When I was a child my mother used to say to me, “eat your dinner; there are people starving in China!” Boy, how things have changed..or have they? As this century’s development miracle, slated to become the most economically powerful nation within the next twenty to thirty years, China is no longer considered a country impoverished. But, consider this: China today has the second largest population in the world living under the poverty line. And, while the average individual income in China’s cities is about US$6 a day, in the countryside it’s only US$2. Meet 25-year-old Casey Wilson, Co-founder of Wokai, a unique microfinance institution which aims to ensure that China’s rural populace is not left behind. I had the opportunity to chat with Ms. Wilson at length about her work with Wokai, NGO transparency, and the future of microfinance in China. While Wokai stands to redefine grassroots microfinance organizations and effectively raise the quality of life for tens of thousands of families in China’s countryside, Casey Wilson- for both her brilliance and her actions- is definitely one to watch. To learn more, read on:

First, tell me about your connection to China and microfinance. What brought you to China initially?
I came to China to pursue a career in development; there were basically two reasons why I chose China. First of all, China has the second largest population in the world living under the poverty line. In terms of economic development and poverty alleviation, there’s a huge amount that needs to be done. On the other side, in terms of learning about what fosters and hinders economic development, I felt like by living and working in development in China, I could see a significant amount of change in a very short period of time. That was the impetus for moving to China three years ago. How I got specifically involved in microfinance was twofold. One part was meeting my partner, Courtney [McColgan]. She was on a Fulbright at the time studying loan sharks in the informal lending sector in Zhejiang Province and had been involved in microfinance in China for about 3 years. We were classmates at Qinghua University in a program called IUP for people who are either doing business in China or doing Master’s and PhD work where their research is conducted in Chinese.
Seeing the way that growth is happening in China, where the cities are growing at such a rapid rate while the countryside has remained more stagnant and you have this expanding rural-urban divide, I thought that microfinance would be one of the only solutions to developing the rural economy. Courtney and I became roommates after we were classmates; it was then that we decided to combine our skills and interests to launch Wokai. The impetus was that we saw that microfinance in China is basically twenty years behind countries like India, Bangladesh and those in Latin America. Microfinance institutions that already existed in China really didn’t have the capital to expand to new clients and increase their impact. By introducing a person-to-person model and connecting people from around the world that have a connection to China…we thought that would be a very powerful, scalable model that could have a big impact.

In my interview with Calvin Chin, founder of the social enterprise Qifang, we discussed the hurdles involved in launching an NGO in China. Calvin had said that, despite nonprofits popping up all over China, it’s still extremely difficult to get a formal NGO recognized. What was the process like for you?
We ran across similar issues like the ones that Calvin faced with Qifang. We weren’t able to register as a nonprofit in China, so alternatively we registered as an NGO in the US with a foreign representative office in China. When we first began, we wanted to introduce a lending model where you could lend capital that would then go to our microfinance institution partners on the ground and once that loan was repaid, you’d be able to take your capital back out of the system. However, due to financial sector regulations in China we were unable to do that. So, we encountered two problems: the regulatory issues that exist in the finance sector and the regulatory issues that directly impact NGOs such as not being able to register for non-profit status in China and not being able to fundraise domestically in China. Microfinance institutions are in a strange gray area where they’re registered as NGOs but they’re engaged in activity that is also regulated by the financial sector.

How does Wokai differ from Kiva or Qifang?
With Kiva, you go online and provide a loan that, once the borrower has repaid, you can take out of the system. With Wokai, you provide a donation that will be used year after year to provide a series of new loans to borrowers of your choice. The second difference is the type of institutions that we’re working with. In microfinance, there’s a pyramid of institutions with four tiers. The first tier of institutions are large with 100,000 clients or more, external ratings and audits, and they have the ability to access capital markets and/or debt and equity investments from larger funds or investors. The fourth tier microfinance institutions have 5,000 clients or less and are really grassroots organizations that need support both in terms of capacity-building and strengthening their internal financial structures and operations as well as capital to scale up. The types of institutions that Kiva works with are those first and second tier institutions that they’re able to cooperate with remotely. We’re working with fourth tier institutions- more of those grassroots institutions that exist in China- which not only need capital but also require offline support in terms of due diligence and helping them in the process of building up their internal strength in accounting and finance. Our model is based on contributions, rather than loans, from our users online and the type of institutions that we’re working with are younger and, along with capital, need on-the-ground support to scale up.
Qifang is doing student loans. They’re supporting individuals in college and through college associations to provide those loans.

(Wu Hailing, a Wokai success story)

How is Wokai able to avoid corruption and ensure that these loans are being put to best use? What’s your monitoring and evaluation process?
We’ve created a very rigorous monitoring and evaluation process, specifically because it takes on-site supervision to get a sense of the strength of a particular institution and recognize any potential holes. So, before we identify an institution as a potential partner, we’ll work with other groups based in Beijing to get a sense of who are the strongest existing institutions in China’s landscape. Once we’ve identified a potential partner, we’ll reach out to them to have them apply for partnership and they’ll give us three years of financial statements along with general background about their organization, their structure, and the management team. What we’re looking for is basically three things. First of all, are they having a strong social impact and helping the poor to reach economic independence? Second of all, that they have management teams with an ability to scale and strengthen their institutions. Thirdly, we look for a transparent management team. If we’re able to conduct that first round of evaluations and it looks like they’re still a good fit, we will then go offline to do a three to five day onsite due diligence trip. When we do that, we meet with everyone from their board of directors to their management staff to their cashiers, accounts and loan officers and finally do an audit of their clients. We really try to find out if there are any potential holes. Do all of the interviews match up in terms of what people are saying about their policies, about any potential fraud that might come up? In doing an audit, we will then take a list of 3,000 clients of that institution, choose five to ten borrowers, get their credit file, and then go offline to interview them. What we’ve really found is that the client audit is really the most telling part of the process.
[Once that is completed], we’ll go back to our offices and put together a 10-15 page rating report. We have an international committee of microfinance experts who then decide a) do we partner with the institution and b) if we are going to partner with the institution, what are the goals and benchmarks that they have to reach as an organization in order to either begin receiving funding from Wokai or get an increase in funding? For example, one of our partners had to be trained in international best practice accounting standards.
That’s our initial evaluation procedure. On our website, we track everything from borrower loan distribution to repayments. We get monthly financial statements from the institutions and then every three to four months, we go offline and do an on-site evaluation.

As a rapidly developing nation and global leader, China no longer appears to be on the list as a “country impoverished.” So, why China? How would you justify the need to a foreign donor?
It’s an interesting puzzle. In the next twenty to thirty years, China’s GDP is going to surpass that of the United States and you could ask- isn’t all of China going to be lifted out of poverty during that process? But, in a lot ways, there are two different Chinas. There’s a China of the cities that is growing at a very quick rate and then there is a China of the countryside. When you look at the current situation, the average income of individuals in the cities is at about US$6 a day, but in the countryside it’s less than US$2 a day. The urban development rate is at 9.6% a year while in the countryside it’s growing at about 6% a year. If we zoom that out in twenty years, we could have a situation where people in urban areas are averaging a salary of US$12,000 a year whereas in rural areas, they are earning less than one-sixth that amount and essentially existing in poverty. They get stuck in that cycle where they don’t have the funds to send their children to high school or college and their children [repeat the pattern]. When you look at the world, China still has the second largest population of people living under the poverty line and if that issue will not be addressed through the natural process of economic development, there really needs to be new models put in place to support the other side. I guess you could ask, “why doesn’t China’s government push for that type of development in the form of aid or policies?” My answer to that would be that the government has tried to institute a lot of poverty alleviation initiatives and subsidies in the past, but they really haven’t been able to reach the entire population living under the poverty line. A poor person living in China or anywhere else in the world should have equal access and support in terms of getting an opportunity to lift themselves from poverty.

(letter from Toronto)

Tell me your favorite Wokai success story.
I have a few. The first one would be about my favorite borrower, Wu Hailing. When she was eighteen, she got married to her husband in Yilong County, Sichuan Province. They went to live with her husband’s family and basically, in that process, were put into debt from the costs associated with living with them. They were forced to move to Guangzhou as migrant workers as a means to repay that debt. After four years, they’d saved up enough to repay their debts and then moved back to Yilong County. Hailing was able to save up a little bit more to start a duck-raising business. She bought a number of ducks and after about three months into the business, the ducks all contracted a parasite and they died; Hailing was left without anything. In her words, she said that she had to work her fingers to the bone just to keep her head above water. She found out about our field partner in Yilong that provided loans for people to start small businesses and training support so that they could be successful in those businesses. She went to our partner and was able to take out a loan to restart a duck raising business and this time, she received training which taught her how to prevent disease and how to effectively build up her duck raising business. After a year she was able to pay back her loan and this year she took out a new loan for US$600 to expand that business. If our field partner hadn’t been there, she may have been left without any options and would’ve probably had to move back to Guangzhou as a migrant worker. Now, she’s earning extra income that can be saved and used to eventually send her children to school.
I love working with our supporters. We have chapters in San Francisco, Seattle, New York City and now we’re starting in Beijing and Hong Kong. There are over 150 volunteers who have full time-jobs but on nights and weekends they give speeches to build awareness about Wokai and microfinance in China. I’m always inspired by their altruism and selflessness in supporting this cause for microfinance in China. Just last week, I got to the office and there was this huge envelope and it was from this girl from Toronto who had been working over the summer in Hong Kong and did a short trip to her family’s village in Guangzhou. She was just so shocked by the fact that the China that she’d experienced through living in Hong Kong and visiting Beijing and Shanghai was so different from the experience that her family was having in Guangzhou. She put together this amazing story about why she thinks we should start a Toronto chapter. I am really inspired by the passion of our supporters and the stories of our borrowers on the ground.

What’s next for you?
Right now, we have the foundation in place. We have great field supporters in Inner Mongolia and Sichuan Province; we have a really great supporter network in key cities that will hopefully expand to LA, Toronto and Shanghai over the next three to six months. What we really need to do is start getting contributors online. Our goal over the next year is to expand from the 525 contributors that we have today to around 10,000 contributors. Over the next two and half to three years, we’d like to increase that to at least 50,000 contributors a year and US$5 million a year in loan capital that we’d bring into the microfinance sector in China. For us, that’s a pretty big landmark. Once we reach that point, we’ll be sustainable just from the optional donations that come in online. So, from an operational standpoint, that’s what’s next in the near term. On a larger level, it’s really about scaling up, increasing our impact and building a global community that’s supporting microfinance in China.
We’ve thought about areas where we can use this model to expand and branch out, such as creating an online marketplace for the goods that are produced by our microentrepreneurs, or expanding into green microfinance or microinsurance. Before we reach that point, we really need to scale up and build our local community

If you’d like to learn more about Wokai or make a contribution, check out their website at www.wokai.org You can also follow Wokai on Twitter @wokai.

Interviews china, interview, Kiva, Link Up Learn More, microfinance, Qifang, social enterprise, Wokai, Wu Hailing