At a recent Beijing press conference, Premier Zhu Rongji noted the unprecedented development of China's economy over the past four years. Civil service employees have seen their salaries doubled, employees' salaries have increased significantly, retirees are getting more benefits thanks to the improvement of the social security system, and the projection for continued economic growth in the coming year is set at 7 percent. Unfortunately, China's 800 million rural citizens are not seeing any increase in their income, and in certain areas have even seen a drop. Asked to name his biggest headache, Zhu, with characteristic humor, said, "To be honest, I suffer from headaches all day long. If you are talking about one single issue that causes me a real headache at present, that topic is how to increase the income of Chinese farmers."

In China there are 30 million farmers living in absolute poverty on 25 cents per day, and another 30 million "relatively poor" who live on less than a $1 daily. Meeting the needs of farmers is first and foremost in China's reform, according to President Jiang Zemin. With China's entry to the World Trade Organization (WTO), farm products from the United States will flow into China on a large scale, creating competition that will cause even more difficulties for farmers.

Against this grim backdrop, it should be noted that according to United Nations sources, China is one of the leading countries in poverty eradication efforts. The government has encouraged the utilization of microfinance as an effective tool to combat poverty. Consequently, the microfinance industry has boomed over the past five years. Most of these operations in China, however, are too small to reach any significant scale—let alone sustainability—within a reasonable time frame.

The China Foundation for Poverty Alleviation
The China Foundation for Poverty Alleviation (CFPA) is one of a few NGOs that has been able to achieve significant scale in a relatively short timeframe. Since l999, the CFPA has managed one of the most successful microfinance programs in China. They have provided over 30,000 loans to farmers, and the repayment record is an outstanding 97 percent. The strong performance of the CFPA is based on their history of establishing operations at the county level, emphasis on training, precise data collection, strong management, high level government recognition, and, unlike other
programs, operational independence from the government.

Mercy Corps recently formed a strategic partnership with the CFPA. Our independent assessment of the CFPA program has shown that their microfinance project has resulted in increased agricultural production, household income, and quality of life for loan recipients. In the village of Shuangbai, where the program has been active for nearly three years, the increase in crop yield for corn has grown from 150 kg to 350 kg per mu (local term for a unit of land), and there has been significant improvements in housing, including new brick homes built in the village.

The CFPA has managed one of the most successful microfinance programs in China. They have provided over 30,000 loans to farmers, and the repayment record is an outstanding 97 percent.

Success Stories
In Fenshang village, Mrs. Zheng, a farmer in her early forties, used her 1000 Yuan (US$124) loan to raise a special "natural" chicken, which is unlike those commonly found in the markets. Because of their exceptional taste and nutrition, she had no problem finding buyers. Even the restaurants from the nearby city come to her home to buy her chickens. After repaying her first loan, Mrs. Zheng took out a second loan to buy a small grinding machine. By grinding grain and feed for others in her village, she now has yet another source of income. Her goal is to use this additional income to provide more education to her children.

In Ankang County, a male borrower used his first loan of 1000 Yuan toward buying four medium sized pigs for 340 Yuan each. He was later able to sell them for 500 Yuan and repay his loan. Then he took out a second loan and bought three cows, which he now plans to sell for a profit. This income is supplementing what the family earns planting rice.

Expansion
Mercy Corps and CFPA have agreed to launch an aggressive program to significantly increase farmers' income in poverty level counties by expanding this successful micro-credit program. Within five years, we plan to increase the number of farmers benefiting from the micro loan programs from the 21,000 who are currently participating, to 120,000 farmers, and to expand the branch offices from six to nineteen counties. The objectives are to raise net income by 25 percent per annum, achieve sustainability in the fourth year of operation at each county, and establish this project as China's premier agricultural low-income micro credit program.

To help achieve these goals, Mercy Corps and CFPA have established a unique Corporate Partners program. We will be recruiting North American and European companies, churches, and other interested groups to sponsor the project at the county level. Corporate sponsors "adopt" a poverty level county where the Mercy Corps/CFPA will establish a microfinance project. In four years, 8,000 farmers will benefit from the project. Most important, at that size, the project will be self-sustaining. For every $1 contributed Mercy Corps/CFPA, we are able to raise a $2 match from Chinese sources. Sponsors will receive detailed quarterly reports including information on the beneficiary families, amount and purpose of loan, pay-back record, photographs, and other data related to the village and project. Visits can also be arranged for sponsors to travel to the area and meet with the local villagers.

Contributed by Ells Culver, Co-founder/Senior Vice President, Mercy Corps. For further information or to be a Corporate Sponsor, contact Ells at 503-796-6800, or culver@mercycorps.org

To read another Global Envision article about the potential of microfinance see Small Loans, Big Impact.

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