MICROCAPITAL.ORG STORY: Grameen Trust of Bangladesh Partners with Alibaba Group to Create Grameen China, With Initial Focus on Bringing Microfinance to Sichuan Province

Grameen Trust of Bangladesh, an NGO established by Nobel Laureate Professor Muhammad Yunus in 1989, has teamed up with Alibaba Group, China’s largest online business-to-business trading site which hosts over 42 million users from more than 240 countries, to create Grameen China [1, 2, 3]. Alibaba, which had an IPO of USD 1.7 billion on the HKSE in 2007, has kicked-off the initiative with a USD 5 million charitable donation. Grameen China will initially focus on providing financial services to people living in Inner Mongolia and Sichuan Province, which is still recovering from the May 2008 earthquake that killed over 70,000 people and left nearly 10 million homeless [4].

Grameen Trust will be responsible for managing Grameen China, which will initially consist of two Grameen microcredit companies in Sichuan and Inner Mongolia with a total of four branches. In addition to the training and supervision of local employees by Grameen officials, Alibaba will provide technology-based support for potential borrowers who wish to build their businesses online. Average loans are expected to start at USD 400, growing to USD 4,000 within five years. Grameen Trust and Alibaba are working together to seek additional partners and donations, with whose help they plan to expand their operations to other Chinese provinces.

Grameen Trust (GT), part of the Grameen Bank network, operates through two main programs: the Direct Implementation Program, which sets up and manages microfinance programs to model the Grameen Bank Approach and currently runs seven projects in Costa Rica, Guatemala, Indonesia, Kosovo, Turkey, Zambia and the USA; and Grameen Bank Replication Programs (GBRPs), through which GT provides seed capital and scaling up funds, management workshops, training and technical assistance to replication projects that have been jointly implemented by itself and a local intermediary organization [5, 6]. To date, GBRPs have assisted 141 replication partners in 38 countries. As of December 2007, GT disbursed USD 14.8 million as seed capital and its partners disbursed a total of USD 3 billion to 4.3 million borrowers. While GT is part of the Grameen Bank network, it is an independent company, registered under Companies Act of Bangladesh, and Grameen Bank does not own any of its shares nor has it provided GT with any loans. However, the founder and current Managing Director of Grameen Bank, Muhammad Yunus, sits as Chairman of the Grameen Trust Board [7, 8, 9].

GT has been active in supporting poverty alleviation in China since 1995 through GBRPs, but this is the first time it will directly implement a microcredit program there. GT´s latest GBRP in China involves a partnership since 2007 with Hainan Rural Credit Union to implement Hainan Microcredit Program in the Grameen Bank Model (HMPGBM) with funding from Hainan Credit Union equaling USD 4.4 million. As of June 2009, the project had 257 borrowers and had disbursed USD 159,407 [7].

Alibaba Group, operator of China’s largest online business-to-business trading site, Alibaba.com, which provides a marketplace for small and medium-size enterprises (SMEs), was founded in Hangzhou, China, in 1999 by Jack Ma. Its 42 million customers are supported by a staff of 15,000 people in more than 50 cities in China, Japan, Korea, the UK and the US. In 2009, its first-quarter revenue was USD 117.9 million. The group also runs China’s largest online payment platform, Alipay, facilitating 4 million online payments worth up to USD 100 million per day, and Taobao, the largest Internet retail website in China with 78 percent of the Chinese-domestic online consumer market [3].

According to an article in Forbes, “Ma sees Alibaba.com as a potential game-changer in China, acting as a cradle for a more viable and entrepreneurial SME culture.” Historically, ”China´s financial and credit institutions have virtually ignored the country’s SMEs, which create over three-quarters of the country’s jobs and contribute to over half of GDP but get less than 5% of bank lending” [11]. Moreover, China does not have a credit-scoring system, making it more difficult for small, start-up companies to obtain loans. To facilitate SMEs access to the market, Alibaba cut its subscriber fees by 60 percent earlier this year and since 2007, “has worked with China Construction Bank to help small businesses obtain loans. Applicants are asked to bundle their credit requests together and serve as each other’s credit guarantors, ridding them of the need to supply collateral.” Alibaba has partnered with eight Chinese banks, including Industrial and Commercial Bank of China Ltd., the world’s largest bank by market capitalization, “allowing them to use Alibaba.com suppliers´ records as credit history to jump-start a credit financing program” [10, 11].

By: Stefanie Rubin, Research Assistant

Bibliography:

[1] ABN Newswire, “Grameen Trust and Alibaba Group (HKG:1688) To Create Grameen China Initiative¨. http://www.abnnewswire.net/press/en/61483/Grameen_Trust_and_Alibaba_Group_HKG:1688_To_Create_Grameen_China_Initiative.html

[2] Grameen Trust: http://www.grameen-info.org/grameen/gtrust/

[3] Alibaba.com: http://news.alibaba.com/specials/aboutalibaba/index.html

[4] Moore, Malcolm. Telegraph.co.uk, “Millions still homeless a year after Sichuan earthquake,” April 30, 2009. http://www.telegraph.co.uk/news/worldnews/asia/china/5243720/Millions-still-homeless-a-year-after-Sichuan-earthquake.html

[5] Grameen Trust Annual Reports 2007: Organogram: http://www.grameentrust.org/annualreports/2007/organogram.html

[6] Grameen Trust Annual Reports 2007: BOT BOM BOO Programs: http://www.grameentrust.org/annualreports/2007/botbombooprograms.html

[7] Grameen Trust Annual Reports 2007: Joint Coallition Programs: http://www.grameentrust.org/annualreports/2007/joint_collla_programs.html

[8] Grameen Trust Annual Reports 2007: Financial Support: http://www.grameentrust.org/annualreports/2007/financialsupport.html

[9] Grameen Bank: http://www.grameen-info.org/index.php?option=com_content&task=view&id=26&Itemid=175

[10] Forbes: http://news.alibaba.com/article/detail/alibaba/100105792-1-jack-ma%2527s-five-year-plan.html

[11] Leow, Jason. The Wall Street Journal Asia, “China Loans Hard to Get – Smaller Enterprises Left Dry as Bulk of Lending Goes to Big Projects,” May 20, 2009. http://news.alibaba.com/article/detail/alibaba/100105790-1-china-loans-hard-get–.html

[12] Financial Times: http://www.ft.com/cms/s/0/ac41115c-338c-11de-8f1b-00144feabdc0.html

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