Poverty in China
China currently has 300,000,000 people living below the poverty line1. The majority of these individuals reside in remote regions that lack the basic infrastructure and human resources necessary for development. Government poverty alleviation programs have had increasing difficulty in serving these clients due to the high overhead costs of delivering financial services to remote areas2. Formal financial institutions have also offered little assistance, as they are unwilling to offer small-scale financial services to clients without collateral. The Rural Credit Cooperatives (RCCs), the dominant rural finance institution in China with nearly 38,000 branches nationwide, have provided the most hope for china's poor populations. Nevertheless, the Central Bank reports that, at present, RCCs only satisfy around 25% of rural credit demand3. The poor are increasingly being left behind in the wake of China's economic development. while reforms have granted urban dwellers full property rights, individuals in rural areas continue to be denied the right to land ownership. As poor households cannot claim collateral they are thus unable to secure credit, while urbanites have increasing access to financial services. High-quality education, healthcare, housing, and employment opportunities are widely available in urban areas, whereas rural inhabitants continue to have little to no access to such public services and face high unemployment rates. The World Bank reports that China's income inequality has risen from 28 percent in 1981 to 41 percent today, as measured by the Gini index4. China currently has one of the highest income inequalities of all lower-to-middle-income countries worldwide5. It is therefore evident that opportunities for the poor have not increased correspondingly with China's economic growth. |
Microfinance in China Microfinance has helped tens of millions of impoverished individuals to begin the move out of poverty and towards financial self-sufficiency. Microfinance provides financial services (including credit, savings, and insurance) to impoverished individuals who are unable to access credit from formal financial institutions. In China, microfinance loans are generally used for animal husbandry and farming activities, and range from $150 to $700 with a one-year loan period. Microfinance programs have been widely successful in china, as the poor greatly value the opportunity to access financial services otherwise unavailable. Past experience has proven that impoverished individuals are capable of 95% loan repayment rates and that microfinance institutions have the ability to achieve financial sustainability. Government-sponsored microfinance programs have reached the largest number of poor, but offer little by way of training and support services. The majority of non-government microfinance programs, on the other hand, provide high quality service and adhere to international best practice standards. Although these organizations are considered to offer the greatest hope for the microfinance sector in China, their impact remains limited. Non-government microfinance providers are legally prohibited from mobilizing savings deposits and are thus forced to rely on institutional donor funding for financial resources. As this capital source is often limited in size and unsustainable over time, nongovernment microfinance programs have remained small. Their aggregate contribution of $125 million is dwarfed by that of government programs, totaling over $27 billion6. The funding situation for non-government MFIs is only expected to worsen over time, as international donors and foundations move development funds to countries with higher poverty levels. Although the number of inhabitants living under the poverty line remains one of the world largest, relative to other developing countries, it appears small in percentage. Many NGOs and aid organizations are therefore adopting the perspective that the need for poverty alleviation in china is not as urgent as in other developing countries. Wokai FAQ Q: What does Wokai mean? A: Wokai means "I start" in Chinese, representing the entrepreneurial spirit that our organization encourages. Q: What is Microfinance? A: Microfinance provides financial services to impoverished individuals who are unable to access credit from formal financial institutions. Instead of creating a dependency or satisfying a temporary need, microfinance enables the poor to change their own lives by providing access to credit to start a business. We believe microfinance is the most promising model created so far for achieving long-term poverty alleviation. Q: What is a field partner? A: A field partner is a Non-Government Organization (NGO) that provides microfinance services, such as lending, savings deposit collection, training and support services, to the poor. NGO serve as Wokai field partners providing microfinance services to China's poor. Q: What is the role of Wokai's field partners? A: Our field partners are responsible for the management of borrower loans through their microfinance operations. The local knowledge, years of experience, passion and proven success records that make up the core of our field partners allows these institutions to provide borrowers with the tools to succeed. We partner exclusively with field partners that pass our rigorous evaluation process, have proven success records and serve the poorest of the poor. Q: Are loans interest free? A: No. Field partners charge interest rates typically ranging from 8-20% to cover the high costs associated with providing loans, training, monitoring and support services to our borrowers. Q: How does Wokai select field partners? A: Field partners must fulfill the requirements of: - 95% and above loan repayment rate, - Group-guarantee system, - Training and support services, - Majority female borrowers, - Transparent management systems. Once Wokai has identified an field partner that complies with Wokai's basic requirement, a Wokai representative visits the field partner . During that visit, Wokai does extensive due-diligence on the institution's management structure, financial situation, and lending processes and methodology.
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