“Yunan Model”—using microcredit to alleviate poverty
Original, GPIG, 12-04-2017
Yunan County is a county located in the western part of Guangdong Province. It is also one of the key counties for poverty alleviation. Like other rural areas, it is hard for most peasants to get a loan.
To solve this problem, Yunan County began to explore ways to establish a “Yunan Model” rural credit system represented by “Creditworthy Villages”. In the past, staff of rural credit cooperatives had to learn about the credit status of each applicant to decide whether to grant them a loan. Now, the credit status of the villagers can be represented by the village. If a village is rated as a “Creditworthy Village", then the credit cooperatives in the county will grant credit to its villagers without checking their credit status.
So how can a village become a “Creditworthy Village”? First, a credit status review panel has to be put in place in the village. Members of the panel mainly include county officials, people in charge of financial institutions, rural officials, and representatives of Party members and villagers. The panel rates the credit status of villagers applying for loans and shows the grades of each applicant to the public. Applicants are rated as “Excellent Credit Household”，“Credit Household” and “No Credit Household” according to their grades. The village council will send the rating of each household to the relevant financial institutions. The financial institutions will then grant loans to “Excellent Credit Household” and “Credit Household”. For the “No Credit Households”, they can apply for loans with over three guarantors. In the villages in Yunan County, over 85% households were rated as “Credit Household” or “Excellent Credit Household”. Under this basis, the county government works closely with the People’s Bank of China to establish the credit system that covers the whole county.
Today, there is a slogan in Yunan County: “Money follows credit.” This means that peasants can easily borrow 10,000 to 50,000 yuan from a credit cooperative without mortgaging their house or a guarantor as long as they are honest and have legitimate agricultural projects.
Apart from the government, grassroots organizations also play an important role in microcredit. According to the statistics from China’s Microcredit Union in 2010, there were 44 non-governmental microcredit organizations and rural capital unions in all. Over 75,000 clients have received loans from these organizations; this amounts to over 1,700 clients per organization on average.
The establishment of Zhonghe Rural Credit Management Company, which was set up in 2008 by China Foundation for Poverty Alleviation, meant that microcredit has become a part of in corporations rather than just public welfare programs. The board made up by personnel from CFPA was only in charge of directing the company’s course of development. Things like personnel, finance and business of the company are managed independently. The company assumes sole responsibility for its profits and losses. The highest goal for it has always been to achieve social value. It is a non-profit microcredit institution as well as a corporation. The major product of the company is microcredit, and its clients are mainly low-income peasant households in poor counties at a national level and provincial level and households afflicted by natural disasters. It has set up branches in four disaster areas and helps with post-disaster reconstruction and recovery of local industries by providing farmers with microcredit.
The clients of the company are those marginalized by traditional financial institutions. As there is no mortgage, the risks of the operations are very high. When deciding whether to grant a loan, the company first looks into the clients’ ability and desire to pay off their debts. This goes against the normal practice of traditional financial institutions, which regard clients’ current asset status as the most important factor. Hence the company has two lending models: group lending and individual lending. For group lending, no mortgage is required but five guarantors are needed; for individual lending, no mortgage but one guarantor is needed.
Wang Yanfang and her family have benefited a lot from the microcredit products of Zhonghe Rural Credit Company. For a poor rural family like hers, it is not an exaggeration to say that what they have achieved is truly exceptional. Wang Yanfang, a woman over 50, with only a high school education, lives in a village in Shanxi Province in the central part of China. She married a fellow-villager in 1984 and had given birth to three girls and one boy. Like other countryside women, her life after marriage was all about caring for the children, doing housework and farming. Under her strict upbringing, the four children all went to college, leaving her and her husband alone at home. Now she puts all of her energy into cultivating the fields and the walnut trees of her family.
After she got married, her family got a small plot of land and six walnut trees, and for a long time they made their living by farming and selling walnuts. Life was a perpetual struggle against poverty for them, and sometimes they could not even afford the children's tuition fees. To make things better, she persuaded her husband to find a job in a nearby town, while she herself stayed at home to take care of the family. To make ends meet, she also did some odd jobs in the neighboring village in her spare time.
The microcredit project households are developing their production
In 2005, the price of walnuts surged. As a result, people who already had walnut trees made a great fortune. Wang Yanfang also wanted to seize this chance to make some money. In August 2007, she applied for a microcredit loan of 3,000 yuan, and bought 14 walnut trees which were abandoned by others and were almost dying. After one year’s effort, she earned 2,600 yuan from these trees. This success encouraged her to go further. Later on, she loaned a total of 20,000 yuan in three installments to plant walnut trees. Today, she is the owner of 540 walnut trees which are worth 200,000 yuan. This alone earns her over 10,000 yuan per year. She said: “After 4 or 5 years, I hope the annual income from my walnut trees will reach 50,000 yuan. By then we will no longer have to worry about money.”
After several years of hard work, Wang Yanfang’s family has built 11 new rooms, renovated their house and bought many household appliances such as a color TV set, refrigerator, motorcycle and telephones. The total assets of the family reach 150,000 yuan, making them the “upper class” in the village. Speaking of her next plan, Wang Yanfang said: “It is microcredit that enabled me to do what I want... I will continue to use it to develop my business once I have paid off my loan.” She also hoped that more families can follow her example to use microcredit to improve their living standard.
Using microcredit to alleviate poverty is an important innovation of rural financial services and has greatly promoted the development of the countryside and the great cause of poverty alleviation. Microcredit not only provides rural households with much-needed loans, but also improves their ability for self-development by offering them technology, training and information. Poverty alleviation work should not only help the underprivileged to improve their current living conditions, but help them to acquire new sources of income. But this cannot be achieved without capital support. Underdeveloped areas in China are still weak in terms of providing inclusive financial service. Under these circumstances, microcredit with its effective operational system has become an irreplaceable financial services tool for the impoverished population. It is one of the highlights of China’s poverty alleviation efforts.
Original, GPIG, 12-04-2017
Yunan County is a county located in the western part of Guangdong Province. It is also one of the key counties for poverty alleviation. Like other rural areas, it is hard for most peasants to get a loan.
To solve this problem, Yunan County began to explore ways to establish a “Yunan Model” rural credit system represented by “Creditworthy Villages”. In the past, staff of rural credit cooperatives had to learn about the credit status of each applicant to decide whether to grant them a loan. Now, the credit status of the villagers can be represented by the village. If a village is rated as a “Creditworthy Village", then the credit cooperatives in the county will grant credit to its villagers without checking their credit status.
So how can a village become a “Creditworthy Village”? First, a credit status review panel has to be put in place in the village. Members of the panel mainly include county officials, people in charge of financial institutions, rural officials, and representatives of Party members and villagers. The panel rates the credit status of villagers applying for loans and shows the grades of each applicant to the public. Applicants are rated as “Excellent Credit Household”，“Credit Household” and “No Credit Household” according to their grades. The village council will send the rating of each household to the relevant financial institutions. The financial institutions will then grant loans to “Excellent Credit Household” and “Credit Household”. For the “No Credit Households”, they can apply for loans with over three guarantors. In the villages in Yunan County, over 85% households were rated as “Credit Household” or “Excellent Credit Household”. Under this basis, the county government works closely with the People’s Bank of China to establish the credit system that covers the whole county.
Today, there is a slogan in Yunan County: “Money follows credit.” This means that peasants can easily borrow 10,000 to 50,000 yuan from a credit cooperative without mortgaging their house or a guarantor as long as they are honest and have legitimate agricultural projects.
Apart from the government, grassroots organizations also play an important role in microcredit. According to the statistics from China’s Microcredit Union in 2010, there were 44 non-governmental microcredit organizations and rural capital unions in all. Over 75,000 clients have received loans from these organizations; this amounts to over 1,700 clients per organization on average.
The establishment of Zhonghe Rural Credit Management Company, which was set up in 2008 by China Foundation for Poverty Alleviation, meant that microcredit has become a part of in corporations rather than just public welfare programs. The board made up by personnel from CFPA was only in charge of directing the company’s course of development. Things like personnel, finance and business of the company are managed independently. The company assumes sole responsibility for its profits and losses. The highest goal for it has always been to achieve social value. It is a non-profit microcredit institution as well as a corporation. The major product of the company is microcredit, and its clients are mainly low-income peasant households in poor counties at a national level and provincial level and households afflicted by natural disasters. It has set up branches in four disaster areas and helps with post-disaster reconstruction and recovery of local industries by providing farmers with microcredit.
The clients of the company are those marginalized by traditional financial institutions. As there is no mortgage, the risks of the operations are very high. When deciding whether to grant a loan, the company first looks into the clients’ ability and desire to pay off their debts. This goes against the normal practice of traditional financial institutions, which regard clients’ current asset status as the most important factor. Hence the company has two lending models: group lending and individual lending. For group lending, no mortgage is required but five guarantors are needed; for individual lending, no mortgage but one guarantor is needed.
Wang Yanfang and her family have benefited a lot from the microcredit products of Zhonghe Rural Credit Company. For a poor rural family like hers, it is not an exaggeration to say that what they have achieved is truly exceptional. Wang Yanfang, a woman over 50, with only a high school education, lives in a village in Shanxi Province in the central part of China. She married a fellow-villager in 1984 and had given birth to three girls and one boy. Like other countryside women, her life after marriage was all about caring for the children, doing housework and farming. Under her strict upbringing, the four children all went to college, leaving her and her husband alone at home. Now she puts all of her energy into cultivating the fields and the walnut trees of her family.
After she got married, her family got a small plot of land and six walnut trees, and for a long time they made their living by farming and selling walnuts. Life was a perpetual struggle against poverty for them, and sometimes they could not even afford the children's tuition fees. To make things better, she persuaded her husband to find a job in a nearby town, while she herself stayed at home to take care of the family. To make ends meet, she also did some odd jobs in the neighboring village in her spare time.
The microcredit project households are developing their production
In 2005, the price of walnuts surged. As a result, people who already had walnut trees made a great fortune. Wang Yanfang also wanted to seize this chance to make some money. In August 2007, she applied for a microcredit loan of 3,000 yuan, and bought 14 walnut trees which were abandoned by others and were almost dying. After one year’s effort, she earned 2,600 yuan from these trees. This success encouraged her to go further. Later on, she loaned a total of 20,000 yuan in three installments to plant walnut trees. Today, she is the owner of 540 walnut trees which are worth 200,000 yuan. This alone earns her over 10,000 yuan per year. She said: “After 4 or 5 years, I hope the annual income from my walnut trees will reach 50,000 yuan. By then we will no longer have to worry about money.”
After several years of hard work, Wang Yanfang’s family has built 11 new rooms, renovated their house and bought many household appliances such as a color TV set, refrigerator, motorcycle and telephones. The total assets of the family reach 150,000 yuan, making them the “upper class” in the village. Speaking of her next plan, Wang Yanfang said: “It is microcredit that enabled me to do what I want... I will continue to use it to develop my business once I have paid off my loan.” She also hoped that more families can follow her example to use microcredit to improve their living standard.
Using microcredit to alleviate poverty is an important innovation of rural financial services and has greatly promoted the development of the countryside and the great cause of poverty alleviation. Microcredit not only provides rural households with much-needed loans, but also improves their ability for self-development by offering them technology, training and information. Poverty alleviation work should not only help the underprivileged to improve their current living conditions, but help them to acquire new sources of income. But this cannot be achieved without capital support. Underdeveloped areas in China are still weak in terms of providing inclusive financial service. Under these circumstances, microcredit with its effective operational system has become an irreplaceable financial services tool for the impoverished population. It is one of the highlights of China’s poverty alleviation efforts.
