Thriving on Microloans
The Sediq Tribal Piggy Bank
The Meishi Village Credit Union has turned NT$100 deposits into loans that have helped more than 800 tribe members lift themselves out of poverty, cultivating doctors and school administrators along the way.
The Sediq Tribal Piggy BankBy Uidy Kao and Jung Shing Ho
From CommonWealth Magazine (vol. 518 )
On weekends and holidays, the Puwu Highway linking Puli and Wushe in Nantou County is bumper-to-bumper traffic. But precious few of the travelers riding in those vehicles take any notice when passing through the village of Meishi at the 68-kilometer mark.
Meishi is easy to ignore. Fewer than 1,000 people live there, and it doesn't have a post office or a bank. Yet in the nearly 50 years since local Sediq tribe members founded their "village piggy bank," the village has borne witness to the remarkable power of "small capitalization cooperative lending."
In 1965, the village became home to Taiwan's first cooperative credit union founded by indigenous people. The cooperative lent to tribe members relying solely on the savings deposits of fellow tribe members and to date has underwritten more than 8,000 separate loans totaling NT$340 million. That translates to a new loan made about every two business days benefiting roughly 800 borrowers.
"My academic expenses were entirely funded by loans from the credit union," says Walis Pelin, former head of the Cabinet-level Council of Indigenous Peoples. The one-time Catholic priest relied completely on loans to pay his way from junior high school to Fu Jen Catholic University's Faculty of Theology of St. Robert Ballermine. In a village of mostly farmers with big families to support, most people have to borrow from the cooperative to pay tuition and other academic expenses for their kids, resulting in quite a few success stories, Pelin says.
"If you count it all up, our village has turned out two legislators, three physicians and a whole slew of school principals, administrators and teachers," Pelin says beaming with pride.
Pelin, who once directed government efforts on behalf of all of Taiwan's indigenous peoples, has seen with his own eyes in his own village the incredible power one tiny credit union can bring to bear.
Meishi Credit Union was initially capitalized through share deposits at NT$100 per share, and grew from there. Its initial round of share deposits totaled a mere NT$48,000; decades later the cooperative's assets have grown to more than NT$30 million, with more than 360 shareholders in the cooperative, representing more than 80 percent of the households in Meishi. When it comes time to distribute the dividends, it's a pretty big deal in Meishi, with most of the villagers, male and female, young and old, taking part.
A Micro-Lending Lifeline in Times of Crisis
The cooperative is mostly involved with "micro-lending" – last year more than 70 percent of its lending was for amounts of NT$50,000 or less – but it's enough to support numerous families through hard times and in making ends meet day-to-day.
In the wake of past natural disasters, including the 921 Earthquake, and typhoons Toraji, Mindulle, Sinlaku and Morakot, many residents depended on loans from the cooperative to get a start on rebuilding their homes. The family of Wang Wan-chuan is but one example among many.
Wang was the proprietor of the area's first minsu (a family-owned traveler's lodge akin to a B&B) along the banks of the Nanshan River, which snakes its way through Meishi Village. The farm-based hostelry once snuggled up against Meng-Gu (Dream Valley) Falls, then a scenic attraction popular with tourists. But nature can sometimes be fickle and cruel; what had been Wang's idyllic dream turned instead into a vicious nightmare.
No Need for Banks, Mortgages
Wang had handled a lot of fertilizers and other agricultural chemicals during his earlier years as a farmer and when his body started sending him warning signs, he decided to call it quits and try his hand at running a hostelry. Armed with only a dream and deeds to six parcels of land totaling around four hectares, Wang approached a bank for a loan but was denied.
At that time, indigenous-owned land in the area was valued at only NT$76 per sq. meter, Wang says, so he ultimately had to convince a friend to lend him the deeds to two more parcels to use as collateral.
"I was only able to borrow NT$2 million against those eight parcels of land. It's really tough for indigenous people to get a loan," he sighs.
Business was initially brisk but no one had foreseen the magnitude 7.3 earthquake that struck the region, centered in nearby Jiji, in the early morning hours of September 21, 1999. Wang's home was nearly demolished and, more significantly for his business, Meng-Gu Falls simply vanished and with it went the tourist traffic. Business dried up completely, to the point that even making enough to survive was a problem, let alone keep up with payments on the loan.
The government initially ordered that loan payments for those in the disaster zone be deferred for three years, Wang says, but interest on those loans continued to accrue according to the terms of the loan agreements. The interest mounted, eventually totaling well north of NT$200,000.
"The bank was threatening to foreclose and auction off the land so we were forced to borrow from friends and relatives as quickly as we could, paying off the more than NT$1 million remaining on the loan in one go and finally bidding good riddance to that bank," Wang recalls.
The area was subsequently battered by several typhoons in rapid succession. Wang's trout farming operation and other farm equipment were washed away in the resultant landslides, tallying another NT$3 million in losses and casting a further cloud over the family. But Wang was loathe to seek another bank loan, and decided instead to approach the Meishi Credit Union for a small loan, gradually repaying his debts.
Wang Chia-hsun, Wang Wan-chuan's eldest son, also started his business with a loan from the credit union.
"If it weren't for the credit union, I'd never have been able to start a business," he says.
Micro-Holdings, Faith in the Power of Community
After finishing graduate school, 29-year-old Wang Chia-hsun wanted to start his own business, yet he lacked the assets to offer as collateral on a bank loan. He suffered the same fate as his father years earlier, his attempts to borrow money from five banks like beating his head against a wall. He ultimately secured NT$300,000 in financing from the credit union and opened an integrated marketing firm in Taichung's Wufeng District, not only fulfilling his dream of owning his own business, but earning his first pot of gold in the process. Last year, Wang's company took in more than NT$2 million in revenue.
"Banks determine a person's creditworthiness based upon assets; we place our trust in mutual community relationships," says Walis Pelin, now president of the Credit Union League of the Republic of China. Credit unions are a form of social movement, he says.
There are currently 340 credit unions nationwide with a total of around 210,000 members and 5,000 volunteer management and supervisory staff.
Their aim is to help the disadvantaged to rise above their circumstances through the power of mutual assistance. The Ministry of the Interior is also testing some of its anti-poverty programs through the credit unions. Members can not only make savings deposits but may also take out loans from the cooperative.
"This helps generate self-confidence and also faith in others," Pelin says.
Aside from one paid full-time staff member, Meishi Credit Union's nine board directors and five board supervisors are all volunteers. To emphasize the full participation of members in the management process, all accounting information is made public. Risk is managed through a fixed ceiling on lending and tightly-knit community relations, which also makes for a highly flexible cooperative financial model.
Deft Debt Negotiator, Jobs Bank
Some time ago, a 30-something Meishi villager got himself into financial dire straits, running up NT$780,000 in debt on several credit cards. He subsequently was able to come to terms on a loan agreement with the credit union where an ordinary financial institution would have long considered him bankrupt and utterly lacking in creditworthiness. Ultimately, however, the credit union agreed to lend him NT$600,000. In the ensuing 11 years, that villager was able to clear all of his debt obligations; the credit union loan had truly been his "financial life raft."
"We're humane debt negotiators and hope to help our people get through tough times without placing them in even more difficult circumstances," says Wang Wan-chuan, who has been an officer with the credit union for 38 years. He's well-known in these parts as "the shrewdest debt negotiator in the village." He always seems able to find a way to collect, sometimes negotiating with family members to come forward and handle it when a debtor won't pay up and even arranging job placements so that the debtor has the means to do so.
"We're like a family here in the village and the credit union's money belongs to everybody so that helps in exhorting others to repay," says Wang Mei-yu, the credit union's one paid staff member. When villagers have failed to pay up in the past, it has ultimately resulted in a family meeting, with friends and family pooling resources to settle the matter and help the debtor over the hump.
With the cooperative experience of the credit union under their belts, Meishi villagers are now beginning to expand their organic farming operations with the establishment of "Greenbirth Farm," a conglomeration of 32 farming families.
Aside from seeking consumer appeal, future plans include progress on expanding the "Greenbirth Cooperative Platform" and integrating the principles of the credit union with the farming, procurement and consumer operations in hopes of expanding it to perhaps a region-wide cooperative movement.
Five decades on, the Meishi Credit Union office next to the village's Catholic church is still packed with villagers who line up every Sunday before mass to make their loan payments or savings deposits. They may not have much money, but each deposit and each loan payment is a mutually shared act of faith and demonstrative of the cooperative power of a village.
Translated from the Chinese by Brian Kennedy
Meishi Credit Union
Location: Renai Township, Nantou County
Total Assets: NT$33 million
2012 Operating Revenue: NT$2.05 million
Net Income: An average of roughly NT$1.2 million annually over the past decade
Objective: Providing access to basic financial services to indigenous residents of remote villages to help them through hard times and keep them from falling below the poverty line.