Mutual funds built by poor villages—the panacea for poverty
Original, GPIG, 12-07-2017
Since 2006, the Chinese government has conducted pilot projects where mutual funds have been created with contributions from poor villagers to alleviate the shortage of funds among poor peasant households. These pilot projects have helped to find new mechanisms for managing poverty alleviation funds and to promote the continuous development of poor villages through self-development of poor farmers.
Mutual cooperatives and mutual funds at village level
All mutual cooperatives are named “Poverty Alleviation Cooperative of So-and-so Village”. Mutual cooperatives are established in administrative villages, with over 50% poor peasant households joining the organizations. A cooperative can be established only when over 50 households have agreed to join the organization. The administrative body of these organizations, which are set up by voting, need to be registered in local civil administration departments. Farmers are free to join or drop out of the organizations of their own accord. Once they've joined the organizations, they need to contribute to the mutual fund. In the mutual cooperatives, each household is represented by one family member and each member has one vote. Mutual fund can only be used inside mutual cooperatives, and members need to pay off what they have borrowed so that the fund can be used by other members. Embezzlement is forbidden. Members share the benefits and risks of the organization together. Poor households get priority when allocating the funds. The mutual cooperatives are not allowed to earn interest by investing the fund, nor are they allowed to conduct any unauthorized financial or business activity with the funds.
The basic principles of projects piloting mutual funds are as follows: these projects can only be carried out in poor villages; poor households can be exempt from paying money or pay less when joining the organization while enjoying the same rights as other members; they also have preferential access to funds and technology support; all mutual cooperatives, which are established in administrative villages, should be managed and regulated using the same standards; mutual fund should not be used outside the villages or to earn an interest on capital; the size of the pilot projects should be reasonable so that they can be appropriately managed and risks can be controlled; the central government will provide special support to provinces and counties which show great enthusiasm in this work and take up effective and up-to-standard measures.
By the end of 2011, mutual fund pilot projects have been carried out in 16.3 thousand poor villages in 1,141 counties across the country, with the fund totaling 3,306 million yuan.
One factor that hampers the development of poverty-stricken areas is the shortage of funds. To cope with this problem, the municipal government of Chongqing adopted a new way to use poverty alleviation funds that is to encourage poof peasants to establish mutual cooperative s with normal funds. With the help of these “grassroots” institutions, poor villages in Chongqing are able to use over 200 million yuan worth of mutual funds every year, which greatly satisfies of poor peasants for small-amount personalized funds.
Tuoyuan Lillage in Pengshui County, located in the mountainous region of Wuling in Chongqing, is just one of such examples, with the help of a poverty alleviation fund, poor peasants established mutual cooperatives by themselves. Each peasant contributes 250 yuan and can borrow up to 5,000 yuan.
Tuo Jianghong is a peasant in Tuoyuan Village. Her husband is a migrant worker in Beijing, while she stays at home to care for their patents and children. Their family income was very low. In 2011, she thought of planting mushrooms, but was short of over 4,000 yuan for purchasing the materials for building a greenhouse. To soothe problem, she tried to get a loan from a local bank.
“To get a loan, I walked more than 10 kilometers on a mountain road to consult the bank staff. They told me that as a borrower, I need to show them seven or eight documents, including a House Ownership Certificate and a Family Income Certificate. The procedures are troublesome, let alone the high costs.” Tuo Jianghong complains about the difficulties of getting a loan.
It was the poverty alleviation fund cooperative of her village that offered her help. As a member of the cooperative, she easily borrowed 5,000 yuan. Today she has built eight mushroom greenhouses and she earns an extra income of over 20 thousand yuan every year.
“The 150 thousand yuan allocated for the poverty alleviation fund by the county government, together with the 28 thousand yuan contributed by peasants, helped to establish the mutual fund cooperative in Tuoyuan Village.” Liao Anxue, the local Party branch secretary said. Small as it may seem, this fund gives crucial financial support to rural peasants who want to set up a business. With the aid of this fund, many poor peasants have earned extra income by farming or opening small shops.
Today, poverty alleviation fund cooperatives have been set up in more than 1,100 administrative villages. What this “grassroots” financial institution do is to provide loan services to peasant households with members’ money and government funds, with the aim of promoting development of agriculture and making up for the shortage of financial institutions and financial products in rural areas.
“The basic principle on which the microcredit scheme for poverty alleviation operates is to focus on loaning small sums to poor farmers only”, said Qian Feng, chairman in one of the cooperatives in Chongqing. This kind of organization serves as an important innovation to the poverty alleviation mechanism.
To perfect the development mechanism of the organization, several counties in Chongqing have adopted the following principle: villagers make their contributions on a voluntary basis; the fund is owned and managed by members themselves; members are required to repay what they have borrowed so that the fund can be used by other members; the maximum amount of money a member can borrow is generally no more than 5,000 yuan, and the loan is due in three to six months, in some cases the loan terms can be extended but should not exceed one year; members are only allowed to borrow for activities that will improve their living conditions; part of the interest income will be used for running the organization, and the rest will be added to the fund.
The fund is strictly managed. It can only be used inside the village; it should not be divided equally among villagers, nor be used for unproductive expenditure or public facilities; it is managed by a panel elected by villagers; borrowers need to go through the following procedures before they can get a loan: filing an application, getting the guarantor’s signature, getting permission from the management panel, public notification, and signing the contract.
“Although it is not a large organization, the cooperative is operated efficiently and has to strictly adhere to the rules.” Small as it is, our organization has a charter, the roster of cooperative members and regulations for using the fund”，said Liao Anxue, “since this fund is partly contributed by peasants, it should be used for their interests. We should make sure that the money will not be embezzled, and at the same time meet peasants’ needs for capital whenever and wherever possible.”
Original, GPIG, 12-07-2017
Since 2006, the Chinese government has conducted pilot projects where mutual funds have been created with contributions from poor villagers to alleviate the shortage of funds among poor peasant households. These pilot projects have helped to find new mechanisms for managing poverty alleviation funds and to promote the continuous development of poor villages through self-development of poor farmers.
Mutual cooperatives and mutual funds at village level
All mutual cooperatives are named “Poverty Alleviation Cooperative of So-and-so Village”. Mutual cooperatives are established in administrative villages, with over 50% poor peasant households joining the organizations. A cooperative can be established only when over 50 households have agreed to join the organization. The administrative body of these organizations, which are set up by voting, need to be registered in local civil administration departments. Farmers are free to join or drop out of the organizations of their own accord. Once they've joined the organizations, they need to contribute to the mutual fund. In the mutual cooperatives, each household is represented by one family member and each member has one vote. Mutual fund can only be used inside mutual cooperatives, and members need to pay off what they have borrowed so that the fund can be used by other members. Embezzlement is forbidden. Members share the benefits and risks of the organization together. Poor households get priority when allocating the funds. The mutual cooperatives are not allowed to earn interest by investing the fund, nor are they allowed to conduct any unauthorized financial or business activity with the funds.
The basic principles of projects piloting mutual funds are as follows: these projects can only be carried out in poor villages; poor households can be exempt from paying money or pay less when joining the organization while enjoying the same rights as other members; they also have preferential access to funds and technology support; all mutual cooperatives, which are established in administrative villages, should be managed and regulated using the same standards; mutual fund should not be used outside the villages or to earn an interest on capital; the size of the pilot projects should be reasonable so that they can be appropriately managed and risks can be controlled; the central government will provide special support to provinces and counties which show great enthusiasm in this work and take up effective and up-to-standard measures.
By the end of 2011, mutual fund pilot projects have been carried out in 16.3 thousand poor villages in 1,141 counties across the country, with the fund totaling 3,306 million yuan.
One factor that hampers the development of poverty-stricken areas is the shortage of funds. To cope with this problem, the municipal government of Chongqing adopted a new way to use poverty alleviation funds that is to encourage poof peasants to establish mutual cooperative s with normal funds. With the help of these “grassroots” institutions, poor villages in Chongqing are able to use over 200 million yuan worth of mutual funds every year, which greatly satisfies of poor peasants for small-amount personalized funds.
Tuoyuan Lillage in Pengshui County, located in the mountainous region of Wuling in Chongqing, is just one of such examples, with the help of a poverty alleviation fund, poor peasants established mutual cooperatives by themselves. Each peasant contributes 250 yuan and can borrow up to 5,000 yuan.
Tuo Jianghong is a peasant in Tuoyuan Village. Her husband is a migrant worker in Beijing, while she stays at home to care for their patents and children. Their family income was very low. In 2011, she thought of planting mushrooms, but was short of over 4,000 yuan for purchasing the materials for building a greenhouse. To soothe problem, she tried to get a loan from a local bank.
“To get a loan, I walked more than 10 kilometers on a mountain road to consult the bank staff. They told me that as a borrower, I need to show them seven or eight documents, including a House Ownership Certificate and a Family Income Certificate. The procedures are troublesome, let alone the high costs.” Tuo Jianghong complains about the difficulties of getting a loan.
It was the poverty alleviation fund cooperative of her village that offered her help. As a member of the cooperative, she easily borrowed 5,000 yuan. Today she has built eight mushroom greenhouses and she earns an extra income of over 20 thousand yuan every year.
“The 150 thousand yuan allocated for the poverty alleviation fund by the county government, together with the 28 thousand yuan contributed by peasants, helped to establish the mutual fund cooperative in Tuoyuan Village.” Liao Anxue, the local Party branch secretary said. Small as it may seem, this fund gives crucial financial support to rural peasants who want to set up a business. With the aid of this fund, many poor peasants have earned extra income by farming or opening small shops.
Today, poverty alleviation fund cooperatives have been set up in more than 1,100 administrative villages. What this “grassroots” financial institution do is to provide loan services to peasant households with members’ money and government funds, with the aim of promoting development of agriculture and making up for the shortage of financial institutions and financial products in rural areas.
“The basic principle on which the microcredit scheme for poverty alleviation operates is to focus on loaning small sums to poor farmers only”, said Qian Feng, chairman in one of the cooperatives in Chongqing. This kind of organization serves as an important innovation to the poverty alleviation mechanism.
To perfect the development mechanism of the organization, several counties in Chongqing have adopted the following principle: villagers make their contributions on a voluntary basis; the fund is owned and managed by members themselves; members are required to repay what they have borrowed so that the fund can be used by other members; the maximum amount of money a member can borrow is generally no more than 5,000 yuan, and the loan is due in three to six months, in some cases the loan terms can be extended but should not exceed one year; members are only allowed to borrow for activities that will improve their living conditions; part of the interest income will be used for running the organization, and the rest will be added to the fund.
The fund is strictly managed. It can only be used inside the village; it should not be divided equally among villagers, nor be used for unproductive expenditure or public facilities; it is managed by a panel elected by villagers; borrowers need to go through the following procedures before they can get a loan: filing an application, getting the guarantor’s signature, getting permission from the management panel, public notification, and signing the contract.
“Although it is not a large organization, the cooperative is operated efficiently and has to strictly adhere to the rules.” Small as it is, our organization has a charter, the roster of cooperative members and regulations for using the fund”，said Liao Anxue, “since this fund is partly contributed by peasants, it should be used for their interests. We should make sure that the money will not be embezzled, and at the same time meet peasants’ needs for capital whenever and wherever possible.”
