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The Young Economists
2014 Summer Issue, Volume 4
ISSN: 23326662
Presented by Fish-2-Finance
California Based Club Practicing Microfinance, Microcredit, and Community Development
www.theYoungEconomists.com
1
www.theYoungEconomists.com
Chapter Schools of “Fish-2-Finance Club”
Orange County:
Anaheim Private School: Fairmont Private Schools, Anaheim, CA 92801
Irvine Public Schools: Woodbridge High School, Irvine, CA 92604
University High School, Irvine, CA 92612
Irvine High School, Irvine, CA 92604
Irvine Private School: Crean Lutheran High School, Irvine, CA 92618
Newport Beach School: Sage Hill School, Newport Beach, CA 92657
Los Angeles County: Diamond Bar High School, Diamond Bar, CA 91765
Santa Clara County: Fremont High School, Sunnyvale, CA 94087
The Leadership Team of the
Young Economists & “Fish-2-Finance” micro-
finance Club attend the 2014 Global Philanthropy Leadership Internship Program in NingXia, China
Fish-2-Finance Student Club
The Young Economists
The Young Economists
2014 Summer Issue, Vol. 4
The Young Economists
www.theYoungEconomists.com
Board of Executives
The Board of Executives of The Young Economists is a California based team of individuals
with personal experience in Peer-to-Peer microfinance and microcredit.
Editor-in-Chief: Adonis Lu [email protected]
Co-Editor-in-Chief: Biyonka Liang [email protected]
Executive Editor: Daniel Liao [email protected]
Selena Lu [email protected]
Ally Ni [email protected]
Sandy Pan [email protected]
Editorial
Woodbridge High School: William Chen; Christina Lin; Michael Lin; Adonis Lu; Selena Lu; Mark Kyaw; Cher Ma; Jason Wang; Chloe Wang
University High School: Biyonka Liang; Joanna Wan
Irvine High School: Billy Zhang; Ally Ni; Tony Zeng
Sage Hill School: Daniel Liao
Crean Lutheran High School: Ashley Zhang
Fairmont Private Schools: Frankie Tao; Hanna Lu
Fremont High School: Frank H. Wang
Advertising
Director of Advertising: Biyonka Liang [email protected]
The Young Economist online and Display
Web Design: Adonis Lu; Selena Lu
Senior Art Editors & Photographers : Selena Lu; Amy Huang
Advisory Committee
Crystal Cooper: Woodbridge High School, Irvine, California
Dave Johnson: Woodbridge High School, Irvine, California
Matthew Beccaria: Ivymax Foundation, Millbrae, CA
2
www.theYoungEconomists.com
www.theYoungEconomists.com
3
CONTENTS Summer 2014 Issue, Volume 4
Letters and Communication
5 Notes from the Editor-in-Chief
We had a productive 2013 and great start of 2014. We worked
with radio stations and television stations to promote the aware-
ness of microfinance….. By Adonis Lu
Peer-to-Peer Microfinance Experience
6 Peer-to-Peer in NingXia China
Summer of 2013
I attended a microfinance summer camp with a group of thirty ...
in one of the developing rural areas in Ningxia, China …
Back to California
We live by the maxim, “Give a man a fish and you feed him for a
day; teach a man to fish and you feed him for a lifetime.” …...
Summer of 2014
A ¥200,000 cash loan to the villagers!” “Are you kidding? That is
$32,500!”…. The year before he didn't qualify for a ¥3,000 loan;
now he would be getting ¥50,000 in the first five years…...
By Adonis Lu
15 Economic Miracle in China: My Memorable Trip to NingXia
…...Coming from the calm, "bubble-like" suburban city of Irvine,
California to the populous, hectic city of Beijing is in itself a drastic
change … But moving from Beijing to the less well-off village of Da
The Young Economists
2014 Summer Issue, Vol. 4
www.theYoungEconomists.com
4
Gou Yan in Ningxia was an experience that I will never for-
get...……. By Ally Ni
Microfinance Research
19 Difference between microfinance and microcredit
… ...are often used interchangeably, they are in fact quite
distinct…. By Daniel Liao
20 Money and People Involved in Microfinance
What this means is that borrowers have to make a return of
37% or higher in order to not end up poorer than when they
started. By Sandy Pan
23 Why Microfinance and Microcredit Are Not Popular in US
and EU Countries
Microfinance is a relatively new movement in the world of
finances, which allows people with no credit or low income
to receive financial assistants from other people or business-
es. One important aspect of …. By Daniel Liao
Book Review and Communication
17 Can China Lead?
… ...A book was written by three well known scholars…….
Moreover, the Communist-Party-State is omnipresent and
“controls” more than western ….
By Adonis Lu & Selena Lu
CONTENTS (cont.’) Summer 2014 Issue, Volume 4
www.theYoungEconomists.com
The Young Economists
A Productive 2013 and Great Start of 2014
Adonis Lu, Woodbridge High School, Irvine, California
The Young Economists had a productive and wonderful 2013. Under the
support of the “Fish-to-Finance” Club and IvyMax Foundation, we promoted
awareness in microfinance in Southern California and practiced Peer-to-Peer mi-
crofinance in NingXia, China. A number of leadership members have been directly
involved in reviewing, evaluating and approving the microcredit loans. Over the
past few years, we worked out and approved well over 70 microloans with aver-
age size of ¥3,000 each and supported many farmer families.
In the year of 2013, we started working with news media and held multiple
press releases to extend the knowledge of microfinance to Southern California
public. We gained valuable experience in building public relations with television
channels, radio stations, and newspapers.
One of the greatest achievements this year, which we were especially proud
of, is that we secured a cash funding of ¥200,000 investment to establish an agri-
culture cooperative from one of the leading microfinance platforms in China to
support the developing area in NingXia.
Let’s work together to have an eventful 2014!
5
The Young Economists 2014 Summer Issue
Promotion of Peer-to-Peer Microfinance
— a Life Time Long Pursuit
Adonis Lu, Woodbridge High School, Irvine, California
I.I.I. Summer of 2013Summer of 2013Summer of 2013
I attended a microfinance summer camp
with a group of thirty high school students in
one of the undeveloped rural province, Ningxia,
China, and practiced the Peer-to-Peer (P2P) mi-
crocredit business model in Da-Gou-Yuan vil-
lage. The goal of this P2P camp was to offer ru-
ral farmers a chance to make great strides to-
wards economic independence by providing
them individualized support through micro-
loans.
As a group leader of the program, I was
responsible for interviewing the villagers and
making final decisions on to whom the loans
would be granted. I then worked together with
my team to review farmers’ business plans and
prepare interview questions so we could ana-
lyze who could make better use of the loan and
produce a better return. After a week of evalua-
tion and discussion, we narrowed down to two
families and could not determine to which fam-
ily the loan should be granted.
“Madam Li is much more financially sta-
ble than Mr. Yang. We have to consider the
potential return for our loan. I vote for Madam
Li.” One of the group member suggested.
“But Mr. Yang is the most desperate one
in the village who needs our loan.” Another
member argued.
My team was quickly split into two sides
and neither could convince the other. “I don’t
think we can reach an agreement tonight. Let’s
carefully think about the other side’s opinion,
and continue tomorrow.” We all realized that if
nobody ever loans out money to Mr. Yang then
his family would sink into greater and greater
debt. However, Madam Li had much more rea-
sonable business proposal and could use the
loan effectively. As the team leader, I had to
make a decision, communicate and convince
the whole team on my approach.
Prior to our next meeting, I went to talk
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2014 Summer Issue, Vol. 4
to Mr. Yang, and attempted to find any addi-
tional information that we may have missed in
our initial interview. Looking at the bare dirt
ground in the house and clothing the kids were
wearing, it was so rough to see how a family
could even survive. I also found out that Mr.
Yang did not even complete his elementary
school education. I calculated that even if his
family could make a fifty percent profit year
after year, on our loan, he would still need
more than twenty years to pay off his medical
bills. I questioned how much our microcredit
loan could help him.
In the follow-up meeting, I suggested to the
group, “I vote for giving our loan to Madam Li
purely based upon the fact that we are practic-
ing Peer-to-Peer microfinance. I agree that Mr.
Yang’s family would sink into greater and great-
er debt if nobody helps his family. However, we
have to remember that both families are strug-
gling for a living and Madam Li is more likely to
be successful in getting out of poverty with our
loan than Mr. Yang.”
Finally, for the purpose of practicing mi-
crocredit business model, we all agreed to in-
vest our loan to Madam Li who had the poten-
tial of paying the loan back. I knew my decision
would make me feel guilty even though it was
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The Young Economists
appropriate under the circumstance. Even
though it was beyond the scope of this trip, I
was determined to find a solution to help Mr.
Yang after I goback to California.
I also noticed that without leadership,
people quickly degenerate into arguments and
conflicts due to different views and opinions.
Leadership is crucial in implementing decisions
successfully.
II.II.II. Back to California Back to California Back to California
I could not forget the disappointment in
Mr. Yang’s eyes when we announced our deci-
sion in the villager meeting. After I came back
to California, I still feel guilty about my decision
as we let him down not only financially but also
spiritually. This negative feeling drove me
working hard after the 2013 summer trip. I
knew we needed to do something for Mr.
Yang’s family.
I founded the Peer-to-Peer microfinance
club, “Fish-to-Finance”, with my friends. We
live by the maxim, “Give a man a fish and you
feed him for a day; teach a man to fish and you
feed him for a life-
time.” The unique
goal and mission
of the club attract-
ed students, who
desired to serve
the society and
plan to study fi-
nance as their fu-
ture career, from
three Irvine public
high schools, two
private high
schools in Orange
County and one
high school in San
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2014 Summer Issue, Vol. 4
Presidents of “Fish-2-Finance” Club, Adonis Lu (middle) and Biyonka Liang (second to
the left) were awarded for Excellence in Leadership in promoting microfinance in one of
the club press release conferences in November 2013.
The Young Economists
Diego County. As the founder and president of
this regional Peer-to-Peer Microfinance Club, I
also established the bi-annual magazine of
“The Young Economists” where our club mem-
bers can document our microfinance experi-
ence and research results. In my research, I dis-
covered a research paper titled, “The miracle of
microfinance? Evidence from a randomized
evaluation,” published in March 2014 by Pro-
fessor E. Duflo of the Poverty Alleviation and
Development of MIT. Her extensive amount of
research data concluded that, although micro-
credit “succeeds” in leading … to expand …… or
choose to start a small business. It does not ap-
pear to fuel an escape from poverty based on
those small businesses. It seems that I need to
think out of the box. My teammates and I host-
ed fundraising activities in Irvine, Diamond Bar,
Arcadia, and San Marino to fund our future P2P
projects. In order to bring more exposure and
awareness to local communities, we also
worked with local media, such as AM 1300 ra-
dio, The World Journal newspaper, and the
LA18 TV channel to share our P2P experiences
and get more students and parents involved.
Often times, we were invited to speak at semi-
nars about the of microfinance and I frequently
shared my experiences in Ningxia, thereby sim-
ultaneously raising money and spreading
awareness.
III.III.III. Summer of 2014Summer of 2014Summer of 2014
As I promised, I was going back to the
same village! Seven of my club members were
on the train from Beijing to Tongxin county of
Ningxia province on August 5th, 2014. High rise
buildings quickly disappeared in the back of our
view. While counting the numbers of bare
mountains we pasted, I could see in front of us
the barren tracks of land in the Loess Plateau. I
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“Fish-2-Finance” club
worked with media including 7
was thinking about Mr. Yang, one of the villag-
ers I met last year. Despite the state of poverty
in which he lived, Mr. Yang was always so
grateful and welcoming, which I really admired.
But he couldn't even qualify for our micro-
finance loan—his income was unstable and he
lacked a clear business plan. I wondered if he
had sunk into greater debt. While the whole
world is amazed by the economic miracle of
China, how many of us noticed the millions of
Chinese peasants struggling to make ends
meet?
As our train pulled into the village, my six
fellow club members and I immediately ap-
proached Madam Zhao, the village head. We
were excited and
eager to make our
donation. I offered
her the funds; but
she shook her
head, and then po-
litely, yet firmly re-
jected it. Desperate
and not knowing
what to do, I asked
if I could incorpo-
rate the money in-
to the original loan.
“No,” she said again in Chinese, and then add-
ed, “Any foreign funding to a minority group
requires approval from the local county gov-
ernment. I cannot challenge their authority.”
We learned that the local officials did not want
their authority to be undermined. I suddenly
realized that I had no other plan for the villag-
ers.
The more I learned about the policies set
by the county government, the more frustrated
I became. How could we help Mr. Yang? I need-
ed to think out of the box. I bounced ideas with
my friend Eddy, a Northwest University student
and an intern at Jimubox, one of China’s largest
and leading microfinance platforms. Eddy and I
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www.theYoungEconomists.com
2014 Summer Issue, Vol. 4
Club members crowd around Adonis Lu (in front of the laptop) as he shows them his
business plan, which secured a cash loan of ¥200, 000 from one of the leading microfinance
The Young Economists
became friends on the train ride from Beijing.
Maybe he could check out if Jimubox could
help. Eddy told me that Jimubox focused on
entrepreneurial ventures, not funding to peo-
ple without credit. The next day, I showed Eddy
the research pa-
per that I read be-
fore, “The miracle
of microfinance?
Evidence from a
randomized evalu-
ation,” by Profes-
sor E. Duflo of
MIT. The article
convinced Eddy
that while micro-
credit was great in
many instances, it
wasn't for Mr.
Yang. Mr. Yang
would not be able
to pay back a loan so giving loans to him year
after year would trap him in an endless cycle of
debt.
One afternoon, Eddy and I were chatting
with the villagers including Mr. Yang, and lis-
tened to their hopes and dreams. I will never
forget the happiness on their faces when I
calculated out the profit they could gain with
a sizable number of cows, sheep and pigs ,
which they wish to own. Eddy told me, “They
have no interests and knowledge about the
outside world. Why don’t we do something
that they are
good at?”
Trying to find a
solution, Eddy
and I discussed
ways in which
Jimubox might
financially back
us. We consid-
ered using
Jimubox’s
crowdsourcing
capabilities to
raise funds,
which we could
then use to pur-
chase supplies. But that might be considered a
donation, so we ruled it out. After many ideas
were raised and discarded, then, it hit us: we
could establish an agricultural cooperative
composed of farmers with special skills, and
appeal to Jimubox for a startup capital. It
wouldn’t be a loan; it would be an investment.
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The farmer shown above has received a cash microloan from the P2P
program.
We got a thumbs-up from Madam Zhao,
much to our surprise, considering the scope
Eddy and I had in mind. Two weeks was tight
to finish a full-blown business plan by our-
selves. Luckily, I had just spent four weeks at
the Leadership in the Business World (LBW)
summer camp at Wharton UPenn, where I
gained practical knowledge in starting a busi-
ness. In addition, we were fortunate to have
Dr. Ghulam Abbas, a finance scholar from the
Chinese Academy of Sciences, as our mentor.
He suggested various Peer-to-Peer (P2P) fi-
nancing models from around the world that
could be incorporated into our business pro-
posal. Under his guidance, we conducted pri-
mary research to determine the specifics of
the cooperative. We interviewed farmers and
visited local subject matter experts. We had
one week to address a lot of questions. Would
the cooperative raise cows or sheep? How
would they feed the cows and when would the
cows be sold? What was the cost and profit for
each cow? Just trying to translate and take
notes as we talked to the farmers was often
difficult, but we managed it. With our data in
hand, I created a month-by-month timeline for
the first year and calculated the complete fi-
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2014 Summer Issue, Vol. 4
NingXia P2P trip summery meeting held in
Beijing
The Young Economists
nancial statements. Eddy helped me to trans-
late it into Chinese. We submitted both ver-
sions to Jimubox.
After three days of
waiting, Eddy received a call
from his manager that
Jimubox had approved the
proposal and agreed on the
investment. “A two hundred
thousand cash loan to the
villagers!” “Are you kidding?
That is ¥200,000, about
$32,500! It is huge for a vil-
lage where we had been
providing only microloans
for the past few years! ” I
could not believe what I
heard from my buddy Eddy,
as he told me the news with
a smile. He continued, “Under one condition:
the loan has to be secured through a coopera-
tive of at least five farmers from the village.”
That is perfect as we can include Mr. Yang in
the corporative. Mr. Yang’s face lit up when
Madam Zhao, Eddy, and I broke the news to
him. He was absolutely stunned. The year be-
fore he didn't qualify for a ¥3,000 loan; now he
would be getting ¥50,000 in the first five years.
It would be the first investment of its kind in
the area. It would also inspire cooperation and
entrepreneurship among the villagers because
they wouldn’t be
competing with each
other but instead
working together to
establish a rudimen-
tary business. Eddy
and I also believed
that the cooperative
would inspire other
villagers to follow suit
and encourage them
to become motivated
and put other ideas
into practice, without
fear.
I was overjoyed that
we could turn a disappointment into such a
success. It was the first time in my life that I
applied the knowledge I learned from school
into real world. With the heart of serving our
community, we give hope to the unfortunate
and bring happiness to our lives. Serving our
society using the power of knowledge is my
life time pursuit.
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“Fish-2-Finance” club donates books, school
supply to NingXia children who usually have very
limited chance for education
The Young Economists
www.theYoungEconomists.com
14
Global Philanthropy Leadership Internship Program
Proudly Presented by IvyMax Foundation
The Leading Organization in Promoting Peer-to-Peer Microfinance Research
Join our summer internship programs
Benefit by visiting www.ivymax.com
Bring hope to financially challenged people
Enjoy the memorable experience
www.theYoungEconomists.com
15
www.theYoungEconomists.com
Economic Miracle in China: My Memorable Trip to NingXia
Ally Ni, Irvine High School, Irvine, California
As part of Peer-to-Peer (P2P) team, I have
started my memorable trip to NingXia, China.
Coming from the calm, "bubble-like" suburban
city of Irvine, California to the populous, hectic
city of Beijing is in itself a drastic change of
scenery. But moving from Beijing to the less
well-off village of Da Gou Yan in Ningxia was an
experience that I will never forget. Initially upon
arriving, the differences were dramatic, no
longer were we constantly surrounded by peo-
ple, the pollution was definitely much better,
and of course there were no longer any fancy
high-rise buildings, those typical of a big city.
During my first couple of days in Ningxia,
there were definitely a lot of changes that I ex-
perienced individually, most of which, looking
back on were rather trivial. Although, this
change allowed for plenty of uncomfortable
situations such as: being able to take a shower
only at certain times or sometimes the unavail-
ability of bathrooms, the most important les-
son I learned through living in these circum-
stances is to not take my life for granted. As the
days went by and I got to fully spend time in
both the village and Ningxia, I began to appreci-
ate the kind and hardworking local people and
through them to understand economic miracle
happening in China in the past 20 years. I met
with local farmer, Xiao Chun, who is about 35
years old and teamed up with her to do some
field work. Xiao Chun was quite a “talker” and
often was very proud of showing off new ad-
vances at the village. Although many of those
inventions were quite common at US and we
have taken for granted, Chun was very excited
to describe rapid economic changes happening
at Ningxia in the past 20 years. Chun men-
tioned that when she was in my age, roughly 14
-15 years old. They do not have even clean run-
ning water and have to go to nearby river to
carry water home for drinking, showering and
washing clothes. The river is about 10 miles
from home and she has to travel 2 hours to
bring water home twice a day. It could some-
times be a very terrifying experience. When she
The Young Economists
grew older, the village began to afford to use
horse cart to carry water from nearby river and
Xiao Chun began to learn how to ride horse
cart. That was definitely a big advance and it
only took her half-an-hour to bring water
home without much sweat. About five years
ago, the village has talked about transferring
water from river to individual home. Xiao Chun
and people in the village have only seen the
running water through TV and previously
thought only “city” people could have the luxu-
ry to use that and never dreamed of turning
the water tab themselves at their own home.
The dream came true two years ago and Xiao
Chun still remembered the day.
I went back to hotel and had a sleepless
night. I had reflected my personal experience. I
traveled to China every year to visit my par-
ents’ hometown. Every year, I saw drastic
changes to become better and better and Chi-
na has become the second largest economy in
the world. My parents often talked about their
childhood and proudly described many great
achievement at their hometown and their
many “first”. Through them, I have definitely
sensed their pride to be “Chinese” and I have
begun to appreciate their effort to have me
learning more Chinese culture and helping still
poor people at rural areas to become better
and better.
This memorable trip to Ning Xia has in-
spired me to want, not forced by my parents, to
come back next year. I feel the pride to be part of
economic miracle transformation happening in
China, in NingXia. I want to wittiness the change
and if possible, to contribute my tiny effort to
make their life to become better and better. See
you next year, NingXia, see you next year, Xiao
Chun.
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16
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2014 Summer Issue, Vol. 4
Ally Ni (first from the right) works with the village children during the P2P program
Can China lead? This book was written by
three well known scholars Regina M. Abrami,
William C. Kirby, and F. Warren McFarlan after
years of thorough research. Dr. William C. Kirby
is the Spangler Family Professor of Business Ad-
ministration and T.M. Chang Professor of China
Studies. He is also the Chairman of the Harvard
China Fund, and an honorary professor at many
top universities and research institute. Dr. Re-
gina M. Abrami is the Director of the Global
Program at Lauder Institute of Management
and International Studies at Wharton School
(University of Pennsylvania). F. Warren McFar-
lan is the Baker Foundation Professor of Busi-
ness Administration Emeritus at Harvard Busi-
ness School. He is concurrently a guest profes-
sor at Tsinghua University’s School of Econom-
ics and Management and co-director of the
school’s China Business Case Center.
The book starts off with a summary of the
economic achievements of China accomplished
in the past thirty years. China has maintained
an approximate 10% of economic growth for
over thirty years. Its huge foreign reserves,
growing status in international organizations,
and prevalence of its goods around the world
amaze the western world and lead people to
conclusion that China will lead the world in the
21th century. While people are awed by the
economic miracle of China, the authors ques-
tion if China reached the limits of power and
growth, and challenge the leadership of China
in the twenty first century.
The book also reviews the history of China.
Chinese civilization can be traced back from
2000 BC, and is the longest and continuous civ-
ilization in world. However, the relatively mod-
ern China did not exist until the establishment
of the “Republic of China”, a modern era, in
1912. The short history does impact Chinese
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17
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Can China Lead?
Reaching the Limit of Power and Growth
Adonis Lu and Selena Lu, Woodbridge High School, Irvine, California
Book Revie
w
The Young Economists
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18
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leadership in both economics and global
events, as China is still in the process of build-
ing the institutions of a modern state.
In addition, China, an area the size of the
continental United States, is made up of many
regions and ethnic groups. People speak in
distinct dialects, worship separate deities, and
dream quite different dreams. The multiple
minority groups in China have multiple tradi-
tions. Diversity increases difficulties to com-
municate with the rest of the world. Besides
the cultural differences in different regions,
economic life is also centered largely on the
regional economies. As of today, there has
never been just one “national China markets”,
and never been just one “national business or
economic system/policy.” The policies and
interests of a layered government, from na-
tional, provincial, municipal, to local town and
village do not intersect. Therefore, any Chi-
nese strategy for western businessmen has to
evolve in a nuanced way to deal with both the
local and the central. Most of the time, local
culture and beliefs are on top of the business
policies, which result in a broad range and
high degree of corruption. Moreover, the
Communist-Party-State is omnipresent and
controls business strategies more than west-
ern people could imagine. Therefore, it re-
quires a long-term commitment and energy
to deal with the low efficiency and the policy
set by layers of authorities.
Based on data from more than thirty Har-
vard Business School case studies on Chinese
and western companies in China, the book con-
cludes that “China's dynamic private sector
could be a source of sustainable growth, but it
is constrained by political favoritism toward
state-owned corporations”. The authors also
question the political future of China and doubt
if the current government has the capacity to
transform itself to promote economic growth.
Reference
1. http://post.nyssa.org/nyssa-
news/2014/07/book-review-can-china-
lead.html
2. https://hbr.org/product/can-china-lead-
reaching-the-limits-of-power-and-growth/
an/10837-HBK-ENG
3. https://hbr.org/product/can-china-lead-
reaching-the-limits-of-power-and-growth/
an/10837-HBK-ENG
2014 Summer Issue, Vol. 4
The Young Economists
Difference between Microfinance and
Microcredit
Daniel Liao, Sage Hill School, Newport Beach, California
Although microfinance and microcredit
are often used interchangeably, they are in
fact quite distinct. The concept of microfinance
is a much broader than microcredit. micro-
finance refers to the process of providing
loans, savings, money transfer, insurance, and
other financial products to underprivileged
people or small businesses. In some regions of
world, helping small businesses mitigate the
risk and providing education to clients can also
be the scope of microfinance. Microcredit is
just one aspect of microfinance and refers spe-
cifically to the process of providing small loans
to the less-forturnate peoples as a working
capital so that they may become self-sufficient
and finally get out of their poverty. The typical
characteristic of microcredit is that loans are
short term (6-12 months) and without the tra-
ditional lender’s requirement of collateral
(collateral usually is a property a borrower
promises to give lender if he can’t pay back a
loan). The loan amount can vary drastically. In
the developing countries, the loan amount
normally is in the range of $100-500. However,
the microcredit can be in range up to 25,000
euro in some Europe country.
Modern concept of microfinance and mi-
crocredit is pioneered by Dr. Muhammad Yunus
who was awarded the Nobel Peace Price in 2006
for founding the Grameen Bank in Bangladesh.
In the summer of 2014, I attended the
Global Philanthropy Leadership Internship Pro-
gram organized by the IvyMax Foundation. We
practiced Peer-to-Peer (P2P) lending procedure
at the Da-Gou-Yan village in Ningxia China. It is
considered as one of programs in the field of mi-
crofinance. The loan granted to a farmer is 3000
RMB, approximately $500. The borrower has to
meet a minimum income an power of return re-
quirements. Therefore, it is categorized as miro-
credit to a farmer.
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19
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Concept
s
Microfinance, or microcredit, is defined
as the lending of small quantities of money to
entrepreneurs or businesses of the developing
world. Millions of people around the world
have just emerged from poverty in recent dec-
ades, and many of these people are entrepre-
neurs who want to start up their own business-
es. However, they often have trouble procuring
investment funds from traditional banking in-
stitutions due to high risk involved in getting a
return on such investments. While the concept
of microfinance has been implemented since
the 1800s
with the
founding of
the European
credit union
movement, it
is only the
1970s and
later that saw
the start of a
truly global
microcredit movement. Now, some hundreds
of millions of people around the world are bor-
rowers and there are thousands of institutions
that service them.
Microfinance aids the poor in that while
they are not directly lifted from poverty, they
are given better control of their finances and
have access to more sophisticated finance in-
stitutions. Entrepreneurs from developing
countries can lend money and manage their
savings better. However, since there is a high
risk associated
with micro-
finance, partic-
ularly in coun-
tries that are
less financially
stable, lending
often comes at
the cost of a
high interest
rate – one that
averages
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2014 Summer Issue, Vol. 4
Money and People Involved in Microfinance
Sandy Pan, Diamond Bar High School, Diamond Bar, California
The Young Economists
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21
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around 37% in many areas. What this means
is that borrowers have to make a return of
37% or higher in order to not end up poorer
than when they started. Some believe that
the impact of microcredit leaves some fami-
lies trapped in debt but there is evidence that
many businesses found success thanks to mi-
crocredit and there is potential for further
growth.
Microfinance is one of the more inter-
esting and personal ways to participate in phi-
lanthropy. The reason behind this is that be-
cause of organizations like Kiva, lenders can
work with and support individual entrepre-
neurs. An example of this can be found in
Jessa from Boane, Mozambique who was
funded $600 through an internet microfinance
website to purchase construction materials for
his business. Varied repayment options and a
fluid reimbursement schedule allows for a
comfortable relationship between lender and
borrower. In place of charity, participating in
microfinance financially aids the poor but ac-
tually involves the borrowed money being re-
turned to the lender rather than the giver’s
money dissipating entirely. The lent money
can be cycled again and again through such a
microfinance institution or be drawn out – all
to the lender’s will.
The “Fish-2-Finance” club members work in the field dur-
ing the P2P program
2014 Summer Issue, Vol. 4
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Microfinance is a relatively new move-
ment in the world of finances, which allows
people with no credit or low income to receive
financial assistants from other people or busi-
nesses. One important aspect of microfinance
is microcredit, which provides small loan to
the poor. It is especially useful within under-
developed countries that rely on more of an
agricultural approach, as it is in those areas
that the relatively small loans will cause the
greatest impact in the residents’ quality of life.
To a poor farmer,
this small loan will
allow for the ac-
quisition of tools
and or livestock
that will allow him
to increase his
productivity. How-
ever, microfinance
and microcredit,
while very suc-
cessful in develop-
ing countries, are not nearly as effective in
well developed region of the world, as the
small loan will have negligible impact to a the
poor or small business.
The United States, while having a limited
amount of microfinance programs, is generally
not a country that is well suited for such a pro-
gram. First, most businesses in the United
States consist of manufacturing. The nature of
manufacturing makes small loans to have mini-
mal to no impact on the growth of a business,
as the capital
needed to
manufacture
the goods
will, except
for a few cas-
es, cost
much more
than the
loans that
microcredit
will normally
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Why Microfinance and Microcredit Are Not Popular in
US and EU Countries
Daniel Liao, Sage Hill School, Newport Beach, California
The Young Economists
Daniel Liao (first to the right in the back row) reviews farmers’ business
proposal and approves the microloan in the NingXia P2P program
provide. Second, in cases where the person’s
business is successful, it would be able to go to
a bank to receive much larger loan that can be
used to further grow the business. Third, the
agricultural field, where microfinance has a
huge success in other region of world, is largely
dominated by large corporations running large
farms and using technology to create large
amounts of produce. Farming in the United
States is generally a large-scale endeavor, so it
is very unlikely that they will benefit from a
small loan. Alongside this, the agricultural busi-
ness receives subsidies from the United States
government that already supplements their
income. Lastly, in United States, when aspiring
entrepreneurs want to start a business, they
may not be able to get small business loan, but
they can qualify for credit card, home equity
credit line or other alternatives to microcredit.
As a result, a combination of all of those causes
microfinance and microcredit to be not very
useful in the states. Western Europe is in a sim-
ilar situation. Because of Western Europe’s in-
dustrialization, its economy is also based most-
ly on manufacturing. Therefore, microfinance
faces similar limitation in Western Europe. This
is further exacerbated by relatively high popu-
lation density of Western Europe not allowing
for much farming to be done there. Both the
United States and Western Europe have alter-
natives to microcredit that make microfinance
unnecessary and redundant in these places.
Despite these obstacles, microfinance and
microcredit have begun on a small scale in
both the United States and Western Europe,
proving that microfinance can still work in
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2014 Summer Issue, Vol. 4
NingXia P2P program advisor arranges the productive
and safe trip for all our “Fish-2-Finance” club members
these two regions. Accion Texas has been an
exemplar of the movement in the United
States. It began its microlending activities in
Latin America and then established an US affili-
ate. The loans from its programs are mostly
targeted toward small businesses. Currently,
small businesses still are plentiful in the United
States and Western Europe, so microfinance
has a clientele. However, whether or not the
business fails or succeeds, this client base will
slowly disappear. The successful businesses
will not need loans from these lenders, while
the businesses that fail will be unable to take
out loans and pay back the loans that were giv-
en to them. Therefore, microfinance as a busi-
ness is not feasible in the United States or
Western Europe, as there is too much risk and
not enough profit to justify doing this, making
almost all microfinance businesses in these re-
gions more of a charity than a business fo-
cused on profit.
In conclusion, Microfinance as a busi-
ness is not entirely feasible in the United
States or Western Europe, as there is not
enough profit to be made and microfinance
comes with a higher risk than other loaning
services. However, microfinance as a charita-
ble act will still be able to aid small business-
es in developing their infrastructure and be-
come successful. Microfinance will be able to
improve the economies of these two regions
and allow for many small businesses to be
self-sustainable, but microfinance itself may
not be able to be self-sustainable in either of
these two regions.
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The Young Economists
The two youngest members, Selena Lu (left) and Cher Ma
(right), of the NingXia P2P program.
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26
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"Give a man a fish, he'll eat for a day. Teach a man to fish,
he'll eat for the rest of his life"
Join the Fish-2-Finance Club
Serve in the P-2-P Camp
Bring Hope to Our Community!
Illustrated by Selena Lu, Woodbridge High School, Irvine, California