Open No More: Wokai Shutting Down Indefinitely

Tiffany Wang | May 2, 2012 6:00 pm | 6 comments | 7232 reads

Just a few hours ago, Wokai announced that it will be concluding operations indefinitely. The microfinance nonprofit previously had the full confidence of the local community, having raised over half a million dollars in loan capital, garnered a network of thousands of investors and been featured by several major media (including CNN, Bloomberg and MSNBC). The shutdown has come as quite a shock to many, who last heard that the organization was simply seeking a new CEO.

The email sent out by Casey Wilson, Wokai's co-founder and CEO, reads: “Wokai has been actively searching for a new CEO to take the organization to the next level in China. However, as of our application deadline, no clear candidate came to the fore. In addition, we have met unexpected funding road blocks, which have left us without the reserves necessary to extend the search further.

"Considering Wokai’s current situation, our Board of Directors has unanimously decided to take the resources that we currently have and wind down Wokai’s operations.”

She is quick to point out that Wokai has funded over 1,500 micro-loans to 961 borrowers, which means they have supported over 4,000 people in jump-starting the process of moving out of poverty. Ms. Wilson also reassures contributors that their remaining funds will continue to “provide a continuous cycle of new loans to micro-entrepreneurs in China’s rural Sichuan and Inner Mongolia Provinces.”

She concludes: “Even as Wokai winds down, the legacy that we’ve built together will continue on, empowering a generation of micro-entrepreneurs to achieve their dreams and laying the groundwork for the future growth of microfinance in China.”

This nonprofit’s closure comes amidst growing public skepticism about the effectiveness of microfinance as a concept. The Guardian cites critics who argue that “it’s a strategy that manages poverty rather than transforming it.” The Boston Globe says microcredit “doesn’t translate into gains for the borrowers … In fact, most microcredit clients actually spend their borrowed money not on a business, but on household expenses, on paying off other debts or on a relatively big-ticket item like a TV or a daughter’s wedding.”

On the other hand, many economists have admitted that while its impact is difficult to measure, if you look at the simple facts (i.e. microfinance has built thriving industries in the past), its success is undeniable. This article gives a fair assessment on its benefits and risks.

We have already contacted Wilson but are still awaiting further comment. To read our 2010 interview with her, click here. In the meantime, stay tuned to TheBeijinger.com for other ways you can contribute to poverty-relief efforts, or visit our directory for a list of active volunteer groups, charities and NGOs.

Photo: Brant Ward from the San Francisco Chronicle

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bluedanube's picture bluedanube Submitted by Guest on Sat, 06/16/2012 - 03:36

merri0 –
I understand that you feel compelled to come to the defense of the Wokai founders – even though you state you are “not personally acquainted with either of Wokai’s founders”. However, my comments are in defense of finding the best ways to work in the best interest of the poor, the Wokai-type founders come-and-go. The real focus should not be on defending polyanna wanna-be do-gooders, but actually working in the best interests of those who are truly in need. I hope we can agree that the individuals and communities in need should be what is highlighted, not those who temporarily hover around them.

Wokai , its founders and those like them rightfully attract attention and scrutiny when they hold themselves up as models for making change – and when they put themselves up and advocate for their style of so-called “social entrepreneurship”, they must accept questions and challenges along with all the pats on the back they get along the way. This is especially true when the work and money is being done in the name of people who are truly needy.

If you look at Wokai’s USA public tax filings for 2008, 2009, & 2010 (which are available to the public at sites like guidestar.org) it is possible to examine in more detail the operations of the organization and also the working model they so publicly promote. I know you said you are not personally familiar with them, so I am only suggesting you become more familiar as does the rest of the public. Wokai is only one example of many of these types of endeavours that often do more harm than good in educating the public about the real solutions to the real problems at-risk communities face.

According to their 2010 tax filing in the USA, from 2007-2010 Wokai collected USD $730,197 in revenue. In 2010 alone, their tax filings show they spent USD $131,699 in Grants, USD $90,444 in Monitoring and Operations, an additional USD $46,287 on Management and General Expenses, and USD $11,510 on Fundraising for a total of USD $279,940. These costs included USD $24,000 for a Chief Software Architect, presumably to create their website in 2010, which is no longer serving much purpose. To be clear, it does not seem the founders were paid much salary-wise.

The point is, nothing is perfect and doing real NGO work is extremely difficult. And groups like this that try to sell skin-deep solutions to the real bottom-up changes that need to happen, can do more harm than good and then they get to walk away. Also, these groups are rarely as picture perfect as they try to seem, but that gets buried in the public relations and other PR hype that they produce about themselves.

JWhite's picture JWhite Submitted by Guest on Fri, 05/04/2012 - 19:07

merri0,
Apologies for the autocorrection - we totally forgot that we still had it on. We've changed the post so it now includes "horsesh*t" and not "horse poo". We hope that helps make your point.

Everyone else,
Let this be a lesson to you that autocorrect is in full effect and you might want to opt for some creativity where you would ordinarily curse.

Jonathan White, Managing Editor the Beijinger/TheBeijinger.com

merri0's picture merri0 Submitted by Guest on Fri, 05/04/2012 - 15:15

Bluedanube, I understand that there's is a lot of glamorization of poverty (and other social issues, i.e., illness/$200 plate dinners/pink ribbons, etc.) among those who lack the "real life experience" to respect poverty for what it is, and who are quick to return to their suburban ideal once the going gets tough, but I disagree strongly with the sentiment that the (relatively) rich only help in order to "feel good." Also, your comment about why people "don't just give money" is likely because this is a totally inefficient means of operating as a charitable or charitably-minded organization. Traditional charities are black holes of funding that are constantly at the behest of donor sentiment. By creating an enterprise that can actually pay its staff and its operating costs, you're drawing a) bright people who can't afford to work for free and who are willing to invest in you (because you're investing in them) b) a means to operate separate from your fundraising efforts. This is obviously the hope, but not a given, however.

Agreed that there are a multitude of issues with microfinance as the *sole* means of outreach among the economically disenfranchised. Without government investment and support in other areas, ANY effort by ANY non-profit is going to amount to nothing, or close to it. That does not mean that developing a credit system whereby impoverished communities are able to access funds more readily for (eventually) self-sufficient businesses isn't a bad one. Do you honestly believe that drawing the impoverished into the global economy (albeit in a limited way)-- a system that has traditionally excluded them based on their unattractiveness as a credit investment-- is bad? And if so, why?

Fernando (of the Forbes article) has some excellent points. That said, this is horsesh*t and not even supported by his above paragraphs:

Quote:
In the end, the microfinance industry looks less like aid, and more like the export of global capitalism. Microfinance demonstrates the creativity and power of neoliberal capitalism, using the misery of the poor to further the interests of the global financial system.

I'd also like to add that he backtracks in his next sentence and asks for a "review" of the current microfinance climate, not the total destruction of the sector itself.

I am not personally acquainted with either of Wokai's founders, but I worked for a number of years in Beijing's non-profit sector. Wokai has always been well regarded-- not only for the work they've done, but also as a sign of hope among other non-profits who are struggling in an environment that could--kindly--be called unwelcoming to non-profits/NGOs of all sorts. You're being unnecessarily condescending and unkind about the people behind Wokai.

(Edited to add: this is not to detract from the very real issues of non-profits/worker salaries/etc.)

bluedanube's picture bluedanube Submitted by Guest on Wed, 05/02/2012 - 23:58

It's the business of poverty...no doubt these young "wannabe-social-entrepreneurs" will spin their stories into resume builders to land interviews and continue to move up the ladder...leaving those unforunate at the bottom. Is giving people pocket change the same as giving them what you have? Fundraising dinners (eating for the poor) and cocktail parties (drinking for the poor) are a fun way to "do something good" but when the money runs out, they get to move on - that's the difference between being poor and playing with the poor. How does 1,500 to 961 borrowers equate to 4,000 people helped? And it all only took half a million dollars?!?!
I'm sure these young ladies are plenty charming and well-intentioned - but it is a flawed idea that the problems of the poor can be fixed by giving them the crumbs of the rich. China and most other countries are a perfect example - the rich get richer while helping the poor stay poor.

From Forbes Magazine:

Quote:
The Myths Behind Microfinance
Jude L. Fernando , 12.09.10, 04:45 AM EST
Debate over the value of microfinance in the developing world appears to be long overdue.

Recent revelations about the role of Nobel Prize winner Muhummad Yunus in the alleged misuse of $100 million by the Grameen Banks (and the cover-up of that misallocation) have begun to provoke overdue discussions on the value of microfinance in the developing world. Arguments against microfinance center around the claim that it is a development strategy increasingly forced on the poor, and that those who are claimed to benefit from it the most--poor women--are actually its chief victims. Critics have long sought a platform to reveal the weaknesses and explode the myths supporting microfinance.

The first myth is that microfinance requires no collateral. That is nonsense. Microfinance group leaders and NGO field officers take control of all the household assets of the borrower (land, home, jewelry, equipment, food reserves, animals, remittances, savings, furnishings, etc.), and force borrowers to convert those assets to cash if there is the slightest threat of default of any borrower within the group. Peer-group pressure is combined with the threat of being stripped of essential belongings, and becomes a powerful disciplinary. Borrowing households lose control over physical assets, the ability to determine its pattern of consumption, and use of labor, ceding them all to the community and the microfinance lending agency. Given a model like this, it is no surprise that those viewed as potential defaulters are harassed not only by the lenders, but by their peers, sometimes to the point of physical violence and suicide as has been the case in India.

The second myth is that microfinance empowers women. Women are often the target of microfinance programs, but they do not benefit in proportion to their numbers. A Grameen Bank loan officer in Tangail explained this in no uncertain terms: "Women are willing to make any sacrifice to repay the loans, even if it means sacrificing their own personal consumption. Don't you know that all mothers do that? And it is easier to control women than men. Men could easily disappear after borrowing money, but women stay at home to take care of children." If a woman defaults, it's considered a failure of household management, and brings shame and dishonor on the families. Lenders mobilize the same forces that already oppress women, taking advantage of the inherent inequity of gender roles to apply peer-group pressure. This worsens, rather than improves, the situations of poor women. Children also suffer. In Bangladesh, many children drop out of school to assist their parents in making weekly loan repayments.

The third myth is that microfinance provides low-interest loans on reasonable terms. The nominal interest rate charged by NGOs is often much higher than that of local money-lenders. Real interests are even higher because group leaders and NGO officials withhold a percentage of the total loan amount, while at the same time charging interest on the full amount, in addition to the various fees and compulsory savings program. Nor are NGOs flexible in terms of repayment. Money-lenders regularly grant extended grace periods and often accept payments in kind. Microfinance fails to take the money-lenders out of the equation, and money-lenders regularly supplement NGO loans as well as functioning as their guarantors. This ensures that the wealthiest community members will retain financial control over the poor.

The fourth myth is that loan repayments correspond to increases in income and sustainable economies. They don't. NGOs don't care where their borrowers invest, and productive local enterprises are often undermined by cheap imports, indicating conflict between the theory of pro-poor microfinance, and the reality of free-market policies. The unsustainable nature of microcredit is evident in ever-higher rates of loan defaults. Far from making NGOs self-sufficient, and covering all their costs, gains from microcredit tend to be used to pay above-average salaries for NGO employees and expensive overheads. Donor organizations describe this as "credit pyramiding," and NGOs resort to dubious practices and oppressive methods to cover up the shortfall, including using donated funds to cover losses, and moving money around in and between organizations.

Micro-finance can only be considered a temporary measure. It does not cure the problems of poverty, make communities self-sufficient, or empower women. It does provide an attractive cover for states and donors who wish to rationalize de-funding state social and economic programs for the poor, and allocating resources to support high-growth industries for the benefit of the rich. Feminists, especially, should be aware that their rhetoric has been hijacked by the very institutions that oppress women and enforce gender inequality, and that have increasingly feminized poverty.

More than micro-loans, what the poor need are investments in health, education, and the development of sustainable farm and non-farm related productive activities. Donors have decreased investments in health and education in favor of microfinance, and NGOs have been forced to adopt microfinance as a path to their own financial self-sufficiency. But microfinance cannot compensate for the decades of privatization and reduction of state investment in the public sector. Nor can borrowers meet larger social and economic needs through their meager incomes, so the end result is that the poor once again pay the price for the inadequacy of national and international institutions.

In the end, the microfinance industry looks less like aid, and more like the export of global capitalism. Microfinance demonstrates the creativity and power of neoliberal capitalism, using the misery of the poor to further the interests of the global financial system. It is time for the international donors to review the microfinance industrial complex to ensure microfinance will not exploit the poor and not substitute for investments in education, health and institution building.

Jude L. Fernando is an associate professor of International Development Department of International Development, Community, and Environment, at Clark University, (Worcester, Mass.) He is the author of "Microfinance: perils and prospects" (Routledge 2006), and "The Political Economy of NGOs: State Formation in Sri Lanka and Bangladesh" (Pluto Press, April 2011).

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