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Promoting Sustainable Poverty Reduction Through Microfinance

Promoting Sustainable Poverty Reduction Through Microfinance

Cover and Title Page Catalogue and Summary Main Body

Title : Promoting Sustainable Poverty Reduction Through Microfinance

Commencement Date : Mon Jan 01 1996--Wed Dec 31 2014

Implementing Agencies : Association for Rural Development of Yilong

Support Organizations : County civil affairs bureau

Actuator : Association for Rural Development of Yilong

Members of The : the farmers

Contact :

CASE PROVIDER :

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Sources of Funds :

Catalogue and Index :

Abstract Summary :

Background,Decision-making Subject,Decision-making Process,Decision-making Achievements,Lessons of Decision-making Over the 18 years since its inception, with support of international organizations and the local government, 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 into the sustainable development of rural areas, established the financial poverty alleviation mode for sustainable development based on the public services for low-income people, and helped the poor establish the mutual-aid societies and put them into operation. The business mode of financial poverty alleviation has successively provided nearly 100 million yuan of poverty-relief microcredit loans without any pledge or guarantee for the poor, directly supporting the development of 150,000 poverty-stricken people; and helped and promoted the establishment of self-management mutual-aid societies of poor households in 16 villages to promote the cooperation and common development of farmers. Since 1996, with support of UNDP and other organizations, the Association took the lead in the country to launch the "experimental, exemplary, comprehensive" microcredit loan program for rural household poverty reduction characterized by "cancelation of pledge and guaranty, petty loans for repayment in installments", and achieved fruitful results through careful organization, standardized operation and long-term perseverance and development.
Background,Decision-making Subject,Decision-making Process,Decision-making Achievements,Lessons of Decision-making Over the 18 years since its inception, with support of international organizations and the local government, 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 into the sustainable development of rural areas, established the financial poverty alleviation mode for sustainable development based on the public services for low-income people, and helped the poor establish the mutual-aid societies and put them into operation. The business mode of financial poverty alleviation has successively provided nearly 100 million yuan of poverty-relief microcredit loans without any pledge or guarantee for the poor, directly supporting the development of 150,000 poverty-stricken people; and helped and promoted the establishment of self-management mutual-aid societies of poor households in 16 villages to promote the cooperation and common development of farmers. Since 1996, with support of UNDP and other organizations, the Association took the lead in the country to launch the "experimental, exemplary, comprehensive" microcredit loan program for rural household poverty reduction characterized by "cancelation of pledge and guaranty, petty loans for repayment in installments", and achieved fruitful results through careful organization, standardized operation and long-term perseverance and development.

Introduction :

Located in the northeast part of Sichuan Basin, at the transition zone between the southern hills of Micang Mountain and the foothills of Sichuan, Yilong County is high in the northeast and low in the southwest, full of low mountains and hills, 500-700 meters above sea level, with a relative height of 200 to 400 meters, and is in the northeast of Nanchong City, Sichuan Province. By the end of 2008, the city had a total of 337,798 households, of which 260,238 were rural households and 77,560 were urban households, and had a total population of 1,101,273, including an agricultural population of 944,400 and a non-agricultural of 156,900. In the humid subtropical climate zone, Yilong County has four distinctive seasons, vulnerable to droughts, floods, hails and other natural disasters and covers a land area of 1767 square kilometers, of which 630,000 mu is arable land, 0.68 mu per farmer. Yilong is a traditional agricultural county engaged in planting and breeding. 

       Poor natural conditions, lack of resources, inconvenient traffic and inadequate information

At the watershed of Jujiang River and Jialing River, without any rivers, Yilong County is always dry and often hit by wind, hail and other natural disasters. Water for agriculture and living use is mainly rainfall, so the agriculture develops slowly and the drinking water problem of human and livestock is prominent. More than 80 percent of the arable land is barren with low quality and can hardly hold water, soil and fertilizer. The grain yield per hectare is only about 6,000 kg.

       Irrational industrial structure of agriculture

Since the founding of New China, the traditional "grain pig" breeding accounts for a large proportion of the agricultural industry. Due to the low technology content and single species, the cost has been high and the yield has been low, so people have benefited little from pig breeding. It is very common for farmers to feed themselves relying on farming and support farming by pig breeding” in the rural areas

 Backward education and health status, low quality of the population and difficulty in technology application

The average years of education of the residents in this county are less than five years. Among each 1000 people, 74 are college students, 19395 are middle school students and 24.9% are illiterates and semi-literates. The farmers generally lack science and technology education, are unresponsive to new things, have no development and investment ideas, can hardly understand science and technology, and are still in the primitive farming state of "sunrise and sunset".

       Poor infrastructure restricts economic development

Due to financial difficulties, the county cannot afford infrastructure construction. More than half of the township highroads cannot be used in rainy days and 70 villages do not have highroads; the water conservancy facilities have not been repaired for years, the drainage channels are unsmooth and water runs here and there in the event of a flood, causing series damages to houses, farmland, trees and peoples living.

     Fund shortage for poverty reduction and development

Located in the inland area with local level of economic development and little fiscal revenue, restricted by the traffic, energy, resources and other natural factors, the secondary and tertiary industries lag behind and it is difficult for Yilong County to provide financial resources for poverty reduction. Even if the central government provides financial aid, the funding size is small. 



Content :

 Management body

Association for Rural Development of Yilong is a non-profitable NGO registered in the county civil affairs bureau in March 1996 with the purpose to promote the people-oriented poverty alleviation and sustainable development in rural areas. Its main activity areas: Construction of farmers organizations, microfinance services, rural poverty reduction and women's participation, community capacity building and promoting rural sustainable development. The Association has now 23 employees, equipped with three departments and one division office, and has seven branches. Its main activities include: poverty-relief microfinance; the construction of farmers mutual-aid societies in poor communities and promoting industrial development; community volunteer service organization and volunteer service activities; assistance for rural destitute children, etc. Through years of efforts, the Association has established six community service branches in local poor rural areas, organized local volunteer service team (with 40 registered members now) to carry out social volunteer services focusing on environmental protection, care for left-behind children and left-behind elderly people; mobilized, organized and promoted more than 2000 rural households of 22 poor villages to participate the establishment of 22 mutual fund-based village-level poverty-relief mutual-aid societies and provided support and guidance for these organizations.  

Yilongs microcredit project is implemented by the countys rural development association, a private agency registered in the civil affairs department. The county head is the chairman of the Association, the County Project Office director acts as the Secretary-General and is responsible for the daily operations and management.  The Association Office and the County Project Office share the working staff despite two names. The project office is responsible for the daily work of the Association Office and has three registered workers and the other staffs are all employees; all the community workers and village liaison officers are workers employed by the Association, under the leadership of the Associations Secretary-General; the farmers receiving the micro-credit loans are the Associations members. With support of the countys leadership and the integrated management of the projects and Association, the Association for Rural Development of Yilong is in a good relationship with the government and can not only independently implement microcredit loan projects and have independent funds, personnel, wage and business management rights, but also have properly handled its relations with the county and township governments and got support from the government.

Management objects

The lending objects of the Association for Rural Development of Yilong are mainly the people engaged in agricultural production, family aquaculture, small processing, services and small business operation in the areas where the branches are located. They usually do not need to provide any pledge for the petty loans of no more than 3000 yuan, and the loan period is usually one year, half a year or three months. The farmers with good credit and without any illegal record may continue to apply for loans after three months. The loan interest rate is 9% and the loans can be repaid in installments based on 15 days, and all the loans need to be repaid.

 Management system

In terms of credit loan issuance, the Association learned from GB mode. The "Regulations on Revolving Fund Management and Operation" launched in 1996 had provisions on the credit loans regulatory agency, operating personnel, operation procedures, target selection and fund operation mode and use conditions, requirements and rules. The "Internal Financial Management System of the Association" implemented in 1997 and the "Rules on Financial Accounting of Microcredit of Yilong County" launched in 1998 had detailed provisions. To establish the employment mechanism and incentive mechanism needed for modern operation and management and effectively promote the sound development of the Association and its work, approved by the Association Management Commissions, it decided to allow two-way selection of the staff for competition for working positions, and formulated the "Competition for Working Positions through Two-way Selection", which had provisions on the principles, scope, conditions, procedures and methods of competition. On the reform of the Associations governance structure and employment mechanism in accordance with the "Accounting Manual" and "Management Reporting Guidelines", it formulated the "Management Approach for Microcredit Work" to facilitate the implementation of the work, which includes the Association’s governance structure, microcredit operation rules and financial system. Specific contents include: Branch setting mechanism and responsibilities; lending policies; credit operation process; credit information management; financial management system; credit record management, financial monitoring, etc.



 

 



 


Appendix :

Microfinance approval process

1. Loan demand forecasting and requirements. Each loan applied by customers must be reported to the Association's Credit Department in advance after the management committees of relevant branches reach a consensus.

2. Review by Credit Department. Specific contents include: (1) whether the branches lending business is in line with the Associations loan operation procedures and management requirements; (2) whether the loan application is approved by all working staff of the branches; (3) whether the loan application complies with the Association’s lending policy and conditions; (4) whether field survey is conducted as required when old clients loan balance exceeds the upper limit of approved amount due to business scale expansion and business item changes, when the loans are transferred to the next round after maturity, or when new clients apply for loans; (5) whether branch directors carry out sample survey on the accuracy of the investigation (up to 30% of the total); (6) Loans not reported in advance mustnt be issued.

3. Approval authority and special provisions on approval. Branches loan approval committee shall be responsible for the approval of loans of less than10,000 yuan on the basis of report in advance, and do not have the power to approve the loans of more than 10,000 yuan. Meanwhile, special provisions have been formulated for loan approval and the objects for loan prohibition have been clarified. For example, the loans exceeding the upper limit of lending and the loan limit approved by the customer investigation form shall not be approved; the clients with low credit or among the blacklist shall not be approved to get loans; single people shall not be approved to get loans; people over 65 shall not be approved to get loans; the people who lost the ability to work or do not engage in any business item shall not be approved; the borrower or his / her family members have not repaid the loans in full or delayed to repay for three times shall not be issued new loans, and new loans can only be issued six months later after all the previous loans are paid.

 Microfinance arrears management mechanism

1. Credit risk rate assessment. Implement monthly assessment and determine the Indicators Assessment Credit Quality Award every quarter based on the size of loans, number of loan services and credit risk rate determined at the year beginning.

2. Risk loan loss reserve standards. For the existing risk loans, the loan loss reserves shall be withdrawn based on the risk aging. Specifically: 10% for the risk loans with risk aging of 0-30 days; 25% for 30-60 days; 50% for 61-90 days; 75% for 90-120 days, and 100% for more than 120 days. Implement dynamic management on a monthly basis.

3. In the year-end final accounts, in accordance with the risk loan aging management methods, when the risk aging is longer than that of the loan loss reserve of the operating income, all the loan balance of more than 120 days should be covered in the operating cost that year.

4. Quarterly accounting treatment of recovered risk loans transferred to other accounts receivable. Accounting treatment in deduction: debit note: Staff costs - salary, credit note: Other payables. 1/3 is used share dividends of branches’ staff and transferred to the headquarters to offset against other receivables, debit note: 1/3 of other payables; credit note: other accounts receivable.

5. Management approaches for the loans with risk aging of more than 120 days with loan loss reserves withdrawn: (1) At year-end accounts, for all the loans with risk aging of more than 120 days, withdraw the loan loss reserves in full and include it into the branches annual cost accounting, transfer it to the account of other receivables through financial transfer, not covered by the loan quality assessment of the next year and relevant amount should be reduced in the loan balance. (2) The loans with risk aging of less than 120 days and the risk loans for dynamic management will still be covered by the loan quality assessment of the next year; (3) Management approaches for the risk loans with risk aging of more than 120 days with loan loss reserves withdrawn of the previous year: The branches should divide equally the risk loans of more than 120 days of the previous year that had been transferred to the accounts receivable to each quarter and make assessment of the loan recovery. If the loan is not recovered in full at the end of the quarter, the Association will directly deduct the amount of loans not recovered from the branches quarterly business quality award (1/4 born by the management of the Associations headquarters, 3/4 by branches staff), which will be shared by the branches and headquarters management personnel based on their share proportions.