The Young Economiststheyoungeconomists.com/uploads/3/3/8/2/3382808/the... · We live by the maxim, “Give a man a fish and you feed him for a day; teach a man to fish and you feed

The Young Economists

2014 Summer Issue, Volume 4

ISSN: 23326662

Presented by Fish-2-Finance

California Based Club Practicing Microfinance, Microcredit, and Community Development

www.theYoungEconomists.com

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Chapter Schools of “Fish-2-Finance Club”

Orange County:

Anaheim Private School: Fairmont Private Schools, Anaheim, CA 92801

Irvine Public Schools: Woodbridge High School, Irvine, CA 92604

University High School, Irvine, CA 92612

Irvine High School, Irvine, CA 92604

Irvine Private School: Crean Lutheran High School, Irvine, CA 92618

Newport Beach School: Sage Hill School, Newport Beach, CA 92657

Los Angeles County: Diamond Bar High School, Diamond Bar, CA 91765

Santa Clara County: Fremont High School, Sunnyvale, CA 94087

The Leadership Team of the

Young Economists & “Fish-2-Finance” micro-

finance Club attend the 2014 Global Philanthropy Leadership Internship Program in NingXia, China

Fish-2-Finance Student Club



2014 Summer Issue, Vol. 4



Board of Executives

The Board of Executives of The Young Economists is a California based team of individuals

with personal experience in Peer-to-Peer microfinance and microcredit.

Editor-in-Chief: Adonis Lu [email protected]

Co-Editor-in-Chief: Biyonka Liang [email protected]

Executive Editor: Daniel Liao [email protected]

Selena Lu [email protected]

Ally Ni [email protected]

Sandy Pan [email protected]

Editorial

Woodbridge High School: William Chen; Christina Lin; Michael Lin; Adonis Lu; Selena Lu; Mark Kyaw; Cher Ma; Jason Wang; Chloe Wang

University High School: Biyonka Liang; Joanna Wan

Irvine High School: Billy Zhang; Ally Ni; Tony Zeng

Sage Hill School: Daniel Liao

Crean Lutheran High School: Ashley Zhang

Fairmont Private Schools: Frankie Tao; Hanna Lu

Fremont High School: Frank H. Wang

Advertising

Director of Advertising: Biyonka Liang [email protected]

The Young Economist online and Display

Web Design: Adonis Lu; Selena Lu

Senior Art Editors & Photographers : Selena Lu; Amy Huang

Advisory Committee

Crystal Cooper: Woodbridge High School, Irvine, California

Dave Johnson: Woodbridge High School, Irvine, California

Matthew Beccaria: Ivymax Foundation, Millbrae, CA

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mailto:[email protected]


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CONTENTS Summer 2014 Issue, Volume 4

Letters and Communication

5 Notes from the Editor-in-Chief

We had a productive 2013 and great start of 2014. We worked

with radio stations and television stations to promote the aware-

ness of microfinance….. By Adonis Lu

Peer-to-Peer Microfinance Experience

6 Peer-to-Peer in NingXia China

Summer of 2013

I attended a microfinance summer camp with a group of thirty ...

in one of the developing rural areas in Ningxia, China …

Back to California

We live by the maxim, “Give a man a fish and you feed him for a

day; teach a man to fish and you feed him for a lifetime.” …...

Summer of 2014

A ¥200,000 cash loan to the villagers!” “Are you kidding? That is

$32,500!”…. The year before he didn't qualify for a ¥3,000 loan;

now he would be getting ¥50,000 in the first five years…...

By Adonis Lu

15 Economic Miracle in China: My Memorable Trip to NingXia

…...Coming from the calm, "bubble-like" suburban city of Irvine,

California to the populous, hectic city of Beijing is in itself a drastic

change … But moving from Beijing to the less well-off village of Da




4

Gou Yan in Ningxia was an experience that I will never for-

get...……. By Ally Ni

Microfinance Research

19 Difference between microfinance and microcredit

… ...are often used interchangeably, they are in fact quite

distinct…. By Daniel Liao

20 Money and People Involved in Microfinance

What this means is that borrowers have to make a return of

37% or higher in order to not end up poorer than when they

started. By Sandy Pan

23 Why Microfinance and Microcredit Are Not Popular in US

and EU Countries

Microfinance is a relatively new movement in the world of

finances, which allows people with no credit or low income

to receive financial assistants from other people or business-

es. One important aspect of …. By Daniel Liao

Book Review and Communication

17 Can China Lead?

… ...A book was written by three well known scholars…….

Moreover, the Communist-Party-State is omnipresent and

“controls” more than western ….

By Adonis Lu & Selena Lu

CONTENTS (cont.’) Summer 2014 Issue, Volume 4



A Productive 2013 and Great Start of 2014

Adonis Lu, Woodbridge High School, Irvine, California

The Young Economists had a productive and wonderful 2013. Under the

support of the “Fish-to-Finance” Club and IvyMax Foundation, we promoted

awareness in microfinance in Southern California and practiced Peer-to-Peer mi-

crofinance in NingXia, China. A number of leadership members have been directly

involved in reviewing, evaluating and approving the microcredit loans. Over the

past few years, we worked out and approved well over 70 microloans with aver-

age size of ¥3,000 each and supported many farmer families.

In the year of 2013, we started working with news media and held multiple

press releases to extend the knowledge of microfinance to Southern California

public. We gained valuable experience in building public relations with television

channels, radio stations, and newspapers.

One of the greatest achievements this year, which we were especially proud

of, is that we secured a cash funding of ¥200,000 investment to establish an agri-

culture cooperative from one of the leading microfinance platforms in China to

support the developing area in NingXia.

Let’s work together to have an eventful 2014!

5

The Young Economists 2014 Summer Issue

Promotion of Peer-to-Peer Microfinance

— a Life Time Long Pursuit

Adonis Lu, Woodbridge High School, Irvine, California

I.I.I. Summer of 2013Summer of 2013Summer of 2013

I attended a microfinance summer camp

with a group of thirty high school students in

one of the undeveloped rural province, Ningxia,

China, and practiced the Peer-to-Peer (P2P) mi-

crocredit business model in Da-Gou-Yuan vil-

lage. The goal of this P2P camp was to offer ru-

ral farmers a chance to make great strides to-

wards economic independence by providing

them individualized support through micro-

loans.

As a group leader of the program, I was

responsible for interviewing the villagers and

making final decisions on to whom the loans

would be granted. I then worked together with

my team to review farmers’ business plans and

prepare interview questions so we could ana-

lyze who could make better use of the loan and

produce a better return. After a week of evalua-

tion and discussion, we narrowed down to two

families and could not determine to which fam-

ily the loan should be granted.

“Madam Li is much more financially sta-

ble than Mr. Yang. We have to consider the

potential return for our loan. I vote for Madam

Li.” One of the group member suggested.

“But Mr. Yang is the most desperate one

in the village who needs our loan.” Another

member argued.

My team was quickly split into two sides

and neither could convince the other. “I don’t

think we can reach an agreement tonight. Let’s

carefully think about the other side’s opinion,

and continue tomorrow.” We all realized that if

nobody ever loans out money to Mr. Yang then

his family would sink into greater and greater

debt. However, Madam Li had much more rea-

sonable business proposal and could use the

loan effectively. As the team leader, I had to

make a decision, communicate and convince

the whole team on my approach.

Prior to our next meeting, I went to talk


6



to Mr. Yang, and attempted to find any addi-

tional information that we may have missed in

our initial interview. Looking at the bare dirt

ground in the house and clothing the kids were

wearing, it was so rough to see how a family

could even survive. I also found out that Mr.

Yang did not even complete his elementary

school education. I calculated that even if his

family could make a fifty percent profit year

after year, on our loan, he would still need

more than twenty years to pay off his medical

bills. I questioned how much our microcredit

loan could help him.

In the follow-up meeting, I suggested to the

group, “I vote for giving our loan to Madam Li

purely based upon the fact that we are practic-

ing Peer-to-Peer microfinance. I agree that Mr.

Yang’s family would sink into greater and great-

er debt if nobody helps his family. However, we

have to remember that both families are strug-

gling for a living and Madam Li is more likely to

be successful in getting out of poverty with our

loan than Mr. Yang.”

Finally, for the purpose of practicing mi-

crocredit business model, we all agreed to in-

vest our loan to Madam Li who had the poten-

tial of paying the loan back. I knew my decision

would make me feel guilty even though it was


7



appropriate under the circumstance. Even

though it was beyond the scope of this trip, I

was determined to find a solution to help Mr.

Yang after I goback to California.

I also noticed that without leadership,

people quickly degenerate into arguments and

conflicts due to different views and opinions.

Leadership is crucial in implementing decisions

successfully.

II.II.II. Back to California Back to California Back to California

I could not forget the disappointment in

Mr. Yang’s eyes when we announced our deci-

sion in the villager meeting. After I came back

to California, I still feel guilty about my decision

as we let him down not only financially but also

spiritually. This negative feeling drove me

working hard after the 2013 summer trip. I

knew we needed to do something for Mr.

Yang’s family.

I founded the Peer-to-Peer microfinance

club, “Fish-to-Finance”, with my friends. We

live by the maxim, “Give a man a fish and you

feed him for a day; teach a man to fish and you

feed him for a life-

time.” The unique

goal and mission

of the club attract-

ed students, who

desired to serve

the society and

plan to study fi-

nance as their fu-

ture career, from

three Irvine public

high schools, two

private high

schools in Orange

County and one

high school in San


8



Presidents of “Fish-2-Finance” Club, Adonis Lu (middle) and Biyonka Liang (second to

the left) were awarded for Excellence in Leadership in promoting microfinance in one of

the club press release conferences in November 2013.


Diego County. As the founder and president of

this regional Peer-to-Peer Microfinance Club, I

also established the bi-annual magazine of

“The Young Economists” where our club mem-

bers can document our microfinance experi-

ence and research results. In my research, I dis-

covered a research paper titled, “The miracle of

microfinance? Evidence from a randomized

evaluation,” published in March 2014 by Pro-

fessor E. Duflo of the Poverty Alleviation and

Development of MIT. Her extensive amount of

research data concluded that, although micro-

credit “succeeds” in leading … to expand …… or

choose to start a small business. It does not ap-

pear to fuel an escape from poverty based on

those small businesses. It seems that I need to

think out of the box. My teammates and I host-

ed fundraising activities in Irvine, Diamond Bar,

Arcadia, and San Marino to fund our future P2P

projects. In order to bring more exposure and

awareness to local communities, we also

worked with local media, such as AM 1300 ra-

dio, The World Journal newspaper, and the

LA18 TV channel to share our P2P experiences

and get more students and parents involved.

Often times, we were invited to speak at semi-

nars about the of microfinance and I frequently

shared my experiences in Ningxia, thereby sim-

ultaneously raising money and spreading

awareness.

III.III.III. Summer of 2014Summer of 2014Summer of 2014

As I promised, I was going back to the

same village! Seven of my club members were

on the train from Beijing to Tongxin county of

Ningxia province on August 5th, 2014. High rise

buildings quickly disappeared in the back of our

view. While counting the numbers of bare

mountains we pasted, I could see in front of us

the barren tracks of land in the Loess Plateau. I


9


“Fish-2-Finance” club

worked with media including 7

was thinking about Mr. Yang, one of the villag-

ers I met last year. Despite the state of poverty

in which he lived, Mr. Yang was always so

grateful and welcoming, which I really admired.

But he couldn't even qualify for our micro-

finance loan—his income was unstable and he

lacked a clear business plan. I wondered if he

had sunk into greater debt. While the whole

world is amazed by the economic miracle of

China, how many of us noticed the millions of

Chinese peasants struggling to make ends

meet?

As our train pulled into the village, my six

fellow club members and I immediately ap-

proached Madam Zhao, the village head. We

were excited and

eager to make our

donation. I offered

her the funds; but

she shook her

head, and then po-

litely, yet firmly re-

jected it. Desperate

and not knowing

what to do, I asked

if I could incorpo-

rate the money in-

to the original loan.

“No,” she said again in Chinese, and then add-

ed, “Any foreign funding to a minority group

requires approval from the local county gov-

ernment. I cannot challenge their authority.”

We learned that the local officials did not want

their authority to be undermined. I suddenly

realized that I had no other plan for the villag-

ers.

The more I learned about the policies set

by the county government, the more frustrated

I became. How could we help Mr. Yang? I need-

ed to think out of the box. I bounced ideas with

my friend Eddy, a Northwest University student

and an intern at Jimubox, one of China’s largest

and leading microfinance platforms. Eddy and I


10



Club members crowd around Adonis Lu (in front of the laptop) as he shows them his

business plan, which secured a cash loan of ¥200, 000 from one of the leading microfinance


became friends on the train ride from Beijing.

Maybe he could check out if Jimubox could

help. Eddy told me that Jimubox focused on

entrepreneurial ventures, not funding to peo-

ple without credit. The next day, I showed Eddy

the research pa-

per that I read be-

fore, “The miracle

of microfinance?

Evidence from a

randomized evalu-

ation,” by Profes-

sor E. Duflo of

MIT. The article

convinced Eddy

that while micro-

credit was great in

many instances, it

wasn't for Mr.

Yang. Mr. Yang

would not be able

to pay back a loan so giving loans to him year

after year would trap him in an endless cycle of

debt.

One afternoon, Eddy and I were chatting

with the villagers including Mr. Yang, and lis-

tened to their hopes and dreams. I will never

forget the happiness on their faces when I

calculated out the profit they could gain with

a sizable number of cows, sheep and pigs ,

which they wish to own. Eddy told me, “They

have no interests and knowledge about the

outside world. Why don’t we do something

that they are

good at?”

Trying to find a

solution, Eddy

and I discussed

ways in which

Jimubox might

financially back

us. We consid-

ered using

Jimubox’s

crowdsourcing

capabilities to

raise funds,

which we could

then use to pur-

chase supplies. But that might be considered a

donation, so we ruled it out. After many ideas

were raised and discarded, then, it hit us: we

could establish an agricultural cooperative

composed of farmers with special skills, and

appeal to Jimubox for a startup capital. It

wouldn’t be a loan; it would be an investment.


11


The farmer shown above has received a cash microloan from the P2P

program.

We got a thumbs-up from Madam Zhao,

much to our surprise, considering the scope

Eddy and I had in mind. Two weeks was tight

to finish a full-blown business plan by our-

selves. Luckily, I had just spent four weeks at

the Leadership in the Business World (LBW)

summer camp at Wharton UPenn, where I

gained practical knowledge in starting a busi-

ness. In addition, we were fortunate to have

Dr. Ghulam Abbas, a finance scholar from the

Chinese Academy of Sciences, as our mentor.

He suggested various Peer-to-Peer (P2P) fi-

nancing models from around the world that

could be incorporated into our business pro-

posal. Under his guidance, we conducted pri-

mary research to determine the specifics of

the cooperative. We interviewed farmers and

visited local subject matter experts. We had

one week to address a lot of questions. Would

the cooperative raise cows or sheep? How

would they feed the cows and when would the

cows be sold? What was the cost and profit for

each cow? Just trying to translate and take

notes as we talked to the farmers was often

difficult, but we managed it. With our data in

hand, I created a month-by-month timeline for

the first year and calculated the complete fi-


12



NingXia P2P trip summery meeting held in

Beijing


nancial statements. Eddy helped me to trans-

late it into Chinese. We submitted both ver-

sions to Jimubox.

After three days of

waiting, Eddy received a call

from his manager that

Jimubox had approved the

proposal and agreed on the

investment. “A two hundred

thousand cash loan to the

villagers!” “Are you kidding?

That is ¥200,000, about

$32,500! It is huge for a vil-

lage where we had been

providing only microloans

for the past few years! ” I

could not believe what I

heard from my buddy Eddy,

as he told me the news with

a smile. He continued, “Under one condition:

the loan has to be secured through a coopera-

tive of at least five farmers from the village.”

That is perfect as we can include Mr. Yang in

the corporative. Mr. Yang’s face lit up when

Madam Zhao, Eddy, and I broke the news to

him. He was absolutely stunned. The year be-

fore he didn't qualify for a ¥3,000 loan; now he

would be getting ¥50,000 in the first five years.

It would be the first investment of its kind in

the area. It would also inspire cooperation and

entrepreneurship among the villagers because

they wouldn’t be

competing with each

other but instead

working together to

establish a rudimen-

tary business. Eddy

and I also believed

that the cooperative

would inspire other

villagers to follow suit

and encourage them

to become motivated

and put other ideas

into practice, without

fear.

I was overjoyed that

we could turn a disappointment into such a

success. It was the first time in my life that I

applied the knowledge I learned from school

into real world. With the heart of serving our

community, we give hope to the unfortunate

and bring happiness to our lives. Serving our

society using the power of knowledge is my

life time pursuit.


13


“Fish-2-Finance” club donates books, school

supply to NingXia children who usually have very

limited chance for education



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Global Philanthropy Leadership Internship Program

Proudly Presented by IvyMax Foundation

The Leading Organization in Promoting Peer-to-Peer Microfinance Research

Join our summer internship programs

Benefit by visiting www.ivymax.com

Bring hope to financially challenged people

Enjoy the memorable experience


15


Economic Miracle in China: My Memorable Trip to NingXia

Ally Ni, Irvine High School, Irvine, California

As part of Peer-to-Peer (P2P) team, I have

started my memorable trip to NingXia, China.

Coming from the calm, "bubble-like" suburban

city of Irvine, California to the populous, hectic

city of Beijing is in itself a drastic change of

scenery. But moving from Beijing to the less

well-off village of Da Gou Yan in Ningxia was an

experience that I will never forget. Initially upon

arriving, the differences were dramatic, no

longer were we constantly surrounded by peo-

ple, the pollution was definitely much better,

and of course there were no longer any fancy

high-rise buildings, those typical of a big city.

During my first couple of days in Ningxia,

there were definitely a lot of changes that I ex-

perienced individually, most of which, looking

back on were rather trivial. Although, this

change allowed for plenty of uncomfortable

situations such as: being able to take a shower

only at certain times or sometimes the unavail-

ability of bathrooms, the most important les-

son I learned through living in these circum-

stances is to not take my life for granted. As the

days went by and I got to fully spend time in

both the village and Ningxia, I began to appreci-

ate the kind and hardworking local people and

through them to understand economic miracle

happening in China in the past 20 years. I met

with local farmer, Xiao Chun, who is about 35

years old and teamed up with her to do some

field work. Xiao Chun was quite a “talker” and

often was very proud of showing off new ad-

vances at the village. Although many of those

inventions were quite common at US and we

have taken for granted, Chun was very excited

to describe rapid economic changes happening

at Ningxia in the past 20 years. Chun men-

tioned that when she was in my age, roughly 14

-15 years old. They do not have even clean run-

ning water and have to go to nearby river to

carry water home for drinking, showering and

washing clothes. The river is about 10 miles

from home and she has to travel 2 hours to

bring water home twice a day. It could some-

times be a very terrifying experience. When she


grew older, the village began to afford to use

horse cart to carry water from nearby river and

Xiao Chun began to learn how to ride horse

cart. That was definitely a big advance and it

only took her half-an-hour to bring water

home without much sweat. About five years

ago, the village has talked about transferring

water from river to individual home. Xiao Chun

and people in the village have only seen the

running water through TV and previously

thought only “city” people could have the luxu-

ry to use that and never dreamed of turning

the water tab themselves at their own home.

The dream came true two years ago and Xiao

Chun still remembered the day.

I went back to hotel and had a sleepless

night. I had reflected my personal experience. I

traveled to China every year to visit my par-

ents’ hometown. Every year, I saw drastic

changes to become better and better and Chi-

na has become the second largest economy in

the world. My parents often talked about their

childhood and proudly described many great

achievement at their hometown and their

many “first”. Through them, I have definitely

sensed their pride to be “Chinese” and I have

begun to appreciate their effort to have me

learning more Chinese culture and helping still

poor people at rural areas to become better

and better.

This memorable trip to Ning Xia has in-

spired me to want, not forced by my parents, to

come back next year. I feel the pride to be part of

economic miracle transformation happening in

China, in NingXia. I want to wittiness the change

and if possible, to contribute my tiny effort to

make their life to become better and better. See

you next year, NingXia, see you next year, Xiao

Chun.


16



Ally Ni (first from the right) works with the village children during the P2P program

Can China lead? This book was written by

three well known scholars Regina M. Abrami,

William C. Kirby, and F. Warren McFarlan after

years of thorough research. Dr. William C. Kirby

is the Spangler Family Professor of Business Ad-

ministration and T.M. Chang Professor of China

Studies. He is also the Chairman of the Harvard

China Fund, and an honorary professor at many

top universities and research institute. Dr. Re-

gina M. Abrami is the Director of the Global

Program at Lauder Institute of Management

and International Studies at Wharton School

(University of Pennsylvania). F. Warren McFar-

lan is the Baker Foundation Professor of Busi-

ness Administration Emeritus at Harvard Busi-

ness School. He is concurrently a guest profes-

sor at Tsinghua University’s School of Econom-

ics and Management and co-director of the

school’s China Business Case Center.

The book starts off with a summary of the

economic achievements of China accomplished

in the past thirty years. China has maintained

an approximate 10% of economic growth for

over thirty years. Its huge foreign reserves,

growing status in international organizations,

and prevalence of its goods around the world

amaze the western world and lead people to

conclusion that China will lead the world in the

21th century. While people are awed by the

economic miracle of China, the authors ques-

tion if China reached the limits of power and

growth, and challenge the leadership of China

in the twenty first century.

The book also reviews the history of China.

Chinese civilization can be traced back from

2000 BC, and is the longest and continuous civ-

ilization in world. However, the relatively mod-

ern China did not exist until the establishment

of the “Republic of China”, a modern era, in

1912. The short history does impact Chinese


17


Can China Lead?

Reaching the Limit of Power and Growth

Adonis Lu and Selena Lu, Woodbridge High School, Irvine, California

Book Revie

w



18


leadership in both economics and global

events, as China is still in the process of build-

ing the institutions of a modern state.

In addition, China, an area the size of the

continental United States, is made up of many

regions and ethnic groups. People speak in

distinct dialects, worship separate deities, and

dream quite different dreams. The multiple

minority groups in China have multiple tradi-

tions. Diversity increases difficulties to com-

municate with the rest of the world. Besides

the cultural differences in different regions,

economic life is also centered largely on the

regional economies. As of today, there has

never been just one “national China markets”,

and never been just one “national business or

economic system/policy.” The policies and

interests of a layered government, from na-

tional, provincial, municipal, to local town and

village do not intersect. Therefore, any Chi-

nese strategy for western businessmen has to

evolve in a nuanced way to deal with both the

local and the central. Most of the time, local

culture and beliefs are on top of the business

policies, which result in a broad range and

high degree of corruption. Moreover, the

Communist-Party-State is omnipresent and

controls business strategies more than west-

ern people could imagine. Therefore, it re-

quires a long-term commitment and energy

to deal with the low efficiency and the policy

set by layers of authorities.

Based on data from more than thirty Har-

vard Business School case studies on Chinese

and western companies in China, the book con-

cludes that “China's dynamic private sector

could be a source of sustainable growth, but it

is constrained by political favoritism toward

state-owned corporations”. The authors also

question the political future of China and doubt

if the current government has the capacity to

transform itself to promote economic growth.

Reference

1. http://post.nyssa.org/nyssa-

news/2014/07/book-review-can-china-

lead.html

2. https://hbr.org/product/can-china-lead-

reaching-the-limits-of-power-and-growth/

an/10837-HBK-ENG

3. https://hbr.org/product/can-china-lead-

reaching-the-limits-of-power-and-growth/

an/10837-HBK-ENG



Difference between Microfinance and

Microcredit

Daniel Liao, Sage Hill School, Newport Beach, California

Although microfinance and microcredit

are often used interchangeably, they are in

fact quite distinct. The concept of microfinance

is a much broader than microcredit. micro-

finance refers to the process of providing

loans, savings, money transfer, insurance, and

other financial products to underprivileged

people or small businesses. In some regions of

world, helping small businesses mitigate the

risk and providing education to clients can also

be the scope of microfinance. Microcredit is

just one aspect of microfinance and refers spe-

cifically to the process of providing small loans

to the less-forturnate peoples as a working

capital so that they may become self-sufficient

and finally get out of their poverty. The typical

characteristic of microcredit is that loans are

short term (6-12 months) and without the tra-

ditional lender’s requirement of collateral

(collateral usually is a property a borrower

promises to give lender if he can’t pay back a

loan). The loan amount can vary drastically. In

the developing countries, the loan amount

normally is in the range of $100-500. However,

the microcredit can be in range up to 25,000

euro in some Europe country.

Modern concept of microfinance and mi-

crocredit is pioneered by Dr. Muhammad Yunus

who was awarded the Nobel Peace Price in 2006

for founding the Grameen Bank in Bangladesh.

In the summer of 2014, I attended the

Global Philanthropy Leadership Internship Pro-

gram organized by the IvyMax Foundation. We

practiced Peer-to-Peer (P2P) lending procedure

at the Da-Gou-Yan village in Ningxia China. It is

considered as one of programs in the field of mi-

crofinance. The loan granted to a farmer is 3000

RMB, approximately $500. The borrower has to

meet a minimum income an power of return re-

quirements. Therefore, it is categorized as miro-

credit to a farmer.


19


Concept

s

Microfinance, or microcredit, is defined

as the lending of small quantities of money to

entrepreneurs or businesses of the developing

world. Millions of people around the world

have just emerged from poverty in recent dec-

ades, and many of these people are entrepre-

neurs who want to start up their own business-

es. However, they often have trouble procuring

investment funds from traditional banking in-

stitutions due to high risk involved in getting a

return on such investments. While the concept

of microfinance has been implemented since

the 1800s

with the

founding of

the European

credit union

movement, it

is only the

1970s and

later that saw

the start of a

truly global

microcredit movement. Now, some hundreds

of millions of people around the world are bor-

rowers and there are thousands of institutions

that service them.

Microfinance aids the poor in that while

they are not directly lifted from poverty, they

are given better control of their finances and

have access to more sophisticated finance in-

stitutions. Entrepreneurs from developing

countries can lend money and manage their

savings better. However, since there is a high

risk associated

with micro-

finance, partic-

ularly in coun-

tries that are

less financially

stable, lending

often comes at

the cost of a

high interest

rate – one that

averages


20



Money and People Involved in Microfinance

Sandy Pan, Diamond Bar High School, Diamond Bar, California



21


around 37% in many areas. What this means

is that borrowers have to make a return of

37% or higher in order to not end up poorer

than when they started. Some believe that

the impact of microcredit leaves some fami-

lies trapped in debt but there is evidence that

many businesses found success thanks to mi-

crocredit and there is potential for further

growth.

Microfinance is one of the more inter-

esting and personal ways to participate in phi-

lanthropy. The reason behind this is that be-

cause of organizations like Kiva, lenders can

work with and support individual entrepre-

neurs. An example of this can be found in

Jessa from Boane, Mozambique who was

funded $600 through an internet microfinance

website to purchase construction materials for

his business. Varied repayment options and a

fluid reimbursement schedule allows for a

comfortable relationship between lender and

borrower. In place of charity, participating in

microfinance financially aids the poor but ac-

tually involves the borrowed money being re-

turned to the lender rather than the giver’s

money dissipating entirely. The lent money

can be cycled again and again through such a

microfinance institution or be drawn out – all

to the lender’s will.

The “Fish-2-Finance” club members work in the field dur-

ing the P2P program



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Microfinance is a relatively new move-

ment in the world of finances, which allows

people with no credit or low income to receive

financial assistants from other people or busi-

nesses. One important aspect of microfinance

is microcredit, which provides small loan to

the poor. It is especially useful within under-

developed countries that rely on more of an

agricultural approach, as it is in those areas

that the relatively small loans will cause the

greatest impact in the residents’ quality of life.

To a poor farmer,

this small loan will

allow for the ac-

quisition of tools

and or livestock

that will allow him

to increase his

productivity. How-

ever, microfinance

and microcredit,

while very suc-

cessful in develop-

ing countries, are not nearly as effective in

well developed region of the world, as the

small loan will have negligible impact to a the

poor or small business.

The United States, while having a limited

amount of microfinance programs, is generally

not a country that is well suited for such a pro-

gram. First, most businesses in the United

States consist of manufacturing. The nature of

manufacturing makes small loans to have mini-

mal to no impact on the growth of a business,

as the capital

needed to

manufacture

the goods

will, except

for a few cas-

es, cost

much more

than the

loans that

microcredit

will normally


23


Why Microfinance and Microcredit Are Not Popular in

US and EU Countries

Daniel Liao, Sage Hill School, Newport Beach, California


Daniel Liao (first to the right in the back row) reviews farmers’ business

proposal and approves the microloan in the NingXia P2P program

provide. Second, in cases where the person’s

business is successful, it would be able to go to

a bank to receive much larger loan that can be

used to further grow the business. Third, the

agricultural field, where microfinance has a

huge success in other region of world, is largely

dominated by large corporations running large

farms and using technology to create large

amounts of produce. Farming in the United

States is generally a large-scale endeavor, so it

is very unlikely that they will benefit from a

small loan. Alongside this, the agricultural busi-

ness receives subsidies from the United States

government that already supplements their

income. Lastly, in United States, when aspiring

entrepreneurs want to start a business, they

may not be able to get small business loan, but

they can qualify for credit card, home equity

credit line or other alternatives to microcredit.

As a result, a combination of all of those causes

microfinance and microcredit to be not very

useful in the states. Western Europe is in a sim-

ilar situation. Because of Western Europe’s in-

dustrialization, its economy is also based most-

ly on manufacturing. Therefore, microfinance

faces similar limitation in Western Europe. This

is further exacerbated by relatively high popu-

lation density of Western Europe not allowing

for much farming to be done there. Both the

United States and Western Europe have alter-

natives to microcredit that make microfinance

unnecessary and redundant in these places.

Despite these obstacles, microfinance and

microcredit have begun on a small scale in

both the United States and Western Europe,

proving that microfinance can still work in


24



NingXia P2P program advisor arranges the productive

and safe trip for all our “Fish-2-Finance” club members

these two regions. Accion Texas has been an

exemplar of the movement in the United

States. It began its microlending activities in

Latin America and then established an US affili-

ate. The loans from its programs are mostly

targeted toward small businesses. Currently,

small businesses still are plentiful in the United

States and Western Europe, so microfinance

has a clientele. However, whether or not the

business fails or succeeds, this client base will

slowly disappear. The successful businesses

will not need loans from these lenders, while

the businesses that fail will be unable to take

out loans and pay back the loans that were giv-

en to them. Therefore, microfinance as a busi-

ness is not feasible in the United States or

Western Europe, as there is too much risk and

not enough profit to justify doing this, making

almost all microfinance businesses in these re-

gions more of a charity than a business fo-

cused on profit.

In conclusion, Microfinance as a busi-

ness is not entirely feasible in the United

States or Western Europe, as there is not

enough profit to be made and microfinance

comes with a higher risk than other loaning

services. However, microfinance as a charita-

ble act will still be able to aid small business-

es in developing their infrastructure and be-

come successful. Microfinance will be able to

improve the economies of these two regions

and allow for many small businesses to be

self-sustainable, but microfinance itself may

not be able to be self-sustainable in either of

these two regions.


25



The two youngest members, Selena Lu (left) and Cher Ma

(right), of the NingXia P2P program.



26



"Give a man a fish, he'll eat for a day. Teach a man to fish,

he'll eat for the rest of his life"

Join the Fish-2-Finance Club

Serve in the P-2-P Camp

Bring Hope to Our Community!

Illustrated by Selena Lu, Woodbridge High School, Irvine, California

Documents

The Young Economiststheyoungeconomists.com/uploads/3/3/8/2/3382808/the... · We live by the maxim, “Give a man a fish and you feed him for a day; teach a man to fish and you feed