We know that you and your team place great emphasis on the non-financial goals of the cooperative, including the social services and the overall quality of life within the community. What are the major services that are offered by Puhan Cooperative to your members and how do these enable you to achieve your objectives?
Our cooperative federation has nine major services: group purchase of household goods and farming inputs, consolidated sales of agricultural produce, microcredit, elderly services, childhood education, production of handicrafts, technical training and crop protection.
Through group purchase of household goods, we can ensure the high quality of products and guide our members to consume consciously. We also do group purchase of organic food and organic fertilisers and some of these can be done through exchanges among our members. In addition, we collectively sell our agricultural produce to the market.
Microcredit is also one of our key services. Everyone says smallholder farmers are not trustworthy, but in our cooperative, farmers are the most honest. We don’t request collateral or guarantee when giving out microcredit for crop production or small-scale animal husbandry. Our microcredit ranges from RMB 2,000 to 30,000 and members can apply for a loan anytime they have a need. We see this as an opportunity to build trust with our members.
The revenue from our services is between RMB 80 and 90 million. Our staff spend 80 percent of their time in farmers’ homes and the fields. Without the emotional bond that is formed with our members, we believe there can be no trustworthiness. If our 2,700 families do not get active, we cannot count on our staff to do much.
We are not seeking profit maximization. What we are pursuing is for the lives of our members to become more comfortable. Our annual profit is between 2 to 3 million. We set aside 25 percent for charity, 60 percent as members’ dividend and the rest for staff’s benefit and capital accumulation. We have the confidence to become better each year.
How does the cooperative manage the financial risk and possibility of accumulating bad debts associated with offering microcredit?
We try to guide our members towards responsible consumption and we work to identify real needs while disbursing loans. For example, if a member wants to borrow RMB 20,000, and we determine that the actual need is only RMB 10,000, we will not lend the requested RMB 20,000. We will encourage the member to borrow less.
Our interest rates go up according to the amount borrowed. A loan of RMB 2,000 or below is offered interest free. 2,000-5000 is offered with 0.5% interest per month, 5,000-10,000 is 0.8% per month, 10,000-20,000 is 1.3% per month and 20,000-30,000 is 1.5% per month. This is the inverse of how commercial money lending is managed and we do it this way in order to protect our members - if we were a commercial lender without an interest in our members' well-being we could charge more interest and possibly make more money.
From 2012 till now, we have given out a total of RMB 35 million in microcredit loans each year. Over five years, there have been only 27 households who could not repay, and each has a different reason. For example, one died in an accident. In this case, we first went to comfort their family and support them with follow-up services. Eventually the loan was paid up with our risk management fund.
In another example, a member who applied for loan told us he had cancer and might not be able to live more than three months. He wanted to use the loan to lease 10 mu of farmland for his family. We discussed and finally decided that since he has the courage and honesty to tell us his actual situation, we would give him the loan. We did worry about the risk if he passed away in three months. To our surprise, his wife repaid the loan within a week after he died three months later. We feel that the purpose of making micro-loans is to a certain degree the process of building trust between people and not a simple lending business.
