From Private Bank Client to Farmer: A Chinese Model of Social Lending

Euromoney, February 6 2019

Financial services group CreditEase runs an app through which its private banking clients can be connected to needy women farmers in China’s rural interior. It’s a remarkable initiative taken up by 200,000 farmers and shows what can be done with low-level credit. But how does the risk management work?

Euromoney’s final interview in Lankao, China, is accessed through a small hobbit-sized dirt tunnel that descends precipitously into a 90-metre-long makeshift greenhouse of sloping transparent tarpaulin over an earth-built barricade. Inside, several women are tending to peach trees and vegetables. When our chat is done, we are presented with a fine but surprisingly spiky cucumber, which has now been formally declared as a corporate gift.

This is a long way from China’s sophisticated east coast financial centres – five hours on a high-speed train from Shanghai into the interior of landlocked Henan Province – but it represents one terminus in an innovative model in Chinese private banking. The many farmers Euromoney meets here, all of them women, are recipients of a programme called YiNongDai, a public welfare microfinance scheme launched by CreditEase, a Beijing financial services group better known for peer-to-peer lending and for trying to bring international norms like fund-of-fund products to Chinese high net-worth clients.

It works like this. Many private clients in China want to help those in poverty in their country but not always just through philanthropy, instead hoping to help people to build something themselves. Through NGOs and rural cooperatives, they are matched with women farmers in China’s poorest areas – Lankou county is one such – and give them small loans, typically from as little as Rmb100 ($14.71) up to Rmb20,000, for a year in order to buy crops, livestock or to develop a business such as a small shop. They get 2% interest for this, nothing in the heady world of Chinese funds, which routinely promise double digit returns.

The clients decide on the recipient through an app. Each farmer gets a profile – a photo and a brief explanation of their situation and needs – that is put together by the cooperatives on the ground. (Many recipients can’t read or write, much less use the internet, although smartphones are widespread and everyone seems to be able to use WeChat.) If the clients see a farmer they wish to help, they simply click through and say how much they want to lend.

It typically takes no more than a day to link the lender to the ultimate borrower. Once recipients have their funds, some will repay the interest monthly and the principal at the end, others the whole lot upon conclusion. The whole thing uses blockchain technology to keep track of the loans.

So far, 200,000 farmers have been funded in this way.

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