Grameen Foundation Field Trip Day 1: Chengdu to Langzhong (閬中)
The irony of this trip was not entirely lost on me especially with many Asian markets closing down another 10% yesterday. As the US markets were opening, I was jokingly skyping with CN, who works for a hedge fund: "It seems the people (microcredit clients) I'm about to meet this weekend, who are disconnected from the financial system, seem to be making out fairly well in this global financial market meltdown."
As we in the developed world are panicking about whether our asset values might be wiped out, we forget that there's still a large population of the world that is isolated from all of this. I learned this morning in the Microfinance 101 session given by Grameen Foundation's Kate Druschel that in China alone there are around 130 million people (10% of China's population) living on less than US$1/day, that's more than a third of the population in the United States. 64% of rural inhabitants have no access to financial services such as a savings account, ATMs, money transfer services, let alone credit. It's definitely a funny feeling coming from a world where we are going through a real crisis in our financial system which we're fast losing faith in, and go on a trip to meet people trying to get connected with just the most basic services that our financial system offers, services that we take for granted.
One component of microfinance is microcredit, which is lending small sums of money (in the case of ARDPAS around US$500/loan) to people with no credit history, no collatoral, no business experience. N, who is from Los Angeles and manages a bond fund found this idea simply mind-blowing. But then I pointed out that one of the definitions of credit is to believe, trust, or have faith in someone/something, and in this case it's a belief in people's desire and capacity to provide for themselves and their family the best they can, that's really their collatoral. Our banks were making loans based on collatoral and look where it's gotten us. What's lacking for people in poverty is not a lack of credibility or even repayment ability (we learned that Langzhong borrowers have a 100% repayment history since 2005, 95% since World Bank started the program in 1996), but lack of access to the building blocks of opportunity, whether it's infrastructure (the closer a rural household is to a road, the wealthier they are), technology or start-up/growth capital.
Muhammad Yunus and the Grameen Bank, which won the Nobel Peace Prize in 2006 30 years after its founding, have demonstrated that the microfinance model can work. In Bangladesh, Grameen Bank has nearly 7.6 million borrowers spread among 99% of the country's villages, with many having progressed out of poverty. Grameen Bank is not just self-sustaining, it is a profitable social business owned by its borrowers. Grameen Bank, of course, is the shining example within the microfinance industry. In China, microfinance is still in its infancy with challenges to scale. Microfinance institutions in China face regulatory roadblocks, which do not allow them to access debt capital. ARDPAS, for example, is funded solely by grants from Zhejiang Province, Grameen Trust and a wealthy Taiwanese benefactor. They also lack technology to administer loans, trained loan officers and management expertise. Currently, there's a huge gap between supply and demand. In order to meet demand, it's estimated the microfinance industry would need 10-12 million new staff. Again, China is presenting a huge opportunity for growth. Currently, ARDPAS, one of 300 such institutions, lends to around 2,500 clients, just a drop in the 130 million bucket.
While we panic over our world heading for recession, it's worth thinking about the whole other world of potential waiting to connect with ours. Right now, it's looking like we could help each other.
Much of today was spent on the road making the 7-hour trip from Chengdu to Langzhong. For photos, visit the photo album on Facebook.
As we in the developed world are panicking about whether our asset values might be wiped out, we forget that there's still a large population of the world that is isolated from all of this. I learned this morning in the Microfinance 101 session given by Grameen Foundation's Kate Druschel that in China alone there are around 130 million people (10% of China's population) living on less than US$1/day, that's more than a third of the population in the United States. 64% of rural inhabitants have no access to financial services such as a savings account, ATMs, money transfer services, let alone credit. It's definitely a funny feeling coming from a world where we are going through a real crisis in our financial system which we're fast losing faith in, and go on a trip to meet people trying to get connected with just the most basic services that our financial system offers, services that we take for granted.
One component of microfinance is microcredit, which is lending small sums of money (in the case of ARDPAS around US$500/loan) to people with no credit history, no collatoral, no business experience. N, who is from Los Angeles and manages a bond fund found this idea simply mind-blowing. But then I pointed out that one of the definitions of credit is to believe, trust, or have faith in someone/something, and in this case it's a belief in people's desire and capacity to provide for themselves and their family the best they can, that's really their collatoral. Our banks were making loans based on collatoral and look where it's gotten us. What's lacking for people in poverty is not a lack of credibility or even repayment ability (we learned that Langzhong borrowers have a 100% repayment history since 2005, 95% since World Bank started the program in 1996), but lack of access to the building blocks of opportunity, whether it's infrastructure (the closer a rural household is to a road, the wealthier they are), technology or start-up/growth capital.
Muhammad Yunus and the Grameen Bank, which won the Nobel Peace Prize in 2006 30 years after its founding, have demonstrated that the microfinance model can work. In Bangladesh, Grameen Bank has nearly 7.6 million borrowers spread among 99% of the country's villages, with many having progressed out of poverty. Grameen Bank is not just self-sustaining, it is a profitable social business owned by its borrowers. Grameen Bank, of course, is the shining example within the microfinance industry. In China, microfinance is still in its infancy with challenges to scale. Microfinance institutions in China face regulatory roadblocks, which do not allow them to access debt capital. ARDPAS, for example, is funded solely by grants from Zhejiang Province, Grameen Trust and a wealthy Taiwanese benefactor. They also lack technology to administer loans, trained loan officers and management expertise. Currently, there's a huge gap between supply and demand. In order to meet demand, it's estimated the microfinance industry would need 10-12 million new staff. Again, China is presenting a huge opportunity for growth. Currently, ARDPAS, one of 300 such institutions, lends to around 2,500 clients, just a drop in the 130 million bucket.
While we panic over our world heading for recession, it's worth thinking about the whole other world of potential waiting to connect with ours. Right now, it's looking like we could help each other.
Much of today was spent on the road making the 7-hour trip from Chengdu to Langzhong. For photos, visit the photo album on Facebook.
Labels: China, microfinance, Sichuan
posted by 10000miles at 22:27
1 Comments:
What a wonderful enterprise and a great experience to get involved with.
Muhammed Yusuf was one of my role models and an inspiration for me when I went to INSEAD. One of the things I had (rather idealistically) wanted to do was to re-design the global financial system.
Funny how corralled of our intended paths we can become.
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