I recently came across a website called Wokai.org. You may not familiar with the name (it’s the first time I knew it as well), but what they are doing shouldn’t be strange to you, if you know what Kiva is.
That’s right. Wokai is a charitable organization that microfinances small businesses, just like what they do at Kiva. However, Wokai has a much focused group that it supports, the rural poor in China, on a much smaller scale. The recipients of loans through Wokai are those live in rural China who want to start their own family business or simply improve their quality of life.
How Wokai Works
Founded in 2006, Wokai works with its Field Partners to distribute loans from contributors to those who applied and are approved for loans and monitor loan repayment process. The following from Wokai website can give you a better idea on hwo Wokai works.
- Wokai’s due-diligence team visits, evaluates, and trains our microfinance Field Partners. Our Investment Committee must approve all new partnerships.
- Our Field Partners screen and select recipients in their local communities, then post their profiles on our website.
- Contributors browse through their profiles, and make tax deductible donations to fund their loans. These tax deductions are valid in the United States of America, per our 501(c)3 status.
- Wokai distributes this money to our Field Partner for allocation to recipients.
- Field Partners collect loan repayments from recipients, and send updates to Wokai about their progress.
- Once the loan is fully repaid, contributors may reinvest their contributions to help fund a new recipient’s loan.
- This cycle continues for three loan terms. Afterwards, contributions will be used by Wokai’s Field Partner as long-term loan capital.
Basically, contribution to Wokai is a tax deductible donation, not an investment that will give you a return. At the beginning, if you decide to become a contributor, you can select the recipient(s) you want to support and track loan repayment progress in your account. After three loan cycles, which I assume each loan cycle lasts one year, your contributions will be used solely by Wokai’s Field Partners who make the decision on whom to support and you will have no control on how the money will be used.
One of the biggest concerns when lending money to strangers, whether through peer-to-peer lending such as Lending Club or microfinancing such as Wokai, is what happens if the recipient fails to make repayment. Even though in the case of Kowai, there won’t be any monetary loss to the contributor as the money is donated, it’s still quite disturbing if the borrower doesn’t pay back the loan. At Wokai, they use a group guarantee program to make sure that each loan is fully repaid:
If a recipient at its institution is delinquent, the other recipients in her guarantee group must repay the recipient’s delinquent loan. If they fail to make the payment, then they will never be able to take out a loan again with the institution. This model is incredibly effective in rural areas of China where recipients have no other means of accessing credit.
From what I heard, this method works quite well because all group members share the responsibility of repaying the loan if one member fails to live up to his/her obligation. In one region, Wokai has distributed more than $10 million in loans with less than $5,000 delinquency.
How To Contribute
Contributing to Wokai is easy. You only need a user name and email address to register an account to become a contributor. Once the account is setup, you can use Google Checkout to purchase credit and use the credit to contribute right away (you do have to wait a few minutes for the Google Checkout purchase to go through). Loan amount starts as little as $10, with a $10 increment. Right now there are only 10 borrowers (one has already reached the funding goal), all form Chifeng, Inner Mongolia (two of my college classmates were from that area), so selecting whom to support is quite simple.
In my first contribution, I purchased $100 credit and used the money to support 5 out of 9 borrowers. Since this is the first time I deal with Wokai, I want to give it a little time to see how the process goes before making more contributions.
Original Post on www.thesunsfinancialdiary.com
Special Promotional Offers
- Free 401(K) Fee Analyzer
- Scottrade 3 Commission Free Trades
- Citi Dividend Select Platinum Card $100 Bonus
- Citibank Checking Account $300 Gift Card Promotion
Wokai Review: Support Chinese Small Businesses through Microfinancing
