Currently, when we talk about "microfinance", we usually mention "financial Inclusion". At the end of last century, when we talked about microfinance, we talked more about microcredit. If replication means success, there are few projects that can be as successful as microcredit in the field of international development, which covers hundreds of millions of low-income people.
The traditional microfinance model is aimed at women, who participate in group insurance and weekly repayments. It was born out of Bangladesh in the 1970s. There is a widely circulated story about its origin: a young man named Muhammad Yunus, who obtained his doctorate in economics in the United States. Bangladesh had just won the war of independence when he returned to his country. He went to teach in the Department of Economics at Chittagong University. Yunus met a woman named Sufiya Begum in a survey. Sufiya makes a living by weaving bamboo stools. Because she can't afford 22 cents, she can only buy bamboo from raw material suppliers on credit, and then sell them to suppliers at a low price. She earns only 2 cents a day from weaving bamboo stools, which is too small to make a living for herself, not to mention her three children. It seems that Sufiya would not be able to escape the poverty trap without a loan of 22 cents at a reasonable cost (interest).
So Yunus launched a program to provide microfinance to women who had similar experiences with Sufiya to help them escape the poverty trap through entrepreneurship (self-employment). After about ten years, the experiment has proved that the poor are not only able to support themselves and repay their loans but that the service of providing loans to the poor can be profitable. The program was developed in 1983 by the Grameen Bank, which has millions of female clients. Afterwards, it spawned the Grameen Trust in 1989, which aims to promote the traditional microfinance model of helping the poor.
After the dual goals of "helping the poor" and "profitability" of microfinance were achieved worldwide, a Bolivian non-profit organization (NGO) was transformed into a commercial institution, BancoSol, in 1992, and a wave of commercialization of microcredit was set off. Since then, more and more NGO microfinance projects have been transformed into regulated financial institutions in order to attract commercial investment, reduce dependence on donations and enhance their financial sustainability. Microfinance entered in a period of rapid growth of the industry. However, a new risk occurs: the mission deviates.
China's development workers have been paying attention to the success of microfinance. In the 1990s, the Institute of Rural Development in the Chinese Academy of Social Sciences, the United Nations Development Programme (UNDP), the United Nations Children's Fund (UNICEF) and other organizations introduced the classical microfinance model to China as a part of the rural poverty alleviation and development project. Local NGOs such as the Fuping School in Beijing have also begun to explore innovative experiments different from the classical microfinance model such as community funds, family loan, and loan and repay a lump sum.
However, the experiment of microfinance targeting low-income people in China is not as successful as of that in Bangladesh. In the 21st century, almost all the microfinance projects tested in China have expired, most of which are unsustainable and finally closed down. A small number of them survived reluctantly, registered as "social organizations" or "private non-enterprises". They transformed from projects to institutions. It is different from the commercial transformation that began ten years ago in the world. The restructuring of China's local microfinance experiment only solves the problem of survival, but not development.
Because of the awkward situation of the early local microfinance program, Chinese policymakers have to make a new balance between the social objection and financial objection of microfinance. At the beginning of the new century, China's policymakers chose to target small and medium-sized enterprises rather than just low-income groups.
With the support of the World Bank and the German Bank for Reconstruction (KfW), the National Development Bank launched the "Small Enterprise Loan Project of the National Development Bank" in 2005. It commissioned the International Project Consulting Corporation (IPC) to provide advisory services to 12 urban commercial banks. The purpose is to strengthen the organization and business of the financial industry and to enable micro-enterprises to obtain sustained services from traditional financial institutions. Since then, many small and medium-sized commercial banks in China have begun to consider small and micro-loans as a new way to make profit. They provide small and medium-sized enterprises and individual businesses with loans ranging from hundreds of thousands to tens of millions of Yuan. Several successful examples have been produced.
At the same time, the People's Bank of China, the China Banking Regulatory Commission, the Ministry of Commerce, the Ministry of Agriculture, the Poverty Alleviation Office of the State Council, the General Administration of Industry and Commerce and other departments consulted to organize a pilot project of small loan companies in Shanxi, Sichuan, Guizhou, Inner Mongolia and Shaanxi in 2005. On this basis, in 2008, the CBRC promulgated the Guiding Opinion on the Pilot Project of Microfinance Companies (No. 23, 2008), pushing the pilot project of microfinance companies to the whole country, and encouraging private capital to invest and establish microfinance companies which provide loans to others but don’t receive deposits. Since then, in just six or seven years, there have been nearly 10,000 microfinance companies in China, with a loan balance of about 2 trillion yuan.
In recent years, China's Internet finance has developed rapidly and has been the leader in the world. China Inclusive Finance International Forum (2016) was set to the theme of "new technology and new strategy", and proposed that Inclusive Finance has become a national strategy, which should establish a financial service system for all the people on the premise of controllable risk and sustainable business. Digital Inclusive Finance based on new technologies such as mobile interconnection, cloud computing and big data is the most controllable means to realize inclusive finance at present. At the subsequent Hangzhou Summit (G20), the authority of China proposed to consider the "High Principles of Digital Inclusive Finance of G-20" and spread relevant experience to the world.
In the new century, after more than ten years of commercialization of international microfinance, some institutions have begun to raise money through initial public offering (IPO), which has earned high returns for investors. For example, Compartamos Banco in Mexico raised $467 million in 2007 and SKS Microfinance Ltd in India raised $354 million in 2010. In addition, Mohamed Yunus who was nearly 70 years old won the Nobel Peace Prize in 2006 for founding the Grameen Bank, which is committed to improving the economic and social status of vulnerable groups. In many public occasions, he criticized the practice of commercial microfinance for high profits, saying: "Microfinance is not a business about money, but a business about people!"
Two months after SKS Microfinance went public, the microfinance crisis broke out in Andhra Pradesh, India. Initially, people thought 57 borrowing farmers had committed suicide because of debt collection. The government temporarily enacted laws to restrict debt collection and arrested a few credit officers. Later, with the heightened media coverage of the event, increasingly more borrowing farmers no longer repay and just take a wait-and-see approach. Eventually it became large-scale loan overdue. The crisis not only caused huge losses to microfinance institutions, but also aroused people’s doubt and criticism on microfinance worldwide. It also gave birth to SMART customer protection movement centered on avoiding excessive debt. Microfinance seems to have transformed overnight from an angel helping the poor out of poverty to a demon stained with the blood of the poor.
Six random trials published in the American Economic Journal in the January 2015 show that microfinance has no significant impact on income growth, household consumption, women's right, education, or health input. However, microfinance is impactful in encouraging entrepreneurship (self-employment) and durable goods investment. Although many international media interpret it as "useless microcredit", the Bangladesh Rural Development Commission (BRAC), one of the three largest and most influential microfinance institutions in Bangladesh, said poverty is a complex problem that cannot be eliminated by a single solution. Microfinance is one of the many solutions to the complex problem of poverty. It's obviously not enough, but it is indispensable.
She is smiling as she walks out of Yang’s chicken farm, holding a booklet and discussing microloans with a prospective applicant. She reminds him to complete the forms and explains that she’ll return in a few days to collect them.
Her manner is friendly and sincere, but it is her confidence that shines most brightly. Li Hong is a representative of the Yongji Fuping Microcredit Co. Ltd.(Yongji Fuping), and her job is to empower people in rural, low-income areas to become small-business owners.
After leaving her job as a private teacher ten years ago, she didn’t want to end up mired in housework or laboring in the fields. That’s when she joined Yongji Fuping as a microloan broker. In the six years since, she’s risen to the rank of Assistant Director, but her rise was not without setbacks. In fact, things became so problematic in the first few months that she once feared she’d be fired.
“When I started working here, I thought I’d just have to chat with people from the village, gather information, give out loans and collect loan payments,” Li Hong recalls. She believed that with the communications skills honed during her teaching years, the job would be effortless. She was in for a rude awakening.
A series of setbacks shook her confidence, and interactions with the villagers became excruciating. “I could barely speak. As soon as I opened my mouth, people rejected me. People from my own hometown. They assumed I was part of a pyramid scheme, and I became known as someone who went around trying to cajole people.”
Though she can now laugh at these setbacks, at that time she was really devastated. Her diminished confidence led her to question her self-worth. She retreated further and further into her shell, and was afraid to speak up in meetings.
The very thought of helping others improve their lives became a cruel irony.
One day Li Hong’s manager asked to see her. “I thought this was the end,” she admits. In fact, he only wanted to help her. He began by sharing his own stories of rejection, of the many challenges he faced when getting started. And then he helped Li Hong analyse the causes for her difficulties and the steps she could take to get beyond them.
Li Hong quickly realized that though setbacks are inevitable, you’re not a failure until you give up. The most important thing is to keep trying. Every difficulty brings with it an opportunity to learn, to grow, to become stronger. Embracing this wisdom, Li Hong felt as if a great weight had been lifted from her shoulders.
From that point on, Li Hong’s performance steadily improved. The only pathway towards progress is through undying pursuit of excellence. Though aware that not every attempt would end in success, she was no longer afraid of failure. This enabled her to regain the confidence. She also embarked on a journey of self-improvement, taking training courses, broadening her perspective, and sharing experiences with her co-workers.
Li Hong’s transformation also had a positive effect on her family. In addition to providing financially, she’d always valued her roles as wife and mother. Now, she was able to teach her son important life lessons based on her work experiences. She became a role model in his eyes. Having the support of her family further strengthened Li Hong’s resolve, so that during even the most challenging times, she remains optimistic and does her job exceptionally well.
Li Hong’s willingness to keey trying in the face of adversity allowed her to achieve far more than she thought possible. Though it was her hard work and tenacity that led to her success, she gives much of the credit to her employer. “Thanks to Fuping for trusting me and all the people working here,” she says. “And thanks to them for providing an opportunity for us farmers to become well-trained professionals.”
In one of her favorite books, There is Only One Most Important Matter, a passage states, “In our lives there are many important things, but there is only one most important matter. We must discover what that is. Then undertake what we should undertake. Persevere in what we have chosen.”
Li Hong has done just that.
Microfinance is hardly a new concept for the public. Many people regard it as a business service that provides customers with financial support in exchange for high commercial returns. However, for the rural farmers who have actually used microcredit, the loaned money is not only full with social mission, but a booster for a better life, helping the disadvantaged break the bottleneck of life, realize their dreams, and even escape the cruel cycle of poverty.
You can make money, but you can’t replace a life.
“Old” Yang is a farmer in Zhongxiao village of Heming Town. He is over 50-year old but with half of his hair white. Six year ago, his son got married and Yang soon became a grandfather. He couldn’t have been happier when he mentioned these things.
Yang had never been afraid to face the challenges in his life, but when it was discovered that his grandson had epilepsy, he was distressed. The boy was hospitalized, but even after the family almost spent all their savings, his epilepsy had not been brought under control. They needed more money for treatment. “You can make money, but you can’t replace a life.” Yang said to himself as he held his beloved grandson. “But how are we going to make money?” Perhaps pigs are the answer, he thought. He could raise some piglets in his free time to increase income.
But Yang was worried that even if he sold the two pigs, the only “property” he had, the proceeds would not bring in enough to buy piglets. When a representative from Chengdu Dayi Fuping Microcredit Co., Ltd. introduced microcredit service to him, Yang discussed with his families several times and finally decided to borrow loans from Fuping in order to buy pigs.
In the beginning, he applied for 20,000RMB to buy 15 piglets. The loan was quickly approved. As planned, Yang bought the piglets and several months later sold them. Just like that, he had earned several thousand RMB. He repeated the cycle several times, and, as his credit improved, the amount he was able to borrow increased from 20,000 RMB to 35,000 RMB. Eventually, his grandson’s epilepsy was brought under control, and Yang and his family were once again happy.
The Magic Lamp
As far back as she can remember, Yao Mengyi wanted to be a kindergarten teacher. It was a big dream for someone from rural Shanxi Province, and though her parents and in-laws are not well educated, they liked the idea of having a teacher in the family. She left home to attend an early childhood education certification program. In 1998, she graduated from the junior college and began teaching in public and private preschools. Though she enjoyed her work and gained valuable experience, she couldn’t stop thinking about the children of her village. Determined to provide a better education for the children in her hometown, she embarked on a tough journey to open a preschool in her village.
In 2002, Mengyi returned home and opened Sunshine Preschool. Running her own school was even more challenging than she’d imagined. Though she has overcome many challenges and difficulties, a severe fire in 2005 forced her to close down the preschool. Even so, Mengyi refused to leave her dream in the ashes. The following year, she reopened her preschool in a nearby village, and for the past ten years has been providing local pre-school children with their first taste of formal education. Though rewarding, it hasn’t been easy, and financial pressures sometimes threaten the school’s survival. This is when Mengyi turns to the “magic lamp,” her nickname for Fuping Microcredit. “Each time I have a financial problem, I just rub the lamp and the Fuping genie pops out to solve it.” Since 2009, she has applied for four microloans from Fuping Microcredit, and the magic lamp has always delivered. She used the loans to equip her preschool with outdoor facilities and essential activity materials.
Later on, Mengyi kept moving forward on her way and began to take in charge of another local preschool. She is not only the mother of a girl and a boy, but also feels a maternal connection to all the children in her school. Her parents-in-laws also enjoy helping out at her schools, further enhancing the familial environment. And so, the dream comes true—with a little help from the magic lamp.
Born a Farmer, Destined to Change Lives
Cao Kang was born on a farm, raised on a farm, and had his identity shaped on a farm. But his destiny would take him beyond the fields in which his family toiled. After his discharge from the army in 2001, Kang returned home. But because jobs were extremely scarce, he once again found himself laboring in the fields. Soon, he began a logistics management job at a local professional training center. One day, he learned that a nearby school did not provide lunches for its students. Most of these children lived with their grandparents, for their parents were away, trying to make a living in the cities. Having no money to buy their own food, the students either skipped lunch or walked—sometimes miles—to their homes to eat, and then raced back to class. Kang was certain there was a better way. He spoke to the school and helped them devise a plan to open a cafeteria. It was an immediate success. Not only did it serve lunch, it also became a haven—a safe place for the children to study after school as they waited for their grandparents to come and take them home.
Nine years later, as the kids grew up and their grandparents became older, Kang rose to another challenge: he opened a home for the elderly. This time, however, he faced significantly greater challenges. There were complications in securing and maintaining a suitable site, financial difficulties, and, as more and more elderly took up residence, it became necessary to expand services. With no other recourse, Kang turned to Yongi Fuping Microcredit Co., Ltd. Though initially he was able to borrow only a small sum, the loan was granted quickly and it proved to be a great help in meeting the immediate challenges.
From ensuring that schoolchildren are able to eat a proper lunch, to providing the elderly with a safe and caring home, Cao Kang has worked to fulfil his destiny of helping others. Yongji Fuping Microcredit. takes a non-traditional way to help people like Cao Kang—people with a heartfelt desire to improve the lives of the rural poor. We are committed to lift people who can identify local people’s needs and carry out concrete steps to turn ideas into real practices.
With heart-felt capitals, non-profit microfinance can make dreams come true and inspire us all.