Microfinance in China’s countryside? It might just be on the horizon…

If Bangladesh can do it, so can we.

That’s perhaps the sentiment running through the heads of the financial oversight commission in the Chinese government. They saw the Grameen Trust, a pioneering microfinance institution in Bangladesh making loans to poor farmers without collateral, win the 2006 Nobel Peace Prize.

Grameen Bank branches are located in the rural areas, unlike the branches of conventional banks which try to locate themselves as close as possible to the business districts and urban centers. First principle of Grameen banking is that the clients should not go to the bank, it is the bank which should go to the people instead. Grameen Bank’s 18,795 staff meet 6.61 million borrowers at their door-step in 71,371 villages spread out all over Bangladesh, every week, and deliver bank’s service. Repayment of Grameen loans is also made very easy by splitting the loan amount in tiny weekly installments. Doing business this way means a lot of work for the bank, but it is a lot convenient for the borrowers.

And according to this recent article in the Nanfang Weekend (Chinese), it just might usher in a new era of reform in China’s banking system. Here’s a portion of the article (roughly translated):

Reporter: With the suggestion of China’s Banking Supervisory Committee to redefine the current financial framework in China’s countryside, do you think we can anticipate a similar successful banking experiment like that in Bangladesh, such that people in the countryside can also establish their own bank?

Lu Yan [Jocelyn: a professor of financial transformation and development at Guangdong’s Financial College]: This suggestion put forth is a very important measure in the financial reform of the countryside, as it signals a new era in the reform of financial services in the countryside. Looking at the method of reform, the development of financial services in the countryside has already gotten to a point where the system is being designed to serve people living in the countryside, helping these banks advance to an era where the banks are established by people in the countryside. So this means we will be faced with a number of difficulties. However, as long as we continue to rid ourselves of the dysfunctional cycle of limited lending and savings capacity, we can truly lower the threshhold for entry into the financial framework for people in the countryside, such that the financial industry in the countryside may find a new pathway — one with Chinese characteristics.

Although this is still being tossed around by the central government in China, it could perhaps be a bellweather of events to come. After all, some 70 odd percent of China’s population lives in the countryside. The Nanfang Daily article also alludes to the current problem in the banking system of coverage — essentially that there just aren’t enough branches out there servicing customers in the countryside. Microfinance may be the solution.

How might your product/service be able to facilitate this new direction in the financial industry? You could make a real difference that might just also impact you financially. Think about it.

I also find this interesting from a marketing perspective. Most articles I see on the internet tend to profile hot emerging consumers in places such as Shanghai. As an example, here’s a portion of an article I found on AdWeek describing China’s emerging middle class:

Zhi Ying and her husband, Jiang Bin, typify the ambition, optimism and national confidence of the emerging capitalist class that is transforming the world’s fastest-growing consumer society. Thanks to the economic reforms first introduced by Deng Xiaoping in 1978, this generation is living a lifestyle unimaginable as recently as 10 years ago. They own their own home and car, use credit, travel outside China and are fast adapters of the latest advances in personal technology and consumer electronics. They dine out and enjoy regular evenings on the town with friends, where premium brands like Chivas Regal and Heineken are the drinks of choice. In their living room, studio portraits of the family’s much-adored only child show 6-year-old Jiang Ze Hao dressed in U.S. stars and stripes, wearing a cowboy hat. Those preferences for international imagery, brands and luxury goods are proud badges of status as the new China opens up to the larger world.

But you’re probably not going to get the same persona with the folks looking for microfinance. To see what I mean, here are a few excerpts from the Grameen Trust website:

Conventional banks go into ‘punishment’ mode when a borrower is taking more time in repaying the loan than it was agreed upon. They call these borrowers “defaulters”. Grameen methodology allows such borrowers to reschedule their loans without making them feel that they have done anything wrong (indeed, they have not done anything wrong.)

When a client gets into difficulty, conventional banks get worried about their money, and make all efforts to recover the money, including taking over the collateral. Grameen system, in such cases, works extra hard to assist the borrower in difficulty, and makes all efforts to help her regain her strength and overcome her difficulties.

In conventional banks charging interest does not stop unless specific exception is made to a particular defaulted loan. Interest charged on a loan can be multiple of the principal, depending on the length of the loan period. In Grameen Bank, under no circumstances total interest on a loan can exceed the amount of the loan, no matter how long the loan remains unrepaid. No interest is charged after the interest amount equals the principal.

Conventional banks do not pay attention to what happens to the borrowers’ families as results of taking loans from the banks. Grameen system pays a lot of attention to monitoring the education of the children (Grameen Bank routinely gives them scholarships and student loans), housing, sanitation, access to clean drinking water, and their coping capacity for meeting disasters and emergency situations. Grameen system helps the borrowers to build their own pension funds, and other types of savings.

It’s a different philosophy on banking.

As my friend Chip Coakley would say, this is bleeding edge — so cutting edge you’re bleeding on it! It’s not going to be available tomorrow. Then again, China’s economy is growing at breakneck speed…and who wants to be at the tail end of the next big trend?

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