Microcredit Benefits Cattle Business in Inner Mongolia
On December 18, 2010, under the support of the financial administration office of Inner Mongolia, Kerchin Cattle Company (KCC) and Dongxin Microcredit Company (DMC) announced a joint microcredit project aimed to support and benefit local cattle farmers. A cooperation ceremony took place in Kezuohouqi in Tongliao City, an area renowned for cattle-rearing and the location of KCC’s headquarters.
Kezuohouqi, sometimes referred to as “the home of cattle”, has long depended on cattle-rearing to drive the local economy. However in recent years, local cattle farmers have faced increasing difficulties securing capital for short-term needs such as purchasing feed. In an effort to promote the local economy and raise living standards, the provincial government is promoting local cattle business and encouraging financial support for related economic activities.
Under the government’s initiatives, DMC began a project to provide loans totaling RMB 10 million charging a monthly interest rate of 1.25% to local cattle farmers. KCC, a beef manufacturer with national distribution networks, will support the microcredit program by serving as loan guarantor and subsidizing 0.6% of the 1.25% interest rate. As a result, borrowers will pay a reduced monthly interest rate of 0.65%. Since all borrowers are suppliers to KCC, in addition to corporate social responsibility, their involvement will have an effect on their supply chain.
For added security, DMC requires borrowers to serve as joint guarantors for fellow borrowers. Borrowers form groups of five, the group serves to guarantee all five members. With two levels of guarantors, one from KCC and another from the group guarantee, DMC effectively minimize their risk and subsequently are able to charge a substantially lower interest rate.
Fang Dianwu, a farmer who recently received a loan of RMB 30,000 under this project maintains a positive attitude to this new project; he says, “During the peak season, I usually have a shortage of funds for purchasing feed, because of this loan, I am now able to afford it and it gives me encouragement.” Fang mentions he would have to pay approximately RMB 1,000 more in interest payments if he were to borrow from existing channels.
By providing cattle farmers with low-interest loans, the project encourages the growth of the cattle industry in the local market. KCC’s active involvement in the project exemplifies a case where a Small and Medium Sized Enterprise (SME) uses microcredit to directly affect their supply chain. By serving as guarantor and subsidizing interest, KCC can help its individual suppliers meet working capital needs and subsequently expand their business. Local cattle farmers will then be able to produce more cattle and subsequently boost the supply for KCC. Additionally, increased financial support for this industry may attract other local residents to join the industry, again, leading to a growth in potential suppliers.
While microcredit has traditionally been seen as a relationship between a financial institution and individual micro-entrepreneurs, this case illustrates a multi-party collaboration that uses the synergies of all parties to provide a product at lower cost. PlaNet Finance is seeing increasing numbers of rural supply-chain related financing mechanisms being created, services which enhance the profile of MCCs in supporting the rural sector.
Dongxin Microcredit Company (DMC) Headquartered in Hohhot, Inner Mongolia, DMC was established on December 16, 2008; DMC’s current registered capital stands at RMB 400 million. In addition to the Hohhut headquarters, DMC has a branch located in Erdos City, Inner Mongolia. The DMC philosophy is to provide services with “integrity, professionalism and innovation”. DMC currently offers eight micro-credit products ranging from individual loans for farmers to SME lending.
http://www.nmgdongxin.com/index.asp (Chinese only)
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