Date: 4th October, 2018

Comparison: Economic Development

Models
CASE STUDY

Submitted by:

Aqeel Ahmed i15-1509

Ubaida Usman i15-0939
Ibrahim Sajid i15-0980
Adeel Ahmed i15-1510
Question 01

Compare the Grameen Bank Model with the Yunan Model. Why is Yunan model right for China’s
improvised areas?

Grameen Model Yunan Model

Loans given out to poor women, farmers, Loans given out to poor members of the villages
entrepreneurs with no collateral. with no collateral

High repayments of more then90%.
Goal was to reduce poverty amongst the
poorest of the poor In Bangladesh; which were
considered to be women
Interest rates above 20%.
High repayments due to incentives; more loans
repaid meant better credit ratings and more
future loans.
Goal was to reduce poverty in the Yunan County.
Low interest rates (Ref pg.7).

Services included savings, credit, micro Objectives were to Create credit information
insurance. centers

No government support Full government involvement and aid.

Adopted by several countries, Only applied in Yunan County

Financial reforms were carried out through Construct credit villages, Carry out financial
funding without constructing credit villages reform through funding

B) Why Yunan model was right for China’s Impoverished areas?

The fact that Yunan was located on a mountainous terrain with only 510,000 population, opening
many Financial Intermediaries would not have been feasible because the major portion of the
population were peasants. Due to lack of resources, loans could not have been extended as the
economic condition was poor, and the peasants were not in position to promise any collateral and
guarantee. Due to small population and lack of adequate resources, economic development would
have taken place.

 As China apparently follows the concept of collectivism, thus Yunan model was
successfully applied because the funds generated after supplying loans were reinvested on
the poor. They emphasize on mass development rather than the development of an
individual.
  The philosophy of Chinese include self-worth. Therefore, they care about their image that
is why the implementation of credit ratings would be embarrassing for someone with
lower rating. This is why approximately 80% loans were collected back.
 An easy model to implement in a scarcely populated area (5% villages; 15 towns and 200
villages)

Question 02

How does Social capital theory relate to Yunan model?

The power of Social Capital is the one that drives the solution to the problems. It bring in resources from
the social relations towards a collective goal. Social capital theory is the collective working between any
institutions with their people by full coordination to effective get to their agenda. It is the economic idea
that refers the connection between the individuals and the entities that can be beneficial to promote
the economic conditions together. Social networks include people who trust and assist each other
becomes valuable and it leads to solving problems and growing.

This model can be related as the connection between the financial entities and the peasant were
extremely productive by both ends for example the loans were provided and returned and reinvested by
the entities for wellbeing of society.

Question 03

How does mechanism design theory relate to the Yunan Model?

Yunan Model was successful in the county because of its innovative structure. The mechanism of the
initiative was planned in such a way that everything was regulated using technological system.
Information gathered about the borrowers was organized and arranged using technological tools. For
instance, the establishment of Credit Information Centers had information about the history,
background and personality of the person. Moreover, scattered Information was organized by the credit
information system. Information Center collected data of tax, business, and other economic factors of
more than 100,000 households in order to eradicate poverty. China Unicom was used to share personal
credit information and to provide background of the people in the county. This process followed the
establishment of credit rating system, where incentives were provided to the higher rated citizens in
public to bring change in the behavior of other citizens. The model was successful as 71% citizens had
good credit ratings. Moreover, the loan repayments were invested in non-profit organizations to
recirculate the loans to cater all the people.
Question 04

Are the Yunus model and the Yunan model the only formulas for economic development?

There are many models which can be adopted to in order to move towards economic development. On
the other hand there are many variables which are taken in account when measuring the economic
growth of a society/country such as literacy rate, life expectancy, health care, labor force, GNP per
capita, income etc. There are many models which help in achieving economic development, one of
these are Community banking model.

Community banking model essentially treats the whole community as one unit, and establishes semi-
formal or formal institutions through which microfinance is dispensed. The difference lies on the fact
that community bank takes part in the development of the community as a whole. The Return on
Investment of the bank is partially used to improve and build community services including schools,
health services, recreational areas etc.

Such institutions are usually formed by extensive help from NGOs and other organizations, who also
train the community members in various financial activities of the community bank.

These institutions may have savings components and other income-generating projects included in their
structure. In many cases, community banks are also part of larger community development programs
which use finance as an inducement for action.

Community banking model is closely related to the village banking model.

Question 05

How does the introduction of modern credit information systems impact certain social values
surrounding personal privacy in rural communities?

The introduction of credit information systems in the rural areas improved the society as it encouraged
people to become more responsible regarding their actions which later determined their credit score.
Moreover, the fact that they maintained the data of the borrower’s including information about taxes,
businesses and other information, they had to make sure that it was impeachable. Since the people in
Yunan had close interpersonal relationships so there was no violation of their privacy and had a positive
effect rather than a negative. However, as the population of the county was 510,000 citizens it could
lead to negative results such as damaging self-esteem and worth of individuals having lower credit score
in front of the community. Moreover, having higher rating would have increased their chances of getting
higher loans. Though people with lower scores may face psychological as well as social distress as it can
be more damaging. It is very hard to determine how close people are to each other in a society as every
society has a different level of personal privacy among themselves.

Question 06

Will the Yunan model evolve into another form in China? If so, what form?

Yunan model is the evolved form of the Yunus model, a relatively better version in terms of innovation
and development. Yunan model was introduced to improve administration, judicial system and
businesses of under developed village. Since Yunan was a rural village, the public information regarding
people’s credit score did not have a negative effect on the society instead people became more
responsible regarding their actions and tried to become better citizens in order to improve their credit
scores. So in areas/societies where interpersonal relationships are strong such model can be introduced
in order improved the society.

As the major part of Chinese population live in the rural area, the concept behind Yunan model is
applicable with new innovation. Even though, today Chinese Government is now implementing
international practices in credits, savings and financial managing.

Where as in areas/society where their interpersonal relationships are not strong and people like to keep
their credit history private such a model cannot work instead it can create issues such as damaging self-
esteems of individuals with low credit score and violating the privacy of people having a high credit
score.

Question 07

To what degree local government involve itself in economic development at the risk of over control
that would defeat individual initiative?

The fact that the promotion of economic development is correlated with the indulgence of the local
government in small initial can lead to more effective implementation. Individual initiative may not be
effective because of the limitations put forth in terms of resources, regulations, and implantation of
strategic processes. However, these limitations can be avoided if the government supports the initiative
by providing frontal resources and grants for effective implantation of the plan.

Government Grants on provision of Infrastructure for the development and maintenance in order to
promote economic growth and sustainability. For example, in the case of Yonan county, the local
government did provide the basic facilities to the county in order to improve the economic condition.
The primary reason for the failure of Yonus Model was the lack of government aid and involvement,
which led to an unmonitored system which turned controversial. Moreover, local government should
keep those initiative under observation, however limited to the extent of controlling them. The tasks
must be carried out without the intervention of government. The mindset behind the government
interference must be in symmetry with the idea in order to bring change to the maximum potential.