open". It’s the brainchild of Wilson and her college chum Courtney McColgan. Both studied development economics in the U.S. and met during an intensive Chinese course at Tsinghua University in Beijing.

Like not a few great ideas, Wokai came to fruition after several bottles of Guinness on St. Patrick’s Day. “Wokai acts kind of like a Facebook for farmers in rural China," says Wilson, Wokai's CEO and Co-Founder. “We post their pictures, their stories and their loan requests online and contributors from all over the world can browse their stories and select someone to contribute to,

Wokai links mainly small donors from all over the world with the people who actually use their money. The website has details of each project, its repayment performance, plus the names of those who've contributed.  Launched in November 2008, the 40-plus borrowers to date are typically women earning less than US$ 1.25 per day who use the cash to raise pigs or run small shops and food stalls in nearby towns.

As for donors, many in the U.S. have some connection to China. Some are  American-born Chinese, others parents who’ve adopted Chinese children.

Tight Budgets

While Wokai can act as a micro-credit conduit, it must work with local partners like ARDY that identify potential “clients” and administer the money. Wokai also needs sponsors and donors to cover its own operating costs, since 100 percent of all donations go to the borrowers and field partners keep the interest payments. To keep Wokai’s travel, website and staff expenses down, Wilson usually rides buses and trains -– and stays in the homes of field partners -- when she’s conducting a site visit. “It’s one thing to get people to go online and support our borrowers,” explains Wilson. “ It’s another thing to get funds to support our actual organization.” As a new non-profit organization, it’s a tough sell trying to get individuals and companies to make large donations.

With the help of around 100 fundraising volunteers - notably in the US - Wokai has ambitious plans to help more farmers like Xu Guiqiong. “Within the next three years, we hope to raise close to US$ 2.2 million from 17,000 users online – and that’ll fund over 6,000 recipients to start small businesses,” predicts Wilson.

Trudging back with her to the nearby town of Zhouhe, I thought the Wokai model made sense –- so long as the organization gets sufficient support to hire good personnel as it grows. That may not be easy given the current state of world economies and rising unemployment in China. There’s certainly a disconnect between the government’s idealistic vision for the countryside and the rules governing the micro-credit sector.

---------------------------------

Here are some photos that I took while I was down in Sichuan with the reporter doing this story:

Top - right to left: Nick Mackie (Newsweek Blog contributor and CNBC reporter), Chen Jin - ARDY's Wokai designated loan officer who writes all of the Wokai profiles, Vice-Director Li, Gong Shifu, Bottom: Dolfin - Nick's Assistant, Mrs. Wang - ARDY Zhouhe Branch Accountant, Ms. Chen - ARDY's Wokai Liason, and ARDY's Zhouhe Branch Director

  Nick Mackie with Xu Guiqiong, the borrower mentioned in this Newsweek piece

Frogs, Cellphones & The Cloud – The next wave of technology in microfinance

Casey Wilson

Today I spoke at U Penn’s annual microfinance panel, along with David del Ser, (founder of Frogtek) and Saket Sinha from IBM. Here, I want to share some things that I learned that day. For example, how Frogtek and IBM’s technologies have the potential to take microfinance to a whole new level.

Frogtek is creating a mobile application that will enable microvendors to track of all of their transactions on their own personal smart phone.

Photo credit: blog.frogtek.org

It works by letting microvendors enter all of their purchases, sales, receivables, and even microloans on their cellphone. They can then see a record of all of their expenses, as well as debts owed to them by customers. The application also produces financial reports, which is also recorded in the phone. Frogtek then uploads and stores all of the data onto its servers, which is open for review to major producers, like Pepsi and Proctor & Gamble. Needless to say, this market data is incredibly valuable on the producers’ end. On the microvendors’ end, Frogtek’s technology is important because it provides those who previously had no way of using smart technology to track their financial activities (e.g., tracking their cash flows and receivables, projecting inventory needs). Application of this technology also allows them to increase efficiency in two ways: 1) having access to business information and 2) managing their entire business from the convenience of their cell phone. To give you some perspective, imagine a restaurant that records all of their sales and expenses by pen or paper, or maybe just putting them in a big shoebox. The use of Frogtek technology by microvendors is like this restaurant upgrading to a combination of a computer cash register and Quickbooks. This way, our hypothetical restaurant (and our real-life microvendors) can track all of their business transactions and project what they’ll need to stock on for the next day.

All of this brings immense hope to the microfinance world, but my only question about Frogtek is whether its technology is a few years ahead of its time. Frogtek’s technology requires clients to have a smartphone and a dataplan. Well the issue is that though the majority of the world’s population has cellphones, only a small percent have smartphones. In China, for example, other than a few of my expat friends, I don’t know anyone who has a smartphone or data plan. Moreover, dataplans are costly, over $50/month, which is far out of the range of the average person in the countryside earning $1.5/day. On the brighter side, technology changes quickly, so it’s not to far-fetched to anticipate that in two years time, everyone will have internet access on their cellphones for a few dollars a month. Until then, however, the prospects for this type of technology to go mainstream seem bleak.

Let’s all turn to IBM now. IBM is in the process of revolutionizing MIS (management information system) technology. Instead of the current status quo where each microfinance institution (MFI) has its own MIS system hosted on its own server, IBM is moving microfinance to “The Cloud”, maintaining all of the MFI transaction data in a single massive database. In India, quite a number of MFIs have committed to using their system and, with MFIs sharing the costs of a single system rather than each maintaining their own MIS, IBM has been able to lower information system transaction costs to around $0.13 cents per loan. If this trend becomes the new norm, MFIs will no longer need their own IT team, MIS customization and maintenance team, not to mention increase efficiency. This could enable fourth tier MFIs that often don’t have MIS systems to have a new means to track transaction and control risk, giving them the foundation necessary to scale and attract investment.

Though the actual implementation of these technologies, let alone their feasibility, is yet to be seen, it is certainly welcoming news that microfinance, along with other industries, can reap the benefits of modern technology.

SKS Micro plans to launch operations in China

Julia Lizama

Julia is a Media Analyst Intern at Wokai's Beijing Office.

We have some good news to share with supporters of microfinance in China. Last week, SKS Microfinance, one of the largest and fastest growing microfinance institutions (MFIs) in the world, announced their plans to launch operations in China. SKS currently has more than 1,200 branches throughout India and holds over $350 million in assets. They are eyeing China as the next destination for expansion, and if their plan proceeds successfully, it would signify a huge step forward in promoting microfinance in China.

 

Photo credit: www.sksindia.com

How is it beneficial for China? SKS benefits from sponsorships with leading institutions such as Citigroup and Barclays PLC. Their expansion in China will not only broaden the pool of funds for Chinese borrowers, but will also grab the attention of other MFIs who have yet to consider China for microfinance. We shouldn’t be too excited yet, however. Reporters anticipate that in all likelihood, SKS will have to face many regulatory challenges before operating in China.

 

Photo credit: images.businessweek.com

The news comes at an opportune time, given China’s current economic hardship. China’s rapid and immense growth in recent years has grabbed headlines all over the world. Yet the recent global economic meltdown is posing serious challenges to the dynamic economy. China’s economy is mostly export-driven. As consumers worldwide hold onto their wallets, demands for and purchases of Chinese goods will inevitably decline. China will have a tougher time sustaining the export-driven growth model. In turn, as China cuts back on domestic production, many workers will lose their jobs. Some of you following the news might have heard that more than 20 million migrant workers have lost jobs this year. In anticipation of growing unemployment and economic hardships ahead, SKS’s announcement to expand their operations in China is a welcoming news for those concerned about poverty alleviation and rural development in China.

For full story, click here.

News from rural China: Government subsidy to improve the quality of life for China's rural inhabitants.

George Scott

According to the People’s Daily, over the next three years, the Chinese government is aiming to sell 600 million home and kitchen appliances to their rural inhabitants and is aimed at helping to modernize and improve the life’s of many rural residents whilst at the same time stimulating domestic demand to compensate for waning foreign demand for Chinese manufactured goods.

家电下乡Jia dian xia xiang, “Home appliances to the countryside” is a rebate scheme designed to encourage the purchase of home and electrical appliances by rural residents, which went nationwide after the Spring Festival this year. 

Originally piloted in three provinces in 2007: Shandong, Sichuan and Henan, the scheme will allow rural purchasers to receive a 13 percent rebate on the price of televisions up to the value of 2,000 yuan, fridges up to 2,500 yuan, washing machines up to 2,000 yuan, and mobile phones up to 1,000 yuan. In theory this will have two important effects: the first as a means to counter balance waning foreign demand for manufactured goods by tapping into a potential market of 700 million consumers in rural china, helping prevent further job losses in the manufacturing sector; the second is to help modernize rural China, raising their standard of living and making their lives more comfortable. 

However the scheme hasn’t gone as smoothly as expected. An article published by British publication, the Daily Telegraph, highlights a series of problems that have been encountered implementing the scheme. The list sighted a complicated rebate process making it difficult for customers to actually obtain the rebate, as well as unscrupulous shop owners increasing the prices of the goods prior to applying the discount as factors, both as factors detracting from the schemes effectiveness.

In spite of these potential pit falls preliminary results convinced authorities it was worth extending nationwide. During the first 20 days of January, "Chinese farmers had bought more than 160,000 subsidized goods. This is already 90 percent of the total sold in December 2008." (Chinaview.cn, 30 January 2009)

Sources: China View, ChinaBizGov

 

 

Concluding Remarks from Wokai SF's Inaugural Drinks for a Better World Event

Christina Zhao

Christina is the Events Associate for Wokai's San Francisco - Bay Area Chapter.

Having always wanted to turn every little activity amongst friends into an “event”, I realized that my true calling in life is event planning. With a background in finance and finance only, Wokai offered me the amazing opportunity to be in charge of chapter events and to learn as I do.

 

The Bay Area Wokai family celebrating a successful launch of our Drinks for a Better World campaign with, you guessed it, WOKA-KAZE shots!

As the newly minted Events Associate for Wokai, I am ecstatic to be sharing the wonderful news of our first fundraising event of 2009. Last Thursday (March 26, 2009), over 200 individuals gathered at San Francisco’s premier happy hour spot, Taverna Aventine, to celebrate Wokai’s inaugural Drinks for a Better World (DFBW) event. This event was a tremendous success and with everyone’s hard work and contributions, we managed to raise over $2,500 in suggested donations! To put things into better perspective, US$2,500 in China is enough to cover the cost of 40 roundtrip overnight train tickets from Wokai's Beijing Headquarters to our field partner in Inner Mongolia in addition to one full year of housing accommodations for a Wokai Fellow on location. Talk about having a long lasting impact!

The Bay Area Chapter’s DFBW campaign follows in the footsteps of our Beijing counterpart and has a vision of providing an easily accessible and social environment where young professionals with a similar desire for social change and philanthropy can come together to meet one another and to exchange valuable new ideas.

 

Thursday’s event would not have been possible without the generous support of the owners of Aventine as well as one of the most wonderful and down to earth girls I know, Summer Huff, Peroni and Pilsner account representative. With their help, Wokai was able to take over the bar from 6 to 9 pm and offer attendees drink specials such as $3 Peronis and $4 Woka-kaze shots (our take on the traditional kamikaze, another success!). Even though the event was scheduled to conclude at 9 pm, seeing so many of our guests having such a great time mingling, I did not have the heart to break up the party and the event went on until well past 10:30pm.

One of the main objectives for putting together this event was to raise awareness for microfinance in China and to spread the word about the impactful difference a simple $25 contribution can make in someone else’s life. My fellow Wokai volunteers acted as “information spreaders” that evening to ensure that every person in attendance understood our mission and all the different venues through which they can help. We were extremely successful in garnering interest and even received numerous requests from individuals who wanted to become volunteers.

This whole experience, from the planning stages, to securing a venue, to heavily publicizing to friends and colleagues, and finally to the post-event group dinner where volunteers and Wokai friends celebrated the success together, was an extremely heartwarming one. I have learned that when you are truly passionate about something, that type of enthusiasm and excitement becomes contagious to others around you and those people want nothing more than to see you succeed. And for that, I am forever grateful!

To all those who attended this event, I sincerely appreciate your support and hope that you had as much fun as I did. Please stay tuned because the next Wokai Drinks for a Better World will be even better.

In the meantime, please save the date for Wokai’s launch event “Dollars Without Borders: Growing Microfinance in China.” It will take place inside the Ferry Building on Sunday, June 28th, 2009 and will include guest speakers such as Premal Shah, President of Kiva, and Maya Chorengel, Managing Director of UNITUS Equity Fund; the premier of a short-film How the Rural Half Lives; a silent auction; as well as breathtaking views of the San Francisco waterfront. Feel free to reach out to me if you want any more details and I look forward to seeing you soon at the next Wokai event! 干杯 (Cheers)!

Wokai China Microfinance Series: The Idea of Microfinance

Geri Mason

The Idea of Microfinance

Microfinance: (n) small finance; various financial services and transactions carried out on a micro, small, tiny scale; financial services, loans, savings, deposit collections, in small denominations. Non-traditional relationships between a financial institution and a customer, based on human interaction rather than on collateral, profit volume, and legal recourse.

Microfinance is more than just small finance. It’s more than a $25 loan or a $5 profit. It’s a door to walk through. Another option in a place where there aren’t many. It’s a network of relationships, built of time and trust. People are what makes microfinance work. Lenders, borrowers, donors, entrepreneurs, families, communities.

Microfinance has a significant impact on the levels of production and consumption in the local economy, increasing both. Wenzhou is considered the most entrepreneurial city in China, with over 300,000 small businesses. The roots of this wealth of production are modest and familiar: microfinance. Microfinace, in the form of informal extended-family credit, fueled Wenzhou's manufacturing boom in the late 20th Century.

As small businesses start and grow, so do incomes. Opportunities increase in the community, and so does income and consumption. This provides the chance for advancement and growth to related businesses as well, who then repeat the cycle, spreading the benefits further. It is the same principle that drives the fiscal policies of the governments in developed countries: the Multiplier Effect. It is what drove the economic development of the isolated city of Wenzhou, China, to the flourishing manufacturing center it has become. It becomes an avalanche of growth.

A Financial Times article in December 2008 featured the story of Li Anlian, a Wenzhou entrepreneur, who owns a shoe factory started with a micro loan. She now employs 3800 people in her factory and produces 10 million shoes annually. Many factories in Wenzhou boast a similar tale. In fact, according to the Financial Times article, for anyone who uses a cigarette lighter, there is a 70 per cent chance it was made in Wenzhou.

 

Wenzhou is not thriving today as it has for the last three decades. With the current financial crisis spreading as far as the manufacturing industry in China, foreign demand is hurting an industry that depends heavily on exports. Microfinance is becoming a crucial source of credit for threatened entrepreneurs facing lower export demand from their best customers, including the United States. Many factories are facing closure, no longer able to find markets for their products overseas or access the credit they need to keep them operating in this period of reduced revenue.

“China’s financial system has not opened up enough,” says Yao Xianguo, dean of the College of Public Administration at Zhejiang University. “Big private companies increasingly rely on the government while smaller firms suffer from their inability to get loans from state-owned banks.”

Microfinance has an important role to play in China. It is more than one small loan for one poor person, although that is where it starts. The idea of microfinance is the idea of life: we are all interconnected. Change one person’s life and it will affect others’. No snowflake in an avalanche ever feels responsible. (Voltaire) Whose life will you change?

Visit www.wokai.org and click on the contribute tab. Want to start an avalanche?