by Chinq Yee Chong - South Asia, East Asia and Pacific, Technology -

MICROCAPITAL.ORG STORY: Wokai Uses Kiva-Like Approach To Channel Funds From US Contributors To Microfinance Clients In Rural China – A Reversal In The Creditor-Debtor Relationship Of Both Countries?

The NBC News World Blog [1] recently disseminated a report entitled ‘Role-reversal: Americans provide loans to Chinese’ [2] which focused on the activities of the California-based MFI, Wokai. Wokai [3] does not currently supply data to the MIX Market portal [4], an online database of information on MFIs across the globe. Wokai was founded eight months ago by Mr Casey Wilson and Ms Courtney McColgan who aim to provide assistance to some of China’s estimated 228 million people that have no access to basic financial services. Wokai’s core operations are in Beijing and the organisation also has active representatives in San Francisco, Seattle and New York. The organisation currently relies on fundraising events, grants, corporate sponsorships and individual donors for funding. Wokai’s work in China is an interesting development, particularly in light of the fact that China recently surpassed Japan as the largest foreign holder of US Treasury bonds. As the largest creditor of the United States, China’s investment in US government issued securities amount to approximately USD 1.5 trillion [5] [6]. Although China may be a fast developing economy, significant numbers of Chinese people in rural areas continue to live on less than USD 1 a day, according to Mr Wilson.

According to its website, Wokai currently works with two field partners. These are Chifeng Zhaowuda Women’s Sustainable Development Association (CZWSDA) and Association for Rural Development of Yilong County (ARDY) [7]. CZWSDA is located in Chifeng, Inner Mongolia and submits data to the MIX Market portal [8]. CZWSDA is stated to have 3128 clients, all of whom are female. Its gross loan porfolio is stated to be USD 1,044,212 and timely repayment rates are said to be over 99 percent. The MFI’s capital/asset ratio is said to be 31.48 percent and its debt/equity ratio is 2.18, as at 2007. Gross loan portfolio to total assets is stated to be 84.68 percent. CZWSDA started working with Wokai in October 2008. ARDY does not currently supply data to the MIX Market. According to information on ARDY’s website [9], the total value of loans provided in January 2009 is Renminbi 897,100 (approximately USD 131, 322). ARDY is located in Yilong County, Sichuan. On Wokai’s website, ARDY is stated to have 2437 clients, 804 of whom are female. It has a gross loan portfolio more than USD 900,000 and started to work with Wokai in February 2009.

Wokai’s on-the-ground team evaluates and monitors its field partners who are responsible for distributing contributions and collecting repayments from recipients in rural China. Wokai’s due-diligence team also provides training to the field partners. Partnerships with new field partners must be approved by Wokai’s investment committee. The field partners screen and select recipients of microloans in their communities and then post their respective profiles on Wokai’s website. Contributors browse these profiles and are able to make tax deductible donations to fund these microloans. Wokai then distributes these funds to the relevant field partner for allocation to the selected recipient. The field partners are responsible for collecting loan repayments and sending updates to Wokai. Upon repayment of the loans, contributors may reinvest their contributions to fund a new microloan. This cycle continues for three loan terms, after which the field partner may use the contributions as long term loan capital. Wokai’s approach is similar to Kiva’s [10] peer-to-peer lending approach, which has been much discussed in previous Microcapital.org publications [11], [12], [13], [14].

According to the report on the NBC News World Blog, Wokai’s recent growth was facilitated by steps taken by the Chinese government in 2006 to grant legal status to privately held MFIs and to relax lending regulations in rural areas. In the past, start-up MFIs in China often operated with no legal status. These early MFIs were not able to apply higher interest rates or attract debt investment, factors which diminished their prospects of long-term sustainability. The report on the NBC News World Blog further stated that the microfinance sector in China has recently attracted the attention of global banks such as Citigroup, HSBC and Standard Chartered Bank. Developments in China’s microfinance industry have been covered in previous Microcapital.org publications [15], [16], [17], [18].  Mr Wilson was quoted as stating that major banks bring significant leverage and legitimacy to the microfinance sector in China. He hopes that this will increase funding opportunities for Wokai in the future. He added that further growth in the microfinance sector in China will take place as and when the government takes steps to relax the regulatory framework in China.

By Chinq Yee Chong, Research Assistant  

Bibliography:  

[1] NBC News World Blog: http://worldblog.msnbc.msn.com/  

[2] Report on ‘Role-reversal: Americans provide loans to Chinese’: http://worldblog.msnbc.msn.com/archive/2009/07/28/2012055.aspx  

[3] Wokai: http://www.wokai.org/  

[4] The MIX Market: http://www.mixmarket.org/   

[5] The Washington Post on ‘China worried about US Debt’: http://www.washingtonpost.com/wp-dyn/content/article/2009/03/13/AR2009031300703.html  

[6] The New York Times on ‘US Budget is Scrutinized by a Big Creditor’: http://www.nytimes.com/2009/07/29/us/politics/29sanger.html  

[7] Association for Rural Development of Yilong County (ARDY): http://en.ardysc.org.cn/  

[8] CZWSDA’s Profile on The MIX Market: http://www.mixmarket.org/mfi/czwsda  

[9] Business Indicators for ARDY’s Branches: http://en.ardysc.org.cn/Financial%20Affairs/2009-07-07/34.html   

[10] Kiva: www.kiva.org/  

[11] MICROCAPITAL STORY: Tori Hogan’s Ninth Episode (Entitled “Micro-lending”) of the Ten-Part Film Series “Beyond Good Intentions” Takes a Critical Look at the Realities of Micro-Lending by Questioning the Impact of the Kiva Model  

[12] MICROCAPITAL PAPER WRAP-UP: Microfinance Managers Consider Online Funding: Is it Finance, Marketing, or Something Else Entirely? by Deborah Burand  

[13] MICROCAPITAL STORY: Kiva.org Launches Email Alerts to Notify Users about Microfinance Lending Opportunities  

[14] MICROCAPITAL STORY: Kiva Lenders Loaned a Record USD $3.6m Despite Economic Downturn  

[15] MICROCAPITAL STORY: Small Business And Rural Finance In China – Low Leverage Ratios  

[16] MICROCAPITAL STORY: The Push and Pull of China’s Microfinance Expansion  

[17] MICROCAPITAL STORY: Citigroup Opens Two Micro-Credit Firms in China Following Recent Rural Banking Initiatives by HSBC Holdings and Standard Chartered in the Region  

[18] MICROCAPITAL STORY: Microloans In China – Recent Experiences In The Ningxia Province

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