Case Example-The Poverty Alleviation Fund

Case Example-The Poverty Alleviation Fund

Background:

The Poverty Alleviation Fund (TPAF) is a non-political, non-sectarian, U.S. non-governmental organization with its headquarters in Cambridge, Massachusetts.[1]TPAF was founded in 1998 by Arthur Holcombe to provide microcredit, health education, employable skills training and other assistance to enable Tibetans in China to improve their incomes and general well being. [2]

Microfinance:

TPAF has a micro loans program between 1,000-2,000 RMB ($155-$310) to help increase household incomes for over 3,000 poor rural in Lhoka and Nakchu Prefecture.[3] There has been a 99% payback in Lhoka Prefecture and a 95% payback in Nakchu Prefecture. To qualify, the local Tibetan had to reach some requirements. The loans are provided to woman grouped into small five members. Each member has the responsibility to manage the credit and payback all the loan principle and interests. When the group pays back the loan, each member will qualify for a larger loan. In Nakchu Prefecture, the loans are provided to groups of families. The reason is that individual nomad families have not been prepared to take on personal debt. (Sandeep, Jiyeon, Marc, 2005)[4]The government officials and women leader have been trained to help the Tibetan learning more about the repayment and credits.[5]As follow:

    TPAF has the same disadvantage of lacking collateral and data like other microloan.

TPAF’s business model is similar to the Grameen Bank’s model in 1973. When Grameen Bank first start “micro” loan, “the group member were required to monitor each other at weekly meetings, applying varying degrees of pressure to ensure repayment. As loans were repaid, people were allowed to borrow more.”[6]

The reason that Lhoka Prefecture’s repayment performance is better than Nakchu Prefecture’s might be the Lhoka Prefecture is agriculture and animal husbandry mixing zone while the Nakchu Prefecture is pure pastoral area. The people in Lhoka might have a more stable agricultural harvest than pure animal husbandry, which make increase their ability to repay their loans. The other reason might be the size of the loan. The size of the loan in Lhoka is around $36-181, while Nakchu’s size is around $1,205-9640. The larger amount of repayment might be more difficult to repay which cost the lower portion of repayment performance. The organizational structures in the TPAF offices might have influence on the repayment but I have not found any reference about the organizational structures in TPAF.

Alleviating Poverty

TPAF has also introduced projects that help alleviate poverty. In Nakchu and Lhasa area, over 1,000 students have been training to study veterinary medicine, cooking, tailoring, automotive maintenance, carpet making, Tibetan art drawing and driving.[7] In addition, TPAF is working with about 35 groups of artisans from across Tibet to improve the quality and marketability of their traditional products. As part of this project, an Ancient Art Restoration Company building in the Barkor area of Lhasa has been refurbished and turned into an emporium where artisans can sell their products to tourists.[8] This model might be better because training programs provide the opportunities for the people improve their skills and by working together with the microloan, which the interests of the loan is only 3%.

TPAF’s program in Tibet was successful not only because the microloan business model but also because Tibet has great potential in tourism. The QingZang railroad project was finished in 2006,which connected Lhasa and Xining and shorten the time traveling to Tibet to 25 hours. Before that the only two ways to enter Tibet are by car and by air. The airport was built in 1966, however, there are very limited flight was running. Driving to Tibet will also take too long and the condition of the road is unpredictable. The railroad had brought many tourists to Tibet. The demands of traditional food, medicine, and art crafts are huge.

Large parts of poorest Chinese are living the remote mountainous area. Unlike Tibet, those areas were difficult to access. It might take hours walking to get to the villages. As much as they need microloan, the transportation will be very costly. The remote mountainous areas also make t education to the poor very difficult. What’s more, the land is not owned by individuals, so it cannot be used as collateral for credits.


[4] Microfinance in China & India, BalajiSandeep, Park Jiyeon, WidmerGian Marc, Insead, Economics in developing countries.  http://faculty.insead.edu/dutt/emdc/projects/Sep-Oct05/Group_E.pdf

[5] Microfinance in China & India, BalajiSandeep, Park Jiyeon, WidmerGian Marc, Insead, Economics in developing countries.  http://faculty.insead.edu/dutt/emdc/projects/Sep-Oct05/Group_E.pdf

[6] The hidden wealth of the poor, The economist, November 5th 2005, page 1

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One thought on “Case Example-The Poverty Alleviation Fund

  1. tlhill2012 November 23, 2012 at 12:12 PM Reply

    Jia – thanks for a fascinating example. This is certainly a good example of a Grameen-inspired model. I have tons of questions about the details – how did they choose these prefectures? How does the funding work? Why the differences between the prefectures? Are there differences in personalities or governing structure that affect the discrepancy in loan repayments…. On this last, I agree that size of loan and type of agriculture (pastoral v. sedentary) might make a differences; indeed, animal loans are notoriously challenging because of the many risks to animals, the possibilities of fraud, etc. At the same time, the list of purposes for the loans suggests not much difference, so I wonder if the difference has to do with other issues – perhaps the nature of the recipients (collectives v. individuals)? This would be worth some exploration because the literature suggests that social pressure is critical, but also individual responsibility. That is, the social pressure works when exerted on individuals, not so much (maybe?) when there is pure group responsibility (and so the possibility for any individual to shirk responsibility). Anecdotally, I know of a group in S. India who achieved the best land redistribution results when entire villages organized to buy land BUT then divided up the land and put parcels in the names of individual women. It worked less well when entire villages organized but then kept the land communal. And even less well when they put the land in the men’s names. Least well, when there was no group organization. All this adds up to questions about the most effective balance of communal and individual responsibility.

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