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Hey Buddy Can You Spare A Yuan, Part III -- Is Micro-Finance China's Next BIG Thing?

By Dan Harris and Steve Dickinson

A couple years ago, we wrote about small business and consumer lending in China, in posts entitled, "Hey Buddy, Can you Spare a Yuan? The Sorry State of SME and Consumer Lending in China." and "Hey Buddy, Can you Spare a Yuan, Part II -- The Sorry State of SME and Consumer Lending in China." Since I wrote those two posts, lending in China has gotten marginally better and, among other things, China has loosened up a bit in terms of allowing foreign entities to engage in microfinancing. Microfinancing involves just what it implies: very small loans, usually to assist a very small, usually home based business. The big banks in China (and it is pretty much exclusively big banks in China) have no interest in small loans, which usually means small businesspeople must secure their funding from either family and/or friends, or from loan sharks. I was recently invited to a Seattle networking event by Wokai (but unfortunately could not go) and have since learned more about that organization and what they are trying to achieve in China and how they are going about it. Wokai was formed by Casey Wilson and Courtney McColgan who met while studying at Tsinghua University. What makes Wokai interesting is that it has set up an internet interface between the lenders (people like you and me) and the borrowers (small businesses in mostly rural China). In the parlance of Web 2.0, it brings together social networking with web enabled philanthropy. By way of example, there is a farmer in Chifeng, Inner Mongolia, who is seeking $600 for cattle feed and a butcher shop owner, also in Chifeng, seeking $600 to expand store inventory. Both of these potential borrowers have received some funding towards their goal, but still need more. Some (see here and here) have already begun repaying their loans. Wokai is right now primarily in Inner Mongolia, but it will soon be rolling out operations in Sichuan and Ningxia as well. For more on Wokai, check out "Empowering the impoverished with Wokai" at Lost Loawai. I have always liked the idea of microfinancing, but I since I have never been directly involved with it, I do not have a good sense for how well it works. Does it work? Does it make sense for China? Does it make more or less sense in these difficult economic times?

Full post as published by China Law Blog on January 25, 2009 (boomark / email).