Most people know about Muhammad Yunus’ Grameen Bank, what with him being a Nobel Peace Prize winner and all. But there’s also an organization called Grameen Foundation, which, although it has no legal ties to Yunus’ bank, nevertheless follows his principles. It’s not a source of capital; it’s more of a lubricator for capital and expertise to flow from people who have it to people who don’t have it but need it.
The EU Chamber of Commerce in Shanghai arranged for a presentation by Grameen Foundation’s East and Southeast Asia Regional Coordinator, Kate Druschel, about its activities in China. I wrote about China’s nascent venture philanthropy scene for this month’s magazine, so I was particularly interested to hear that Grameen Foundation would be ramping up its activities here.
As usual, we give you the highlights:
-220 million people live on less than US$1 a day in China
-China’s microfinance industry started in the late 90s when Dr Du Xiaoshan went from Beijing to Bangladesh to learn the Grameen Bank model from Muhd Yunus. He returned to China and now runs an organization called Funding for the Poor Cooperative (FPC), a microfinance institution, which now has 15,000 clients.
-Grameen Foundation’s been monitoring China for a few years, but only recently decided to increase its participation here. The reason was that in the past, “government regulations” limited local microfinance institutions’ activities. But growing liberalization of the finance and banking sector, and the central government’s “harmonious society” drive now means that microfinanciers have more support and freedom.
-During the question and answer session, someone asked, (a question to the effect of) if microfinance works so well, why’s Bangladesh still poor? “We consider it a basketcase,” Druschel said with a laugh. On a more serious note, she said that 3,000 Grameen Bank clients in Bangladesh, all women, now held public office of some kind after getting support from the bank. [This requires an explanation: According to Druschel, women are more likely to repay loan, and therefore most of Grameen Bank’s clients are women. In Bangladesh, women traditionally take a backseat to men.] These Grameen clients were sufficiently empowered to run for public office and get voted in. Surely this will be an effect of microfinance that the central government here has noted.
-Another participant asked how China’s big banks took to microfinance. Not too well, according to Druschel. She said most banks in their current form were fundamentally unable to act in the way required for microfinance to work. They either need to form close partnerships with local microfinance institutions/NGOs or spin off a subsidiary to handle all microfinance-related business.
-What’s the interest rate on microfinance loans in China? A whopping 15-16%, which is “on the low end,” she said. “The microfinance model is very expensive.” This high interest rate is offset by a high-frequency payment schedule, two or three times a month. Because the payments are small, and because loan officers work very closely and personally with borrowers, the repayment rate is still high. Grameen Bank’s repayment rates have topped 95%.
-What happens to defaulters? Sometimes legal action is taken, although rarely, because it’s a very inefficient way to get your money back. Usually a new payment schedule is worked out with the borrower that takes into account real obstacles to payment, say pigs that have suddenly died from disease. Microfinanciers don’t force defaulters to pay if it means they can’t feed their families. “These are high-risk loans and they are provisioned for accordingly,” she said.