WOKAI—ENDING POVERTY IN CHINA, ONE LOAN AT A TIME

After read through “the Funding Gap”, Wokai, the first person 2 person micro-finance platform popped into my head and I am really thrilled to introduce you the NGO that uses micro-loans to change lives of people living in rural China.

Wokai Operating metrics:

Financial regulation strictly prohibits private financial institutions in China, therefore privately-operated microfinance institutions are not allowed. (The local MFI that Wokai partners with is “GONGO”, which local counties have a big say.) Seemingly, as a registered 501(c)3 NGO, Wokai is facing to 2 challenges: financial regulation and funding.

From the Wokai operating metrics, Wokai creates a very innovative solution to tackle these 2 problems.

a.  Loan contribution is from petty cash donation, from people inside and outside China.

According to the article, “creative entrepreneurs will find new sources of investment capital to fund its social enterprises; bold investors have pioneered new types of investment vehicles to fill the funding gap.”  Never before a MFI could thought of the idea the each loan be separately add up. Using internet, Wokai attract contributors from all around the world to donate their pocket money to help people in rural China start business: Loaner could follow up the borrower information, track loan repayment progress, from their blog and photos; Borrowers use capitals to start another business or continue their business after repayment. Internet brings loaner and borrower together, and replaced the normal method (eg. Joint liability group).

Attached file is one of my loan recipient’s blog

http://www.wokai.org/borrower/66

This year we have experienced a drought once again. We have to buy grass fodder. -- In March of this year, I borrowed the second portion of a 4,000 yuan microloan. I used the funds to continue my agricultural venture. This year I took my own dairy products to the market in town! Dairy prices are steady, and my income is OK. Because we have experienced another drought this year, I still have to purchase grass fodder.

The direct investor for Wokai is “angel investors” (from “the Funding Gap”), more specifically, individual but not necessarily wealthy. In one word, Wokai takes advantage of internet and find a creative solution to the sustainable funding for borrowers.

b.  Partnering with local MFI (GONGO)

Facing the regulation, Wokai currently works with two Field Partners, both of whom were established in collaboration with United Nations Development Program in the '90s.

Current Field Partners

Chifeng Zhaowuda Women's Sustainable Development Association (CZWSDA)

- Located in Chifeng, Inner Mongolia

- 3120 clients, all female

- Gross loan portfolio more than $1 million USD

- Over 99% on-time repayment

- First recipients uploaded to Wokai in October 2008

Association for Rural Development of Yilong County (ARDY)

- Located in Yilong County, Sichuan

- 2437 clients, 804 of whom are female

- Gross loan portfolio more than $900,000 USD

- Over 98.8% on-time repayment

- First recipients will be uploaded to Wokai in February 2009

WOKAI’s due-diligence team travels to each potential Field Partner to compile a comprehensive report on its governance, information and accounting systems, risk-assessment policies, loan portfolio and lending activities, performance, and efficiency. Once Wokai begins working with a Field Partner, the performance of that partner is continuously monitored. Wokai performs semi-annual on-site monitoring visits in which they conduct a thorough review of the organization and an audit of clients and financial reports.

Through detailed screening process, WOKAI dodge the regulation limit by partnering with local MFI, at the same time making sure the performance, credibility, and efficiency.

To sum up, from “the Funding Gap”, funding shortage for social entrepreneur could be resulted from actual funding and regulation limit. WOKAI created such a innovative pattern and I really want to share with the audience and hope all the readers could refer to the website donate, for the people in rural China.

Question:

Public funding may not be the best way for WOKAI to fast grow up and expand,

Q1: Is it a good idea to expand?

Q2: Should WOKAI reach out to “intermediaries”, personally I disagree because it seems their demand of return does not fit for WOKAI, since it is not a for-profit org?