Small loans give China's poor a big lift
Micro-financing, which requires self-help on the part of borrowers, provides a way out of poverty trap
By Goh Sui Noi
BEIJING - For 41-year-old farmer Yao Guiqing of Inner Mongolia, a small loan of 1,000 yuan (S$210) three years ago changed her family's life in a way she never would have thought possible.
With their first loan of 1,000 yuan in 1995, Madam Zhao Shurong, 49, and her husband Song Guoquan, 54, of Hebei bought a cow, whose calves they sold for a profit. They are seen here with their second cow, which they were able to buy without getting any loan. -- GOH SUI NOI
Farming their small parcel of land, she and her husband Wang Zhangyou made 2,000 yuan a year, the bulk of which went to land rent and other fees, leaving precious little cash for her family of four. Replacing her dilapidated three-room mud-brick house was a pipe dream.
She wanted to start a small business to increase her family's income but could not raise the money. 'Life was very hard for us,' she said.
Then micro-finance came to her village in 2000 and she was able to borrow 1,000 yuan without collateral.
With the money, she was able to start a small business selling fish and then rice and corn. She not only paid off the loan but also made a profit of 3,000 yuan that first year.
Every year since, she has borrowed money from the micro-finance project supported by the Grameen Trust from Bangladesh and run by the United Nations Development Programme.
This she has used for various work, including spring ploughing and irrigating fields for other farmers for a fee.
In three short years, she has built a new tiled house and looks forward to making 10,000 yuan a year soon.
Lending small sums of money to the very poor has only recently been recognised in China as a sustainable way to alleviate poverty.
Micro-finance was first introduced by UN groups in the 1980s but the projects, also run by other international organisations, were sporadic and had limited impact.
It was only in the 1990s, with the introduction of the Grameen methodology by the Rural Development Institute of the Chinese Academy of Social Sciences (CASS), that a more systemic form of micro-finance was introduced.
The Grameen model, started in Bangladesh some 30 years ago, targets women as borrowers and goes beyond just lending money to actually empowering those who borrow money.
'From our experience, we see that if you are addressing the problem of poverty, providing micro-credit to poor women means that family welfare will be better taken care of,' said Grameen Trust managing director Prof H. I. Latifee.
'Unlike men whose interests are more outside the home, women's dreams and their planning revolve around their children and the condition of their home,' he told The Straits Times when in Beijing recently for a seminar on micro-finance.
'They want to see their children healthier, they want to give them better food and send them to school.'
The system works thus: Women organise themselves into groups of five or six and members of these groups have collective responsibility for their loans - if anyone in the group defaults on repayment, the others cannot take out any loan.
Group members meet every week or fortnight to make their loan repayments, during which they share experiences.
Organising borrowers into groups provided them with confidence, courage and a system of peer support and peer pressure, so that they did not feel isolated or helpless. 'It's a kind of empowerment,' said Prof Latifee.
Loans are by no means soft - borrowers of the scheme run by the Funding the Poor Cooperative of the Rural Development Institute (RDI) of CASS pay 6 to 8 per cent interest. This is so that the scheme is sustainable.
Borrowers start loan repayment from the third week of their receiving the loan, on a weekly basis. The rigorous repayment regime coupled with the support given has meant a low rate of loan defaults.
For example, in Yi county in Hebei province, only 2.4 per cent of more than 14,000 borrowers involved have had difficulties making their repayments.
Moreover, a survey by CASS shows that not only do 75 per cent of borrowers report increases in incomes and assets and better living conditions but many also say there is a clear increase in their status and self-confidence and their ability to undertake investments.
School attendance of their children has improved and there is a greater sense of purpose and activity around their villages.
Respondents also report a decrease in social problems such as stealing.
Since the mid-1990s, micro-finance has been brought under official auspices and recognised by the Chinese government as a way to alleviate poverty.
Besides rural areas, there are micro-financing projects in cities such as Tianjin to help laid-off workers.
But micro-finance still functions outside the realm of the Chinese financial system, on a project basis with funds coming mainly from non- Chinese sources, and is run by non-profit organisations with little government support.
RDI's Prof Du Xiaoshan, who introduced the Grameen model to China, estimated that about 100 counties had or still have micro-finance projects.
But given the large number of poor people in China - 20 million, according to official figures based on the poverty line of 625 yuan per capita per year - there is a need to increase outreach and funding for micro-finance to have real impact.
The time had come to institutionalise the programme, said Prof Latifee. There was also a need for professional staff who were committed to the work.
Agreeing, Prof Du noted that as the FPC programme grew larger, it was encountering problems such as bad loans and staff quality.
But Prof Latifee warned that government involvement should not be more than as a facilitator, and that any policy made should be after consultation with stakeholders such as FPC.
Prof Du said institutionalisation of micro-financing would happen in three years.
For millions of poor Chinese waiting for that little help to break out of poverty, that would not be a moment too soon.
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