Revolving Loan Funds - Helping Rural Economies for Centuries
Posted on 2/2/2017 by Jennifer Molineaux
Ancient China’s Revolving Loan Funds
Do you keep a framed print of Adam Smith’s invisible hand on your bedside table? Or maybe you think Bernie Sanders didn’t ask for enough? It sounds like you have an opinion about how governments should manage economies. Freshen your dinner party banter by stepping back from the headlines, and instead illustrate your theories with an example from 11th century China: Wang Anshi’s “Green Shoots Policy” - an imperial lending program intended to stabilize rural economies.
I came across a reference to “Green Shoots” in Ian Morris’ Why the West Rules--for Now: The Patterns of History, and What They Reveal About the Future. My day job as your ACEDC bookkeeper gives me a keen interest in history’s loan programs. It refreshes me to know that my meticulous care tracking loan payments relates to the careful work of bookkeepers separated from me by language, culture, time and technology. It lights up a commonality beyond empires and millennia. Or maybe I just like the perspective of Vermont’s economic issues against the grand sweep of history.
Wang Anshi was a Song Dynasty reformer facing extreme challenges in 11th century China. Wang Shuguang and Jonathan Richter’s paper “Microcredit Innovation in China” describes the way:
Speculators would aggravate seasonal imbalances in grain supply and demand, and small farmers would often be forced to borrow during planting season. Furthermore, unstable grain price conditions were exacerbated by the pervasive practice known as jianbing’ing, in which local tycoons lent to peasants at usurious rates and then often seized peasants’ land which they were forced to use as collateral. Jianbing’ing had been dealt with as a major social problem in China since at least the Han Dynasty.
Too many displaced peasants unable to plant meant famine and unrest. Wang Anshi became an imperial chancellor in 1069 and implemented a lending program which would not seem unfamiliar in the modern micro-lending community. Government seed money loans were made available to farmers. Interest rates were finely calculated to be low enough for civil stability, yet high enough for program sustainability. (This careful balance is so familiar in the ACEDC office that we have a spreadsheet for it, completed as part of our annual audit.) There was a scale for rating borrowers’ creditworthiness. Small groups of borrowers backed each other and held each other accountable.
Green Shoots pilot programs were very successful, but they were implemented on a very large scale in a very short time. We have a great deal of detail about what went wrong. There was an inflexible top-down structure with little allowance for feedback and improvement. There were abuses in distant provinces, with government officials enriching themselves. There were loan failures, perhaps conspired loan failures. The balance of power swung away from Wang Anshi when Emperor Shenzong died in 1085, and the program was eventually dismantled.
But Green Shoots was not even the first Chinese attempt at economic stabilization through loans:
Poverty alleviation loans had been employed by Chinese governments since centuries before Christ: the Rites of Zhou contains records of a national institution known as the quanfu in the Spring and Autumn Period (from around the second half of the 8th century B.C. to the first half of the 5th century B.C.) which was made in charge of administering two types of loans to farmers-zero-interest she loans allowing the borrower to purchase necessary items during a period of economic difficulty, and interest-bearing, larger-amount dai loans administered for rural enterprise. The ability to borrow during the spring tilling season provided greatly enhanced stability to small farmers.
Sounds familiar, right? Your own local economic development office – ACEDC - administered zero-interest loans to farms and small businesses affected by the emergency closure of the Champlain Bridge just a few years ago. And our Revolving Loan Funds are interest-bearing USDA monies made to assist enterprise in our rural county. The next time I receive a batch of RLF repayment checks, I’ll be thinking of those bookkeepers processing repayments in rural China three thousand years ago. And when I’m pulling piles of receipts for next year’s audit, I’ll be thinking of Wang Anshi.
Your ACEDC bookkeeper,
Morris, Ian. Why the West Rules--for Now: The Patterns of History, and What They Reveal About the Future. Picador, 2011.
Shuguang, Wang and Richter, Jonathan. “Microcredit Innovation in China” paper. Microfinance Gateway.org, 2011.
“Wang Anshi” Wikipedia
Wang Anshi was a politician and literary man in China.This image was carried on the book which is called "Wan hsiao tang-Chu chuang -Hua chuan" which was first published in 1743, again in 1921.