Promoting Poverty Reduction Through the Participatory Approach
- poverty reduction approaches
- endogenous poverty alleviation
- vulnerable groups
- targeted poverty alleviation components
- supporting policies
Promoting Poverty Reduction Through the Participatory Approach
Title : Promoting Poverty Reduction Through the Participatory Approach
Commencement Date : Mon Mar 01 1993--Tue Jul 01 2008
Implementing Agencies : Development Organization of Rural Sichuan (DORS)
Support Organizations : Sichuan Poverty Alleviation and Development Association
Actuator : Development Organization of Rural Sichuan (DORS)
Members of The : members of DORS, villagers (including women, children, disabled persons and local minority people)
CASE PROVIDER :
Sources of Funds :
Catalogue and Index :
Abstract Summary :
The micro-credit program implemented by the Association for Rural Development of Yilong is known as the most “sustainable, operable and replicable” successful practice of China’s micro-credit. Over the 13 years since its inception, the Association has been repeatedly testing the effective ways for rural development and the establishment of rural poverty-relief financial service system in grassroots units and rural areas. Through years of practice, it has successfully integrated financial services with the sustainable development of rural areas and helped the poor establish the farmers’ mutual-aid societies for self-management, participated by local farmers and highly praised by the international and domestic communities and governments. Study of the poverty alleviation methods of the Association for Rural Development of Yilong is of great significance to China's sustainable poverty reduction.
1 Inadequate policies and laws and unfavorable operating environment and conditions
The Association for Rural Development of Yilong has been highly recognized and praised by the local villagers and government, and its poverty alleviation mode and effects have been fully affirmed by the provincial and central government leaders. In 2007, the national poverty alleviation work conference organized the participants to visit the Kunshan Mutual-aid Society of the Association. To control the financial risks, despite the loose policies for financial business now, the government has also allowed the existence of microcredit. So far, however, no clear law or regulation has been formulated to support microcredit. The Association wants to get financial permit but the government has not issued any financial business license for any private credit agencies. Due to the cautious attitude of the government, the Association’s microfinance is facing great ideological obstructions and behavioral constraints in financial innovation.
2 Difficult development situation of the Association due to the narrow channels of funding sources, small-scale credit and low profit
The Association is facing the problem of insufficient funds: The Association is a social group, so it cannot independently absorb savings of the masses and its funding sources are mainly foreign donations, government funds, its own funds and profits, not involving any other internationally common savings forms such as public absorption of savings, fund savings, withheld fines and equity participation. Thus, the lack of stable follow-up funding source is the bottleneck restricting its sustainable development. Moreover, the return on assets of the project is relatively low, the interest rate for farmers (annual interest rate of 10% to 16%) is much lower than that of international microcredit programs (35%-50%), so the project will probably lack the motivation for sustainable development without external assistance. In addition, affected by the interest rate and repayment interest rate, the credit loan size is restricted, so the profit margin is relatively low, the capital profit margin is only about 1%, the return on assets is less than 1% return on assets, and the capital and assets efficiency is rather low.
3 A decreasing number of farmers and a high operation cost
In recent years, with the outflow of an increasing number of farmers to the city, a decreasing number of farmers are left behind in rural areas, so the number of loan applicants is smaller and the loan size shows a decreasing trend. In 2011, the Association’s loan balance decreased by 6 million yuan compared to 2010, with a decline of nearly 2/3. Meanwhile, due to the small amount of single credit loan, without scale effect, the operating cost of single microcredit loan is relatively high. The average operating expense ratio is about 55%, more than half of the operating cost, and sometimes up to 70%. Due to the small amount, large number and large coverage of the credit loans, the credit investment management cost and the cost of funding are both relatively high. Meanwhile, a high ratio between highly liquid assets (cash) and the total assets and the mismatching between assets and liabilities increase the Association’s difficulty in business operation.
4 Lack of professionals for technical support
The Association was established in backward, impoverished rural area. Compared to developed urban areas, on the one hand, the staff quality and level and technical level in rural areas are lower and there are many difficulties in long-distance transactions, exchanges, micropayment, credit card, Internet banking, regional cash saving and withdrawing and banking services. On the other hand, restricted by its size and conditions, most of its workers basically do not have any expertise, its development planning and internal management both rely on the assistance of international experts, the daily management is based on its experience, and the Association has rather weak self-innovation capability and is at the stage of self-exploration and development.
First, through the introduction of the County Poverty Alleviation Office, visit the town where the villages are located and discuss with local government officials to understand the situation of the villages and the development strategies of local government. Then visit the villages and determine suitable project villages based on the initial survey results. After that, carry out the baseline survey on the villages. Visit each household and use participation method and its survey tools to understand the villages’ situation to the largest extent, which helps build a good relationship between the workers and the villagers and helps obtain more real and comprehensive information. In this process, the workers respect each villager’s opinions and ideas, especially the ideas of the marginalized and vulnerable groups of the village (women, disabled persons and minority people).
After the baseline survey, the staff will visit the village again to understand the farmers’ needs and make assessment on their needs. Based on the needs of the villagers and the capacity of DORS, the working staff and villagers will rank the farmers’ needs and design the projects to be implemented in the coming years.