U.S. Microfinance NGO Establishes Foothold in China

Beijing — Situated in an inconspicuous alleyway, the traditional Chinese courtyard house passes for any ordinary residential dwelling in the Chinese capital.

Behind its red wooden door, however, lies the headquarters of Wokai (“I Start” in Chinese), a non-profit micro-finance service, registered in Oakland, California. Its mission is to provide small loans to China’s poor in an effort to help them lift themselves out of abject poverty. An estimated 200 million Chinese survive on less than US$1.25 a day.

Dubbed the “Facebook for Farmers,” Wokai has raised US$167,414 from 976 contributors to help 341 recipients.

Inspired by the Nobel Peace Prize winner, Muhammad Yunus, who founded the micro-credit institution Grameen Bank in Bangladesh, Wokai is one of a growing number of micro-finance initiatives in China.

“Seeing China today, you have cities that are growing at such a quick rate, and the countryside is basically stagnant,” Casey Wilson, co-founder and CEO of Wokai, said in an interview. “The only way to start addressing poverty in China is to create sustainable ways of building the countryside, and I thought micro-finance is one of the only tools to do so.”

Wilson describes Wokia’s methods:

With four chapters outside China and an office in Beijing, Wokai relies on its web site for its peer-to-peer loan matching structure that allows potential lenders to browse through the profiles of pre-screened borrowers and select those they wish to help. The minimum donation is US$10.

Wilson launched Wokai in 2007 with Courtney McColgan, a fellow student at a Chinese language programme at Beijing’s Tsinghua University. The two 25-year-old Americans shared a common interest in economic development in China, and Wokai emerged as their joint vision to empower the poor through micro-loans.

“You have about 100 small micro-finance institutions (MFI) of which many are doing great work in China, but they don’t have capital to expand to more clients and increase their impact,” said Wilson.

“We thought what if we can work with these institutions and connect borrowers to contributors around the world.”

The industry benchmarking service, MicroBanking Bulletin, estimates that of the 1,084 MFIs it tracks globally, the median asset size is US$6.4 million with an average borrowing balance of US$525 and an average lending balance of US$145.

Wokai offers loans averaging approximately US$300. This, it said, it sufficient to make a difference when it comes to meaningful investment in simple business improvements or entrepreneurial ventures, such as buying additional livestock or new products.

Most of the targeted loan recipients reside in Inner Mongolia and the quake-affected Sichuan province, and nearly 90 percent of the contributions come from the U.S.

Borrowers are charged an annual interest rate of 15 to 20 percent, which is significantly lower than the International benchmark of 30 to 40 percent.

The repayments are subsequently re-distributed, according to donors’ wishes, to help others in need, and are eventually pooled into a long-term investment fund to generate new loans after three years.

“Careful field partner selection, internationally proven micro-finance best practices and detailed diligence have all been crucial in keeping the default rate low at 0.5%,” said George Xiangwen Zeng, co-president of Wokai’s Hong Kong Chapter, in an interview.

Although a pioneering venture founded on a marriage of altruistic drive and business savvy, Wokai is kept at arm’s length by the Chinese authorities.

It is prohibited from registering as a foreign non-profit entity in China and so operates under a foreign business status that allows it to solicit funds from overseas donors for distribution by the domestic field partners — but prevents it from raising funds directly within mainland China.

Despite China’s gradual relaxation of lending regulations in rural areas, grassroots micro-finance institutions have experienced only moderate success. Some industry experts have identified the lack of government involvement as the root of the problem.

“The role of government is essential to business survival in the mainland, and it’s no different to any NGO efforts,” said Clare Pearson, overseas executive editor of the philanthropy magazine, Charitarian, the only privately-owned English-language publication with official publishing licenses in both China and Hong Kong.

To tackle the access problem, Wilson is seeking a domestic NGO partnership to allow Wokai to tap the domestic donor base.

It is not alone. Other financial institutions are seeking government approval to operate within the micro-finance sector — and to raise funds within the mainland. That includes Grameen China, a joint micro-finance initiative between the Grameen Trust and e-commerce solution provider, Alibaba Group.

This is good news, Daniel Goodman, co-President of Wokai’s Beijing Chapter, said.

“Wokai functions as a capital raising intermediary with the goal to raise funds for rural poverty alleviation in China,” he said. “The entry of additional players and the further growth of micro-finance will help strengthen the industry and increase the number of potential partners we can work with in the future.”

Wilson expects the company to have recruited 10,000 donors by the end of 2010, and to hit a sustainable donor base of between 50,000 to 100,000 in the next three to five years.

“Up until now we’ve been almost exclusively volunteer-based and obviously that’s not sustainable,” said Wilson, “we’d like to reach sustainability off the revenue coming in from our web site when contributors have an option to donate an additional 10 percent to support our operating costs.”