Wokai Blog: Microfinance Plus: The power of training in microfinance: Wokai China Microfinance Blog

This entry was written by Evan Kornbluh, our Wokai Fellow in Sichuan

It is no secret that the stark prosperity gap in contemporary China is the result of twenty years of highly unequal growth. The majority of China’s farmers have been completely left out of the market reforms which have brought staggering prosperity to China’s urban populations. While this is in part due to significant inequality in the amount of government and foreign investment in China, and in particular the complete neglect of rural areas like Yilong, ARDY director Gao Xiangjun 高向军 and the rest of the organization’s leadership believe that existing material inequalities are not the only barrier to personal advancement. More fundamentally, the residents of rural Yilong lack the basic knowledge and skill set that would allow them to engage with China’s rapidly growing market economy. At its core, “the poverty [in Yilong] is not an economic dilemma, but a problem of mentality,” Mrs. Gao, explained to me. The peasants in Yilong have no understanding of commerce, and with their current level of knowledge, simply cannot enter the market effectively.”

Yilong’s peasants are traditionally subsistence farmers, and for the most part have been so for generations. To enter the market, that is, to make the transition into some form of commercial farming, requires a significantly different mindset from that of the subsistence farmer. In the course of promoting their loan programs, Mrs. Gao and the other employees of ARDY often meet with peasants and try to encourage them to raise a larger crop in order to sell some for a profit. Even if a peasant does raise more than what their own family can consume, they often do not understand the concept of selling the surplus for a competitive profit. They might take their extra crops to market, but sell them for a tiny price at only a fraction of what they could be earning.

Beyond the simple concept of selling for a profit, successful entrance into the Chinese market system requires a wealth of specialized knowledge that is quite beyond the traditional experience of a Yilong’s subsistence farmers. To illustrate these obstacles, Mrs. Gao gave the example of a peasant who sought to raise pigs to sell. Once he is ready to sell, a peasant cannot simply kill a pig and bring the pig to market or sell to a meat processing plant himself. To legally sell he has to satisfy local health and sanitation codes, as well as be able weigh the pig in order to know how much to sell it for, a task which most peasants lack the ability to do themselves.

One consequence of the high barriers to market entry has been the appearance and success of middlemen, who purchase crops and livestock from peasants for resale. However, the ignorance of many peasants to the rules of the market makes them easy targets for predation. Middlemen often buy crops at vastly undervalued prices, or can cheat peasants when they weigh their animals. Lacking the ability to take their wares to market themselves, the peasants have no way to protect themselves against middlemen. “I visited a woman who had raised her pig to 300 jin 斤, (a jin is equal to 500 grams) but had still not sold it yet. Everybody here knows that it is best to sell a pig when it reaches a weight of 180 jin, after that age, the pig starts to go slower and cost more to feed. When I asked the woman why she hadn’t yet sold her pig, she explained that her last pig had been undervalued by 50 jin. Realizing that the pig had been undervalued, the peasant waited to raise her next pig to a heavier weight to make up for the weight she lost by being cheated! You see, the peasants here are so kind-hearted, and they are completely helpless against the middlemen.”

While small-scale loans play an important role in ARDY’s development strategy, the ARDY staff understands that the money is only valuable if Yilong’s peasants know to use the money effectively. The organization sees peasant education, and the cultivation of the intellectual and strategic tools that peasants need to engage the market, as equally if not more important than the actual distribution of micro-loans.