By: Amy Chen and Andre Xiao, PlaNet Finance China Summer Interns
Located just two and a half hours by bus from Beijing, Laishui is a quaint town, with streets lined with simple shops and fruit vendors. The county itself consists of fifteen towns and 284 villages, although some of the villages – in mountainous areas especially – are but a far flung collection of houses. Of these, ten towns and 74 villages have an annual income of less than 650RMB (approximately €68) per capita.
The area is largely (74%) mountainous, with the rest being divided into hill (10%) and plains (16%) areas. 340,000 people call Laishui County home, of which there are 3 different ethnicities: Han, Man and Hui. The minorities (Man and Hui ethnicities) consist of 3.2% of the entire population; 70% of the people in Laishui work in the agricultural sector1.
We visited the Laishui branch of the The Funding the Poor Cooperative (FPC) to learn about their microfinance operations and the clients they serve. FPC was launched as a microfinance program in 1993 by the Rural Development Institute (RDI) of the Chinese Academy of Social Sciences (CASS). Now it is operated as an NGO with four branches in Hebei and Henan Provinces. The Laishui branch was started in July 2003, and by July 2007, the branch had 74 centers, 357 groups, and a total of 1,785 members, 100% of them women. The branch has a 12 member strong staff.
Upon arrival we met Ms. Liu Jia Xing 刘家信, the assistant county manager for the Laishui branch. She elaborated on the model used by the FPC for the distribution of the funds. Similar to the Grameen bank model, the FPC gathers borrowers into guarantee groups of five, where each member would guarantee the payment of the others. Variable term periods and interest rates are provided, depending on the requests and needs of the borrowers, with interest rates at approximately 16%. The Laishui branch boasts a 99.87% payback rate with a 100% payback rate for the previous two years (2008 and 2009).
Beyond financing, the branch also provides value-added service to its borrowers to ensure the success of its clients. Training is provided in the form of financial literacy and understanding the terms of the loan. The business plans are evaluated, analyzed and approved or rejected as appropriate. As a specific case study, the FPC once advised a would-be borrower that her business plan to sell cacti as delicacies in cities was unfeasible; eventually, she came back to the FPC with gratitude, as she realized the source she had wanted to buy the cactus seeds from was actually a fraudulent con.
The FPC staff took us into a neighboring village to meet some clients, which we found to be a thrilling experience – even if we found it difficult to understand the Mandarin (pu tong hua) of the Laishui residents at times! Laishui residents usually speak their own dialect, and when they do speak Mandarin, it sounds heavily accented and very different from the Mandarin we were accustomed to in Beijing. Thankfully we were able to understand most of what was said while our hosts graciously introduced their village lifestyle to us.
We traveled upon unpaved, narrow, one-lane roads which led to the home of Ms. Zhang, the villager whom the FPC trusts as “the eyes and ears of the village.” She is a long-time village resident and a loyal FPC borrower, and has gained a strong reputation among FPC and the villagers. If a new borrower approaches the FPC for a loan, the FPC officers will ask Ms. Zhang about the potential borrower’s character and status within the village. If Zhang trusts the potential borrower, then the FPC will trust the borrower and will be more likely to approve the loan.
Ms. Zhang welcomed us inside her modest home and offered us hot tea and fresh apples. When looking around, we were surprised to observe familiar household items – a small, battered looking television set (revealing that her home was wired with electricity) and a simple cell phone. The small house had one large room, which functioned as both the bedroom and the living room, and the back of the room led to a small kitchen. Ms. Zhang gave us a tour of her countless, neat rows and patches of crops. She was most proud of her strawberries, which she said were very profitable when in season.
She also explained how the farmers all tried to diversify their crops, and showed us her peanuts, strawberries, spring onion, and corn. The villagers are also commonly involved with animal husbandry. Ms. Zhang had two large, fat pigs that she had bought with the help of her FPC loan. Each pig had its own brick enclosure about four feet tall. Ms. Zhang revealed that she used to raise cows, and one of her cows produced such a great profit that she put the profits from her cow sale to construct a new house for her son.
One observation we noted in the village was its sanitation problem – garbage was strewn and piled up about a foot high at the outer streets of the village. Despite the problem, the FPC officers explained to us that they are confident about their village’s development, and they hope to see improvements to the garbage problem and have most of their village roads paved within a year.
The trip concluded with a hearty banquet-style lunch with the FPC officers, and we had the opportunity to taste traditional Laishui foods, such as stewed, chilled donkey meat and sweet, sticky dessert sticks.
Amy Chen is an Economics major from Barnard College with a minor in Political Science. Andre Xiao is pursuing a dual degree in International Studies and Finance at the Wharton School and College at the University of Pennsylvania.