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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.
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.
Tag(s): Featured, Down on the Farm