There are many ways of aiding the poor and China has many successful experiences in that area. However, a problem still exists i.e. how to enable tens of thousands of poor agricultural households to directly and regularly get loans for production and provide
guarantees for repayment of such loans, while also ensuring that the credit institutions which service poor agricultural households are able to exist and develop.
From amongst the various micro-credit projects in the least developing countries, we first selected the Grameen Bank model for an experiment, based on the funding needs of the poor in China; the results have shown a steadily growing rate of success. At present we are conducting experiments in helping the poor in Yixian country of Hebei province, and in Yucheng and Nanzahao counties of Henan province. The main purpose of our experiment is to explore and attempt to resolve three issues: (a) difficulties of poor households in getting loans; (b) the low repayment rate of loans by the poor; and (c) the problems experienced by grass-roots credit organizations in reaching a proper economic scale and financial viability.
The FPC project experiment, combined with actual conditions in China and the use of the Grameen Bank model, is an attempt to help the poor to gain access to credit. It is a “system design.” The experimental projects (action research) have gained funds and technological assistance from the Ford-Foundation, the Grameen Bank and Grameen Trust.
Funding the Poor Co-operative or the FPC project was set up through the Rural Development Institute of the Chinese Academy of Social Sciences and the local government of Yixian County. The project is carried out under the responsibility of the chief and with the leadership of the board of directors. The FPC in Yixian County has a working team of five, comprising the original poverty relief officer and recruited members. The Rural Development Institute is in charge of design, supervision and management of the project.
Up to 1997 February 2,716 members had been recruited, with women comprising 90.5 percent. US$ 26,619 had been disbursed by FPC through three branches. The cumulative rate of repayment was 100 percent.
A. Yixian branch of FPC:
Concrete preparations for the establishment of FPC in Yixian county began in the latter half of 1993 and the first loan disbursement was made on 27 May, 1994. Towards the end of February 1997 there were 907 poor members (households) in 19 villages of two townships in the county. Women comprised 83 percent of the borrowers. The members had set up 20 centres and 174 groups. Total loans amounted to US$ 187, 994.40. The repayment rate was over 99.9 per cent within each one-year period. According to the sampling investigation of the Yixian branch for one year, the usage of loans by the borrowers was good and the economic benefit to the breeding industry (about 65 per cent) has been generally 0.5-1.5 times more than the loan amount, while for the maintenance and processing industries (at 6 per cent) it was 1-1.5 times higher and for small stalls (at 20 per cent) about 2 times higher (after factoring in the price rises).
B. Yucheng branch of FPC
Up to the end of February, 1997, the Yucheng branch had set up 33 centres, with 247 groups and 1,235 members. Women comprised 100 per cent of the membership. The amount of loans disbursed totalled US$ 141,172.80 and accumulated repayment rate was 100 per cent. According to the data on 70 members, the loans were utilized for animal husbandry (57.1 per cent), small stalls (31.4 per cent), and maintenance and processing industries (11.5 per cent).
C. Nanzhao branch of FPC
The FPCs in Nanzhao county were also started in the first half of 1995 and the first loan was disbursed in November 1995. Twelve centres and 115 groups with 574 members have since been set up; women account for 84 per cent of the members. Loan allocations totalled US$ 78,197.50. The accumulated repayment rate was also 100 per cent. According to the statistics on 225 members, the loans were used for
animal husbandry (26.2 per cent), small stalls (21.3 per cent), maintenance and processing industries (40.4 per cent), building materials (8 per cent), transportation (3.6 per cent) and forestry (0.4 per cent).
The main reason for the high repayment rate is the group organization which help supervise the borrowers as well as share the responsibility for forming linkages. Second, the loan quota is comparatively small and guaranteed by the weekly repayment system. Third, the agricultural households have prospects for receiving additional loans on a continuous basis. Fourth, they have selected the correct projects and have thus gained benefits. Fifth, for the agricultural households, the cost of loans is not high. Six, FPCs exercise close supervision and have the tacit support of the government at all levels. Last, women are the main beneficiaries.
We consider the FPC experiment to be a good attempt at poverty alleviation. It is helping to resolve the difficulties facing poor households in acquiring loans and low repayment rates. FPC can provide small amounts of loans, which are urgently needed by poor households. Because poor households fully participate in the process of capital transaction, the openness of financial transactions can avert embezzlement, improper loans and incomplete formalities to a certain degree. Other good points are that agricultural households are served in a timely fashion, while receiving favorable treatment and the convenience of receiving loans without having to resort to the use of a middleman, mortgage and guarantee. The interest can go directly to the poor and they do not need to take out multiple loans or incur extra expenses.
Policy Issues: External
Will the FPC experiment be allowed to continue and given a formal legal status? The development and existence of FPCs should be covered macroscopically by at least two conditions: (a) employing market economy methods; and (b) the provision of active government support.
Should the interest rate be high or low? Similar foreign organizations and experts contend that the interest rate should be higher. Many persons in China consider that the interest rate on poverty relief loans should not be much higher. However, the interest rates charged by many cooperatives are also favorable.
In what capacity should the FPC operation be conducted? Should it have governmental, semi-governmental or non-governmental status? How to prevent FPC from becoming another “official business”? It must be remembered, however, that the role of government support is also important and indispensable in China.
Internal Conditions of FPC
There are a number of points to be considered with regard to the internal operations of FPC:
personnel in the Beijing general headquarters should be strengthened.
quality of personnel in FPC pilot units needs to be raised and
training intensified. The general headquarters should maintain close contact with the units.
rules and regulations at all levels of the organization should be
A big gap remains between FPC and the Grameen Bank model. For example, in Yixian county, more government officials and village cadres are utilized, the interest rate is lower than the market rate and the target of poverty relief is somewhat weaker. Those receiving loans are not poor households and the regions are not the poorest ones. The work of group formation, training and differentiation is inadequate and the group role is not being brought into full play. The weekly meetings are not held regularly. The deposits of members are made irregularly and the organizational work of social development activities is poor.
Problems Faced by FPC
At the beginning, the FPC project in Yixian County was confronted with a number of operational problems.
How to organize the project management and the operative systems? How to place and train the working personnel? Would they be professionals or hold concurrent posts? At that time, the Rural Development Institute of the Chinese Academy of Social Sciencesand the Poverty Relief Office of Yixian County jointly set up a management institution. The institution is operated by the Poverty Relief Office. Emphasis has been placed on the fact that the executive manager should be a professional; however, the professional capacity of the working personnel has not been made very clear.
How to identify poor households, define their standards and the poverty relief etc. during the implementation process? Although, the government has a definite standard on the poverty line, in practice this standard cannot be fully met.
The importance of centre meetings was not fully recognized. At the beginning such meetings were not held. Many members were not from poor households. A strategy designed for poor houses did not exert a binding force on non-poor households.
The Yixian County project, as the first pilot operation, has laid the foundations for promoting the Grameen Bank concept in China.
Since April 1994, when the project of Yixian County was initiated, it has
expanded to four branches. However, a number of issues are yet to be resolved.
It is important that internal rules and regulations are established or refined, and the monitoring and management system strengthened;
Consideration must be given to ensuring the sustainable development of the organization and the financial viability of each branch;
Every possible effort must be made in exploring possible funding sources and technology resources for future support to the project;
Training must be provided to staff, especially at branch level.
A study should be made on the most suitable level at which the interest rate should be fixed. Government control should be eased and removed as appropriate. If the FPC project wants to ensure sustainable development, it should solicit support through favorable government loans. In addition, the FPC project should be allowed to conduct poverty-relief experiments using foreign capital in poor areas on a small scale. If the state policy banks can accommodate funds through agency business and FPC cooperative functions, then the two priorities in the macro-system can be realized and brought into play.
The type of poverty relief loan provided by the FPC project mainly follows the Grameen Bank pattern. However, the Grameen Bank launched poverty relief projects as an NGO, while FPC poverty relief attempted to use government officials. This situation is also decided by the present characteristics of China, which aim to bring two priorities of the government and NGOs into play. Each of the two priorities can gain from the strong points of the other in order to offset the weaknesses and further encourage an integrated force. If they cannot do better, the two weaknesses together will work against the original objectives.