Grameen Foundation, a global supporter of microfinance initiatives, has been involved in Chinese microfinance since 2000. Alex Counts, president and CEO of Grameen Foundation, is tasked with directing the organization's work throughout China and around the world.
A 1988 Cornell University graduate, with a degree in economics, Counts' commitment to poverty eradication deepened as a Fulbright scholar witnessing dire poverty as well as innovative solutions in Bangladesh. He then trained to be a catalyst for change under 2006 Nobel Peace Prize Laureate Dr. Muhammad Yunus, the founder and managing director of the Grameen Bank.
The organization has a comparative advantage by being one of the first US-based microfinance support organizations in China. Working in collaboration with Grameen Trust, it has disbursed about US$1 million of on-lending capital to 12 microfinance programs located throughout China. Grameen Foundation also co-hosted the first ever Microcredit Summit in China in 2003 and is the only US-based organization that sits on the International Advisory Committee of the Chinese Microfinance Network.
What has the Grameen Foundation already accomplished in China?
Over the past few years, Grameen Foundation has conducted field visits to the best microfinance institutions throughout China. Of the MFIs we visited, three stood out as having the greatest potential to move forward and attain sustainability. As part of our China Strategy, we have created tailored packages for financing and technical assistance for each of the three MFIs, which has and will continue to help exponentially grow their client outreach. We have delivered trainings in business process management – giving our partner organizations tools to understand process efficiencies and streamline procedures – as well as trainings for loan officers in credit discipline, to strengthen their ability to be effective. We are also developing industry-wide initiatives in technology and social performance management to fill gaps currently found within the Chinese microfinance industry.
How is Grameen Foundation financed around the world and how does it work with the Grameen Bank?
I founded Grameen Foundation in 1997 with a mere US$6,000 in seed capital and a charge from 2006 Nobel Peace Laureate Dr. Muhammad Yunus, to play the role of catalyst – channeling human, financial and technological resources in the United States to support the growth of the poverty-focused microfinance movement. Grameen Foundation continues to be funded by donors and uses these funds to support MFIs throughout the world.
While Grameen Foundation and Grameen Bank are independent organizations and have no financial or institutional links, we share the bank's spirit and values. In addition, Dr. Yunus is a founding and current member of Grameen Foundation's board of directors.
What type of government entity oversees microfinance in China?
The regulatory environment continues to evolve and there are different legal forms for microfinance institutions. Since late 2005, the People's Bank of China and the Chinese Banking Regulatory Commission have done some significant reforms that will eventually change the landscape for financial services in the rural countryside. In early 2006, the PBOC authorized six provinces (Shanxi, Shaanxi, Guizhou, Inner Mongolia, Gansu and Sichuan) to pilot licenses for for-profit, micro-credit companies to provide only credit in poor areas. Then, in December 2006, the CBRC announced regulations for a new banking license that would create banks with limited geographic scope to operate in rural areas, again to be piloted in six provinces (Sichuan, Gansu, Qinghai, Hubei, Jilin and Inner Mongolia).
Our local partner MFIs are all non-profit, social organizations, established and run under local and national government support, and we operate as a strategic partner of these MFIs. Two of our MFIs are in process of being transformed into regulated entities.
In China, what are Grameen Foundation's plans and challenges for the next five years?
Grameen Foundation's vision in China is to create a vibrant Chinese microfinance sector that supports poverty alleviation programs by shortening the rural-urban, east-west poverty gap that is so prevalent today. A vibrant microfinance sector would be characterized by a large number of well-run, sustainable, and transparent institutions that offer a wide array of financial services choices to China's poorest populations, and are held to international standards of accountability. We have chosen partner MFIs that we believe will significantly contribute to achieving this vision. Also, by making Grameen Foundation resources in technology and in social performance management available to the entire Chinese industry, we will be helping the entire sector to move forward.
The greatest challenge we face is in financing our partner MFIs. GF believes in helping microfinance organizations move along a path towards sustainability, including eventually being fully commercially financed. We do this by arranging financing packages throughout the life of the MFI that sometimes requires direct debt financing from GF to a partner MFI. Foreign exchange restrictions and the regulatory environment for microfinance have made it very difficult in China for us to get loan financing to the MFIs. However, we are working on innovative solutions to this dilemma, and the changing regulatory environment for microfinance means that it should become easier in the future.
How do you choose local Chinese microfinance institutions, who are they, and how do you monitor their activities and provide oversight?
GF uses a multi-step process in selecting MFI as partners, to ensure mission alignment and commitment to GF strategic objectives including a focus on poverty and lending to women. Tailored technical assistance packages build up the partner's strengths in order to maximize potential. Throughout the partnership, GF continually evaluates the MFI's performance in portfolio growth and quality, efficiency, profitability, and asset liability management, and tracks progress against established goals in each partner MFI's business plan. The GF program manager also visits several times a year to meet with the MFI staff and to visit clients.
We are currently working with three partner MFIs in China – Funding the Poor Cooperative operating in Hebei and Henan; Chifeng Zhaowuda Sustainable Women's Development Association in Inner Mongolia; and Association for Rural Development of Poor Areas in Sichuan.
Micro-Finance Open Architecture has morphed into the Microfinance Open Source Project and is now being hosted by the Grameen Technology Center. Do you have Chinese open source architects helping to localize the project?
“Microfinance Open Source�? (or Mifos), is an open source software platform developed by Grameen Foundation. It is managed by our Grameen Technology Center and is currently being beta tested with several MFIs. It will be introduced to our Chinese partners where appropriate, as well as to the industry as a whole. To do this, we are in the process of developing a Mifos “ecosystem�? consisting of local Chinese service providers to localize the platform. GF will remain in discussions with all relevant stakeholders in the microfinance industry to understand the role Mifos could play as an industry-wide technology solution.
Are there general reasons why some borrowers around the world can not pay back their loans and how are they handled within the Grameen system?
Grameen Foundation's experience is that borrowers generally repay their loans and the MFI worldwide repayment rates are usually 95-98 percent. However, there are a number of factors which affect individual repayment such as a death or illness in the family, crop failure or adverse environmental conditions. For most of us, there is insurance to cover these risks; however with the poor, insurance is usually not available or prohibitively expensive.
That is why Grameen Bank piloted micro-insurance for the poor in Bangladesh and the reason many MFIs have also started offering micro-insurance for their clients. For example in the case of death of a borrower, Grameen Bank has developed a built-in insurance program which pays off the entire outstanding amount with interest so the family of the deceased is not required to pay back the loan and no liability is transferred to the family. In addition, Grameen Bank's strong emphasis on savings allows clients to draw on these assets to help them through low cycles in their businesses.
Starting in 2001, Grameen Bank underwent a complete overhaul of its system, creating "Grameen II" to make its loan programs more flexible and effective and to better respond to the needs of its clients. One key component is that clients can reschedule their loan repayments in the event that the original schedule becomes too onerous. This added flexibility has helped Grameen Bank to greatly expand its outreach: while it took 27 years to reach its first 2.5 million members, it doubled its membership in three years after fully establishing Grameen II. The Grameen II story is documented by two of Grameen Bank's earliest employees in a recently-published book called The Poor Always Pay Back.
Development of advanced industrial nations did not depend on people having access to credit. How far can credit now propel economic growth in underdeveloped areas?
Development of advanced industrial nations was supported by the availability and competition of capital to finance entrepreneurs who had the vision to create companies from railroads and oil companies to biotech and the Internet. We believe the poor should have the same access so they can create their own opportunity.
How does Grameen Foundation set its priorities and gauge its success?
Our five-year Strategic Plan to 2008 is very clear – reaching 5 million new clients, ensuring that 50 percent of our clients escape poverty within 5 years of taking their first loan, and delivering three innovations that will transform microfinance world at the national, regional and global levels. We are on course to reach those goals, based on a recent review of progress. We will be successful if we have met our plan.
In addition, we want to see all people, from the very poorest through all of society, have access to safe and affordable financial services that meet their needs – that's how we know we've accomplished our mission.