Xindanwei Chitchat edition 8: Wokai’s talk
Time: 16:30 – 18:30 June 4, 2010
Microfinance is the business of making very small (“micro”-sized) loans to very poor people who would otherwise have no access to capital, so that they can start their own small businesses. These borrowers, or entrepreneurs, repay the loan with interest over the course of 6-12 months. Muhammed Yunus pioneered microfinance in the 1980s, with a focus on Bangladesh and India, for which he was eventually awarded the Nobel Peace Prize in 2006. The beauty of microfinance is that it is not only socially viable but also commercially viable because it helps poor people to help themselves, creates new jobs, and achieves sustainability.
Despite having spread to most developing countries (in Southeast Asia, South America, and Africa), microfinance is a very nascent industry in China. The Chinese government did not allow microfinance institutions (“MFIs”) to charge higher interest on loans than those of local Chinese banks. However microfinance is not simply lending people money, but also includes travelling to the most rural areas of China to access borrowers, teaching them how to start and run small businesses, and tracking their progress regularly – all expensive work. Therefore in order for microfinance to be sustainable, it needs to charge higher interest rates. Still, it remains cheaper than the alternatives (loan sharks) and, more importantly, Chinese banks do not provide any loans to poor people as it is not profitable and their models are based on collateral. In any case, MFIs would not survive in China with their interest rates capped.
As the Olympics drew closer, local Chinese banks began closing down rural branches and moving towards cities. This made it even more difficult for rural Chinese to access capital, a growing problem which the government needed to address, so in 2004 the government lifted interest rate restrictions and allowed MFIs to charge up to four times the interest rates of local banks. Thus 2004 was the year that international microfinance entered China. Today, local banks charge 4-5% interest on their loans; now MFIs can charge 16-20% interest.
In the spring of 2007, Courtney and Casey started Wokai, which means “I Start” in Chinese and conveys our mission to help people start new lives by founding their own businesses. By signing up on our website (www.wokai.org), one can view specific borrower profiles entailing a picture, the borrower’s dollar requirement and for what purpose, and more, and then choose which borrower to help. Wokai fills a niche in Chinese microfinance because it is the first international person-to-person microfinance organisation that connects individual philanthropists around the globe directly with specific micro-entrepreneurs that they choose to fund in China, via our website. Wokai meets the growing demand for micro-loans by providing MFIs with the capital needed to make loans.
Still there remains the issue that one cannot repatriate cash and therefore the loan cannot be taken out of China. So instead of relying on loans, Wokai relies on donations. After the borrower repays the loan, the money is not returned to the contributor, instead the contributor chooses another borrower from the website to whom the loan should help next. The loan is recycled out and so each donation goes much further than the average proposal.
Wokai has grown to include 9 chapters in San Francisco, Seattle, New York City, Beijing, Hong Kong, Shanghai, Los Angeles, Boston, and Toronto; 200 interns, volunteers and advisors; 11 corporate sponsors and 2 NGO field partners in Inner Mongolia and Sichuan. With the help of these supporters, Wokai is now a 501(c)(3) non-profit organisation in the US with a Representative Office in China, and currently in the process of being registered as a non-profit in Hong Kong. It has raised USD153,000 online from 1,000 contributors since launching, and has enabled 300 recipients in rural China to start small businesses. Wokai is now a ‘movement’ of sorts helping to raise awareness of entrepreneurial solutions to poverty amongst American students, as well as solving poverty itself. Wokai has also become a media darling, having been featured in TIME, the San Francisco Chronicle, Newsweek, China Daily, CCTV News, and Phoenix, and CEO Casey was interviewed in November by Bloomberg Asia’s Bernie Lo, TVB Channel and South China Morning Post in Hong Kong.
