This is a blog about microfinancing trend, practice and resources in China. I am currently volunteering for Wokai, a financing institute for MFI orgnaizations in China. This is a journal of my work.

Sunday, March 29, 2009

Notes to self: Media links to Wokai

http://www.nwccw.gov.cn/html/49/n-142249.html 国务院妇女儿童工作委员会
http://www.women.org.cn/allnews/1002/263.html 中华全国妇女联合会
http://www.douban.com/group/topic/2564193/ 豆瓣小组
http://www.nmwomen.org.cn/newsdisp.asp?id=1961 内蒙古妇女网

杜小山办公室联系方法:中国社会科学院农村发展研究所, http://rdi.cass.cn/show_news.asp?id=6617

Thursday, March 26, 2009

Wokai Is the Great Wall against Loan Sharks

In this very informative article, a student researcher JONATHAN HWANG compiled an ecosystem of funding source, so to speak, for the rural poor.

The table in the middle of the article is particularly interesting - it appears that private financing from donnors and MFIs like Wokai is the last defense against unscrupulous loan sharks.

China Was Slow to Embrace Microfinance, But the Government's Attitude is Changing III

To continue the story from last post ...

Although there are still legal and practical hurdles for MFI and organizations like Wokai to operate freely in China, like everything else in that country today, the policys are changing.

According to this article, "China Legalizes Private Lending to Ease Rural Credit Pressure", and this one,

... the central bank said it would formulate regulations on private lenders (which, presumably, includes MFIs) and develop the sector into a significant player in the country's rural money markets.

In October 2008, the government began to allow microfinance institutions to take on commercial debt and permitted Citigroup to open two microfinance banks in Hubei Province (see this CCTV9 clip).

China Was Slow to Embrace Microfinance, But the Government's Attitude is Changing II

To continue the story from last post ...

Although the Chinese government's own anti-poverty policy looks more and more like microfinance, and the government becomes more and more willing to work with international agencies, there are still restrictions on independent, non-government-funded MFIs today.

Two restrictions matter most
1. Non-financial institutions such as NGOs are prohibited from supplying any type of financial services to the poor. Hence, "NGO’s microfinance activities are, in theory, illegal." (as quoted from this article)
2. There is an uniform interest rate ceiling imposed by the government, making MFIs impossible to operate (e.g. reaching out to borrowers)

To be continued ...

Wednesday, March 25, 2009

China Was Slow to Embrace Microfinance, But the Government's Attitude is Changing

China has been slow to embrace microfinance. According to Casey Willson in this video, China's microfinance portfolio is only $200 million, whereas Bangeladash, with a population 1/10 of that of China, has a portfolio of $500 million.

There are many reasons why this is case. In short, China has a super tight control of the banking industry and the credit market in general. While banking industry has always been considered a "strategic industry" by the government (see 薄一波's memoir, in which he recounted how the communists were almost out-maneuvered by Shanghai bankers after they took control of the city), the Asian financial crisis of 1997-98 further stunned the Chinese leaders into uncontrolled-capital-flow skeptics.

For a brief historical review of the Chinese government anti-poverty efforts, you can read this article. In short, the changes were:
1. from direct subsidy to targetted loans and credits
2. from central redistribution only to international cooperation

Keywords: 八七扶贫攻坚计划, 小额扶贫, 杜小山, 扶贫经济合作社

To be continued ...

The Endorsement from the Economist: "Want a safe bet for 2009? Try Microcredit"

BY most accounts, the Economist magazine is no voice for misty eyed studio liberals. Launched over 160 years ago in the Ricardonian era of England, the magazine is known for the pursuit of efficiency and profit for the sake of efficiency and profit.

Therefore, it is striking that in a recent article penned by Leo Abruzzese, its editorial director, the magazine gives a rosy assessment of microfinance as a investment:

A study ... puts the inflation-adjusted returns for lenders (of microfinance) at around 2.5% of assets, on a par with commercial banking. ... a decent return will attract more capital, broaden its reach and make the whole enterprise more sustainable.

Given the loan repayment rate at 96% and above in most cases, no wonder the Economist declares, "Want a safe bet for 2009? Try microcredit"

Even the Wall Street Journal echoes the sentiment. In an article in its Asian flagship publication, WSJ states,

If you are wondering where to park your investments as global financial
markets tumble, rural credit in China may offer a silver lining.

A Small Loan Can Be Psychologically Uplifting for Poor Women in Rural China

Read this article on China Crossroads, a corporate social responsiblity site, about how a small loan changed a Chinese woman's life and her outlook on life as well:

Mrs. Shu is one of thousands of Chinese women that have been empowered –
both economically and personally – through microfinance.

(She says) “Several years before, I relied on part-time jobs…. Everything I did was controlled by other people"

(A small loan from a local MFI helps her to believe now)"if you want to make more money, you have to develop your own self.”

Tuesday, March 17, 2009

Why Microfinance When There Is Plenty of Direct Aid?




If there is plenty of aid to the poor, when bother with microfinance?

Here is a perspective from an economist from Africa: large influx of poorly targeted foreign aid corrupts governments, choke off entrepreneurship and foster dependency.

In her recent book, "Dead Aid", Dambisa Moyo points out that after decades of continuous experiments, direct foreign aid has been proven ineffective--if not counterproductive. Many African countries now have a lower per capita GDP than they did in the 1970s. Here are some reviews of her arguments. To hear what the author in her own words, here is an interview she had with NPR.

Moyo should know this better than many others: she received a PhD in Economics from Oxford, worked for World Bank and Goldman Sachs for eight years. In the interview, she came across as sincere, knowledgeable and articulate.

My view is that aid and microfinance play different roles in the effort to fight poverty. It is not a matter of either-or. But, given the dominance of direct aid, I share her sentiment that it is time to create more space for other alternatives.

Monday, March 16, 2009

Memories of Poverty

Having been following microfinance for the last several years, I come to believe that this is an effective tool against poverty. Being a Chinese native, I always wanted to do something for China, in a meaningful and effective way. The newly established microfinance NGO, Wokai, fits the bill perfectly. So I have decided to contribute to, and to volunteer for Wokai.

My awakening to poverty came rather late, when I was in my early 20s. The college I attended is in a central Chinese city, Hefei, and the campus we lived on was a new extension and was under construction at the time.

Hefei was not a rich city. And the new campus was on the edge of the town. Naturally, the construction hired a lot poor peasants from surrounding areas. They lived in make-shift huts made of bamboo and plastic sheets on muddy ground outside of the construction sites. I visited this impromptu village once, trying to sell the laborers cigarettes my friend and I bought back from Beijing. Following the poor peasants to our campus were even lower lives--the beggars and trash pickers.

On a sunny early spring day, my father stopped by campus for a visit. I took him on a tour of the unfinished labs and classrooms. On our way back to my dorm, a trash picker crossed our path. He has a rather large build for a man in that area, but his back is so hunched that I could barely see his face, under a thick hat with wool ear flaps. Although it was a warm day and my father and I had only light jackets on, the trash picker wore a thickly padded short parka with a thick rope tied at waist.

He may or may not had a trash bag with him. Somehow that detail escaped me. But what I remembered so clearly was his parka. It was dirty alright, and was patched all over. But every patch I could see was cleanly cut, as my grandma used to say, "a square is a square and a circle is a circle". And the patches were sewed on very neatly, so smooth that there was no a single crease I could see on his large, hunched back.

I didn't know whether the trash picker saw us or not. He walked by without a look or a nod, as quiet as a ghost. He didn't smell like I expected a trash picker would either. I couldn't tell his age exactly but I knew he was about my father's years.

The image of this old trash picker stuck in my mind from then on, thanks largely to the evenly sewed patches on his parka.

Since I settled down, I have been giving money to all kinds of "noble" causes. But I haven't done much for the poor. I was never comfortable giving money away to people on the street--you don't know what they are going to do with your money, but you suspect they will come back on the spot tomorrow and ask for more.

In that sense, nothing I have seen so far could alleviate this anxiety better than microfinancing. It channels my contribution not to any poor, but those with hopes of leaving poverty behind and with plans in their mind.

I hope everyone can come to join this enterprise.

About Me

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This is a blog about microfinancing trend, practice and resources in China. I am currently volunteering for Wokai, a financing institute for MFI orgnaizations in China. This is a journal of my work.