Poverty in China is often overshadowed by average annual GDP growth rates of 9% or more. Nevertheless, according to the World Bank and UN statistics, approximately 200 million Chinese people live on less than US$1.25/day, and approximately 482 million people live on less than US$2/day – a figure that is greater than the populations of the US, Germany and the UK combined.
It is evident that China is struggling with poverty. Despite astonishing economic growth rates in recent decades, the majority of the population in China remains poor, and the government seems to encounter difficulties in its desire to alleviate poverty in China. To help, more than 100 organizations provide microfinance services all throughout China. One of these organizations, Wokai, provides a one of a kind peer-to-peer platform through which individuals around the world can directly engage in microfinance and help alleviate poverty in China.
To appreciate the importance of alleviating poverty in China, Laowaiblog caught up with Casey Wilson, the co-founder of Wokai, and received a personal insight to microfinance in China.
Tell us about Wokai. What was your inspiration in establishing Wokai and how did its creation fall into place?
“I came to China to pursue a career in development; there were basically two reasons why I chose China. First of all, China has the second largest population in the world living under the poverty line. In terms of economic development and alleviating poverty in China, there’s a huge amount that needs to be done. On the other side, in terms of learning about what fosters and hinders economic development, I felt like by living and working in development in China, I could see a significant amount of change in a very short period of time. That was the impetus for moving to China three years ago. How I got specifically involved in microfinance was twofold. One part was meeting my partner, Courtney [McColgan]. She was on a Fulbright at the time studying loan sharks in the informal lending sector in Zhejiang Province and had been involved in microfinance in China for about 3 years. We were classmates at Qinghua University in a program called IUP for people who are either doing business in China or doing Master’s and PhD work where their research is conducted in Chinese.
Watch: Wokai Alleviates Poverty in China
Seeing the way that growth is happening in China, where the cities are growing at such a rapid rate while the countryside has remained more stagnant and you have this expanding rural-urban divide, I thought that microfinance would be one of the only solutions to developing the rural economy. Courtney and I became roommates after we were classmates; it was then that we decided to combine our skills and interests to launch Wokai. The impetus was that we saw that microfinance in China is basically twenty years behind countries like India, Bangladesh and those in Latin America. Microfinance institutions that already existed in China really didn’t have the capital to expand to new clients and increase their impact. By introducing a person-to-person model and connecting people from around the world that have a connection to China…we thought that would be a very powerful, scalable model that could have a big impact on poverty in China.”
What do you identify as the main difficulties for a young entrepreneur in establishing a business in Mainland China? How did you overcome these difficulties in establishing Wokai?
“As with any start-up, we face new challenges each day. When we were starting Wokai, the first hurdles we ran into was the regulatory issues that exist in the finance sector and the regulatory issues that directly impact NGOs, for example, we were not being able to register as a nonprofit in China, so alternatively we registered as an NGO in the US with a foreign representative office in China, but in that case, we are not being able to fundraise domestically in China. Microfinance institutions are in a strange gray area where they’re registered as NGOs but engaged in activity that is also regulated by the financial sector. So, that’s on a regulatory side. more generally, we faced the challenge of being two 23 year-olds starting an organization. Neither of us had ever written a business plan, fundraised, done marketing, microfinance due-diligence, or web development. Everything was new and our learning curves were incredibly steep. While we’ve gained significant experience in those areas over the past three and a half years, I’m always amazed at the new challenges that arise just when I think we’ve figured it all out.”
“Now, most of the regulatory issues are solved. We are now cooperating with China Population Welfare Foundation, everything is on track, so we enter the executive stage, how to develop Wokai, how to make our work more efficient, there is so much to do.”
What makes Wokai unique among aid organizations in China? How does Wokai differ from similar organizations?
“There are about 80-100 NGO microfinance institutions on the ground that are delivering loans directly to rural borrowers (our Field Partners in InnerMongolia and Sichuan are two of those organizations). There are high level associations, such as the China Association of Microfinance, funding organizations, including a group named Youcheng Purong, and there are capacity building groups, such as Planet Finance. Each type of organization serves a specific function. Wokai is the only means of individuals around the world directly engaging in microfinance.”
“Wokai is the only online platform that allows contributors from around the world to fund microloans for individuals suffering in rural poverty in China.”
From international prospective, Wokai is different from Kiva (a non-profit organization with a mission to connect people through lending to alleviate poverty) in a number of ways. First, contributors on Wokai make loan capital donations that will be used year after year to fund new loans. On Kiva, lenders lend loan capital at no interest that then goes through their Field Partners on the ground to the end borrower. Once the loan is repaid, Kiva lenders then take their money out of the system.”
“The second difference is the type of institutions that we’re working with. In microfinance, there’s a pyramid of institutions with four tiers. The first tier of institutions are large with 100,000 clients or more, external ratings and audits, and they have the ability to access capital markets and/or debt and equity investments from larger funds or investors. The fourth tier microfinance institutions have 5,000 clients or less and are really grassroots organizations that need support both in terms of capacity-building and strengthening their internal financial structures and operations as well as capital to scale up. The types of institutions that Kiva works with are those first and second tier institutions that they’re able to cooperate with remotely. We’re working with fourth tier institutions – more of those grassroots institutions that exist in China – which not only need capital but also require offline support in terms of due diligence and helping them in the process of building up their internal strength in accounting and finance. Our model is based on contributions, rather than loans, from our users online and the type of institutions that we’re working with are younger and, along with capital, need on-the-ground support to scale up.”
What is the future of Wokai? Where do you envision the organization in five years?
“In the future, we’re looking forward to expanding our global footprint, both in terms of contributors online (increasing our global contributor community – especially in Asia, as well as launching in the China contributor community) as well as the people and areas that we impact. Over the next year, we hope to raise a total of USD $1.5 million in loan capital to fund over 3,000 loans. Looking into the next 10 years, we aim to help over 100,000 people in rural China to lift themselves from poverty.”