05424
August 18, 2005   

Lending a hand 

by Katrin Fiedler
Amity Foundation

          Editor’s note: This fall the Amity Foundation celebrates 20 years of
          evangelical and anti-poverty work in China. Through Amity, Chinese
          Christians, with the support of the Presbyterian Church (U.S.A.),
          promote health, education and welfare, especially among China’s rural
          poor.                                       — Jerry L. Van Marter

NANJING, China — Looking at Wang Chunfeng’s 50 head of sheep, it is hard to believe that in the winter of 2001 she had just three ewes. But straightforward lamb arithmetic — two lambs per sheep per year — adds up to convincing proof that a small loan can pay big dividends.

     Wang, a farmer in her late 40s, bought those ewes with a $75 loan from the Amity Foundation, through a  “micro-credit” program co-sponsored by the Mennonite Central Committee and the Canadian International Development Agency.

     Six months later, when it was time to repay the loan, she borrowed from relatives. That’s also when she decided to build up a flock rather than sell her sheep for instant profit.

     For every pound of wool that she sells, Wang gets 12 cents. This makes her woolly herd a soft cushion for hard times. Her family also grows maize, potatoes and millet, and gets an occasional city job. But “without the micro-finance program, I could never have started raising sheep,” she says.

     The program in Shanxi’s Zuoquan County is managed by Amity in cooperation with the local Poverty Alleviation Bureau. Money is lent in six-month cycles to borrowers who invest it in small money-making ventures.

     The program, supervised by local officers, is specifically for women, who organize themselves into support groups that collectively guarantee the loans. The women also take part in training sessions to brush up on arithmetic and learn to write business plans.

     So far there has not been a single default, although borrowers must pay 12 percent interest on their loans, which range from $75 to $240. The high interest rate is typical of such programs, which use the income to establish rural financial institutions, for long-term sustainability.

     The current micro-credit model is not perfect. Many borrowers complain about the brevity of the loan cycles, which don’t coincide with agricultural growing cycles. For example, it takes nine months, three months longer than the loan cycle, to fatten a pig for market.

     Wang Baocheng, who oversees the project for Amity, says: “Most peasant households would like to receive their loans in the spring, as this enables them to buy cattle at seasonally low prices and to resell later, just prior to Chinese New Year, when prices for cattle are at their highest.”

     Others wish larger loans were available. Sometimes, Baocheng says, small loans do not allow meaningful investments and therefore don’t make money.

     Chunfeng’s practice of borrowing from relatives to repay her loan, rather than selling cheap for immediate income, is typical.

     While they often are intended to kick-start an income-generating enterprise, micro-credit programs sometimes lead to the establishment of rural “mini-banks” that extend credit to local farmers.

     Such programs produce cash flow that can give the local economy a boost. In addition, the business training gives participants the tools they need to become entrepreneurs.

     “Traditionally, farmers would only borrow money from friends and family, in emergencies, or for a set of narrowly defined, socially accepted purposes, such as weddings and funerals,” Baocheng explains. “With the practice of borrowing and lending money becoming widespread, peasants will start to borrow … for business purposes as well.”

     Amity’s operation in Zuoquan is the offspring of an earlier micro-credit project in the province, says Yu Wen Youyu, Amity’s partner in the Poverty Alleviation Office.

     “Shanxi had a government-initiated micro-credit program that failed,” he says “It followed a different model, and was implemented in cooperation with a bank. In contrast, the program run by Amity has been a great success. We work exclusively with women, who constitute a ‘weak’ group within the ‘weak’ population of the poor; 100 percent of our borrowers return their money, and we have profit rates of up to 30 percent per loan.

     “One of the main differences between the Canadian-Amity model and the failed government program is the emphasis … on personal development rather than (just) taking a loan. To achieve this personal growth, you need a lot of training, and training requires a lot of work.”