By Michael Ardaiolo
Wokai (我开), a non-profit microfinance organization in China, is winding down their operations according to their website. Due to “unexpected funding road blocks” in their search for a new CEO, the Board of Directors unanimously decided to use the remaining resources to bring their operations to a finish.
New contributions may stop coming in, but the money already donated will continue to be put to good use:
Moving forward, our Field Partners have committed to use the loan capital contributed to date to provide a continuous cycle of new loans to micro-entreprenuers in China’s rural Sichuan and Inner Mongolia Provinces. With this commitment, over the next ten years, over 9,000 micro-entrepreneurs should have the opportunity to lift themselves, their families, and communities out of poverty.
Two American university graduates, Casey Wilson and Courtney McColgan, founded Wokai in 2007. The organization, whose name translates to “I start” or “I open,” is the first transparent person-to-person web-based platform that connects contributors from around the world with borrowers in rural China living below the poverty line.
Wokai in a nutshell
The Wokai website operates like most social media outlets but with a philanthropic twist. An interested contributor browses profiles of rural Chinese entrepreneurs to learn their backstory and why they are currently seeking a loan. One past example featured a woman from Fuxin Town. A mother of two children, she and her husband were left with a large financial burden after her husband’s father passed away. She was asking for USD$616 to buy bedding products to start a small business of her own. A potential donor could directly contribute to this woman, or one of the many other rural inhabitants (mostly women) seeking to build a business to potentially lift their families out of poverty.
Why microfinance matters
Microfinance is an especially important tool for micro-entrepreneurs and small businesses in rural China areas. Many of the people in need do not have access or the collateral to receive loans from official channels. The result is one of the largest informal lending sectors in the world. According to an interview with CEO Casey Wilson, about 50% of all credit in China comes from loan sharks. In addition, government regulations prohibit proper microfinance institutions on the ground from accessing debt or equity investment. Wilson’s inspired answer was to scrap lenders in place of contributors and to use the donations to create a revolving loan fund.
If economic jargon is not your thing, don’t worry; the revolving loan process is rather intuitive. Say you decide you want to help the aforementioned woman. You first donate a portion of her request. Once the full amount is acquired, that money is sent to Wokai’s Field Partners in her area. These Field Partners, who vetted the woman before she was given an online profile with a comprehensive on-site evaluation system, issue the loan directly to her with a 15% to 20% interest rate. (The rate sounds high, but the earned interest stays with the Field Partners to provide training, borrower support and operating costs.)
They then visit the woman every two weeks to monitor her progression and provide support when needed. Once the loan is paid back in full, the money returns to your Wokai account, which you then redistribute to another entrepreneur. You recycle your initial donated amount multiple times and watch it help a variety of people in real time.
Alas, poor Wokai! I knew him, Horatio
In the three-and-a-half years since the launch of the Wokai website, supporters donated over half a million dollars in loan capital. They issued over 1,500 micro-loans to 961 borrowers with an astonishing 98 percent on-time repayment rate. With other family members taken into account, Wokai helped 4,000 people to begin to move out of poverty. Though the organization is winding down, the Field Partners in rural Sichuan and Inner Mongolia will continue to use the money contributed to date in a continuous cycle of new loans. If that repayment rate remains as high, Wokai will continue to make an impact on people’s lives for years to come.
Let’s hope the Chinese government took notice of Wokai’s success. One of Hu Jintao’s main goals coming into office was to improve domestic socio-economic equality. If the next administration seeks to continue down that path and deliver the economic advancement of China’s coastline to the rest of the country, innovative microfinance from the government or otherwise will be essential. Wokai and other grassroots organizations like them are providing the country a great service and a blueprint from which to build.