Banking & Finance

The ‘Pauper’s Bank’

Forget US sub-prime – Alibaba boss wants to lend to China’s poorest people

The ‘Pauper’s Bank’

Don't just take, give, says Jack Ma

Use the term ’pauper’ and many people will recall Mark Twain’s famous novel The Prince and the Pauper.

But if the description seems a little arcane in the West, it has just got a new lease of life in China, according to the Business Times.

That’s because of Jack Ma’s latest initiative, which the newspaper has christened the ‘Pauper’s Bank’.

Ma is the founder of Alibaba Group, a successful e-commerce business that has made him one of the country’s most prominent entrepreneurs.

But his new banking initiative is in micro-credit. The goal is to loan money to the nation’s poorest – provided they have viable business ideas.

“Micro-credit is the oxygen to make entrepreneurial dreams come alive,” says Ma.

His ‘Pauper’s Bank’ is being set up in partnership with the world’s best known micro-lender, Grameen – the Bangladeshi organisation founded by Muhammed Yunus. Ma’s Alibaba will donate $5 million, while Grameen will bring the expertise.

Lending will be focused on Sichuan province and Inner Mongolia, with an initial target to make 8,000 individual loans of $400 each.

Ma’s move has prompted interest for a couple of reasons. The first is the perceived philanthropy of his move. Optimists hope it could encourage China’s other tycoons to follow suit.

In this sense, they see Ma as a sort of Andrew Carnegie-in-the making. Indeed, in a recent note to his 15,000 employees, Ma does strike a tone similar to Carnegie. “Money and wealth are two different concepts,” he wrote. “If you have money, but have not turned this money into an experience to elevate your own or other people’s level of happiness, then you may very well only possess a lot of symbols and a mountain of very colourful pieces of paper.”

Carnegie’s dictum was that you should spend the first third of your life getting an education, the second third making all the money you can and the final third giving it away to worthwhile causes. “The man who dies rich, dies disgraced,” Carnegie thought.

Ma is unquestionably rich. Days before the announcement of his tie-up with Grameen, he sold 13 million shares in Alibaba. This accounted for less than 5% of his holding, but netted him HK$270 million ($34.8 million). He said he raised the cash to give himself and his family “a little sense of accomplishment”.

Nor is this Ma’s first banking foray. Alibaba already has a product targeting small and medium-sized enterprises called the Ali-loan (see WiC13). The proposition is simple enough: three SMEs meet online via Alibaba’s site, and if they can build sufficient trust, jointly apply for a loan, and act as mutual guarantors. Unlike the Grameen partnership, the funds here come from the Postal Savings Bank – with Alibaba acting as a facilitator.

As for Grameen, this marks its next big step in China. It has already operated a pilot project in the poverty-stricken county of Qiongzhong Li in Hainan. As of the end of last year, 105 uncollateralised loans had been offered to rural women – of around Rmb3,000 per household. Up to now, the recovery rate has been 100% reports the National Business Daily.

Not everyone thinks the ‘Pauper’s Bank’ is pure philanthropy. The blogger CNReviews comments: “I believe that this announcement represents an important strategic thrust – not just corporate philanthropy. By partnering with Grameen Trust, Alibaba will learn to serve the very poor who are not yet served by their current marketplace platforms like Alibaba and Taobao.”

This sounds a little too cynical. In doing a good deed, Alibaba may well learn a thing or two. But the idea that Ma is using Grameen to capture a market of 737 million rural poor is probably over-doing it. After all, the new bank’s stated goal is to make 24,000 loans within five years.

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