Microfinance Loans Offer a "Hand Up" to Chinese

11/6/2009 -  Casey Wilson co-founded Wokai as a microfinance institution to help rural Chinese entrepreneurs lift themselves from poverty.  In the two years since they began, Wokai has helped over 200 people in China begin new businesses.  They are staffed by volunteer chapters around the world.







 TCBN: Greeting everyone, I’m Michael McCune. Casey Wilson is successfully navigating uncharted waters while leading her microfinance organization’s poverty alleviation work in mainland China. That organization, Wokai, is the first to create a viable channel for turning donor funds from the US into loan capital for individual entrepreneurs in rural China. She joins us today via Skype from her office in Beijing to share more background on the regulatory environment her organization operates in, and Wokai’s plans for building on early success.

While you are a 501c3 in the US, your money goes to microfinance institutions (MFIs) in China. And I’m curious about what type of regulatory environment do these institutions operate in?

WILSON: They’re operating in a kind of somewhat specific realm. They’re NGOs that are registered under the civil affairs bureau. But then they’re doing something that’s very specific that’s outside of the traditional NGO realm by lending. Basically there’s a specific transcript in the financial sector regulations that creates an exception for NGO MFIs to lend out capital to their clients. Traditionally if you look at the financial sector regulations it’s illegal to lend from an institution to an individual. But there was a special exception made for these types of institutions.

TCBN: I understand the regulations also caused you to create the giving the model that turns US donations into loan capital in China which in your current construct can be directed three times by the original US donor. How did you arrive at this three times of recycling, and do you see opportunities for evolving in the future?

WILSON: Yeah, originally we wanted to create a model that would be 100% lending based. So, you lend today, it goes to our field partner on the ground, they lend it to the borrower, and once the borrower repays, then you get your capital back. And you can either recycle that or you can take it out of the system. Based off of current financial sector regulations, we’re unable to lend to our field partners. So instead we provide a grant with very specific terms basically saying that the capital will be used for loans to the specific borrower of the contributor’s choice. Once the borrower repays then it will go to the next chosen borrower. The reason that we chose three years was just because if we indefinitely did the re-profiling of borrowers, translation, and updates, eventually the costs of the reporting would exceed even the cost of the loan. So we had to put in an end date on the number of times the contributor could choose the borrower and get updates on the borrower. That’s not to say that it doesn’t provide a long-term loan fund. That capital that’s contributed by the contributor will be used year after year in an endless cycle of new loan capital. The only limitation is the number of loan cycle the contributor actually sees and reviews and directs. And in the long term, as financial sector regulations change, we would love to change our model back to a lending-based model.

TCBN: So after my original donation is recycled three times, shall we say, the field partner of Wokai is then free to distribute that money in any way or form it wants to underneath its own mandates or directions? 

WILSON: No, it’s actually not the case. Your contribution will actually be recycled forever, year after year. What happens, the only difference between years one through three and years four and on is that you’re no longer choosing the borrower that’s it’s going to. And you’re also no longer getting the updates on the borrower. So it’s just a reporting difference and a selection difference. But it will always be going year after year for new loans to new borrowers. 

TCBN: Now I see that there’s been some discussion not just around Wokai but also other microfinance operations about evolving to a more P2P platform that can fund a broad number of social causes, not just be focused on the actual microfinance loan. Again, this regulatory environment seems to present many challenges these days, not to mention that all causes are not equal in the eyes of the party in China. So how do you think about this future evolution, and how do you seek to navigate this environment over time?

WILSON: You know, we definitely have thought about expanding to other social causes beyond microfinance. One thing – I guess there are two reasons why we find this a little bit complicated. One is a question of will the people be as motivated to give if it’s just a donation that is absorbed and is not recycled. So if we’re buying books for students or we’re funding an environmental project, will people have that same motivation to give if it’s more of a hand-out versus a hand-up? And the second question we found is microfinance is really easy to break up each project and each individual and say “you’re funding this person, you’re funding their loan, and you’ll be able to track their progress.” For larger projects, say whether in education, health, environment, with traditional types of NGOs, it’s really hard to break down programs into actual individuals and know you are really funding the individual. There’s a level of complication that comes along with that. We’ve thought about expanding beyond microfinance, and it’s definitely in the realm of things we might do in the next 3-5 years. The question is more will it motivate people as much to give, and second of all, how do we map out the P2P model in other contexts?

TCBN: So for the next couple of years, with your emphasis on expanding your donor base, and impacting more individuals in China with your loan programs through your field partners, how do you integrate the volunteer base with the actual activity going on? It’s a complicated environment that seems to want to extend, and there might be a lot to update volunteers on. How did you keep them “in the know” with what the environment’s like what you’re operating so they can share that with people that might be potential donors?

WILSON: We use a lot of technology to keep our volunteers up to date with on what’s going on with Wokai, with what’s going on with the regulatory sector. We basically created an internal Wiki, through which we can keep all of our volunteers up abreast with what’s going on with Wokai and all of the kind of various areas we touch upon, whether it’s regulations or microfinance in China, development in China, or social ventures or social enterprise more globally.

TCBN: And that tool has been in place from your inception or is that something that’s been more recent?

WILSON: No, that’s been much more recent. It’s been really interesting. We started two and a half years ago and about two years ago was when we started developing our volunteer chapters. The process of trying to manage and communicate with say now over 150 volunteers around the world has been really challenging. Along the line we’ve just been trying to iterate and develop better models of communication. So this is kind of version 10.0 or 11.0.

TCBN: I can understand that there’s been a lot of deviations from the original plan in order to achieve the ultimate goal and I wonder if your approach to volunteer management itself has changed since you first began recruiting?

WILSON: Hmm. You know, I guess for us the goals of our chapters have changed a lot over time. When we first started we thought our chapters would be really a way for us to develop real relationships and build a real community offline to promote people to go online. And then we started our chapters around the fall of 2007 but didn’t launch our website till the fall of 2008. So in between when we started and when we launched we kind of then began working on other things like PR, like fundraising for Wokai’s operating costs, and the function of the chapters got a little bit diffused. It’s been over the last six months that we’ve been working on figuring out what’s the right models for our chapter and their goals and functions to really ensure that they’re growing our contributor base online. So we’ve been working with the chapters in San Francisco, Seattle, New York, and now Hong Kong and Beijing, kind of streamlining our efforts and resetting our goals so that we can really achieve that goal. So it’s been a very iterative process, and also really a process of having a dialogue with our chapters and with our volunteers to make that process effective. We’ve been lucky though, as well. A lot of our headquarters volunteers or staff are people that came out of our chapters. So having them kind of absorbed into the headquarters part of our organization has been really helpful for kind of figuring out how to best globalize our chapters and have that optimal effect.

And so for us we were China people. We started Wokai when we were both in China, and we wanted to figure out a model that really would work. On one hand, China is the second largest population under the poverty line. On the other hand, both domestically in China and around the world there, is a huge number of people that are connected to China and have the resources and the desire to give back. So we saw a huge potential for this model. That’s why we pushed forward and worked to create a model that would work for China.

TCBN: Casey it’s like you established a very powerful model and we certainly wish you the best of luck with an increase in your donor base and having a successful growth of your volunteer base, and we appreciate very much you taking the time to speak with us today.

WILSON: Thank you so much Michael for this opportunity.

TCBN: You’ve been listening to an interview with Casey Wilson, CEO of a microfinance organization she co-founded, Wokai. Wokai translates into “I start,” and you can find much more about her organization’s initiatives in China at their website www.wokai.org.