Aug 24 2009
social entrepreneurism in china: the qifang story
Last month, I was invited to a lunch seminar (invitation only) hosted by
Give2Asia where they discussed the challenges facing Chinese education, and more specifically, the problem of funding Chinese higher education. Scott Sugiara with Give2Asia gave us some of the statistics: since 2001, their organization has given over $100 million to Asia, and about 35% of that has been in the forms of grants/scholarships to individuals. (focused mostly on Jiaotong Daxue and other Shanghai university students) One thing he also noted was that education is not cheaper at the top universities because there are often scholarships for those students. Ironically, its the students who go to regional and vocational schools who have a harder time affording their higher education.
One solution, after the jump.
Enter Qifang, a social enterprise headed up by Calvin Chin. (I promised Calvin that I would post on this) Qifang is a company that is trying to close this educational funding gap by providing loans via microfinancing. (think Kiva for Chinese students) And so what one does is logs into the Qifang site, views profiles of students who need money, and can choose to make a loan of a small amount that will be aggregated with other funders to that student. That student agrees to pay a particular interest rate on repayment, and bingo, you have microfinancing for needy students.
So why the need for Qifang anyways? Apparently only 10% of the people can borrow from the China Development Bank, which often will leave out the poorest of people who have little access. Because of this, only 22% of the Chinese population can get higher education, compared to 45% like in the U.S. (of course, the downside is that there is degree inflation here, but I’ll save that rant for another time) Using web2.0, they came up with a microfinancing site because the need was so large. Ironically, the very barrier to entry on Qifang is the method of delivery: internet access. Not enoguh people in the poorest areas have internet connections so that they can login and create a Qifang profile. So while the service helps people, it still is figuring out how to reach the most needy.
On the whole, I found the presentation interesting. Calvin also talked about his (and the Qifang) story, which is basically a small group of expats were in business. (Calvin was at SMIC, along with some other folks I know there) And instead of wanting to start another business, they wanted to start an enterprise what was profitable and community impacting–not profitable to rake in money, but so that it could be sustainable. Social enterprise. Which I am quite familiar with since TechSoup Global is one as well.
Okay, so now you’re thinking that I’ve gotten a bleeding heart with no legal writing anymore. I’ll quell that as well, since my first question was about the structure of his organization. Qifang is run through two foreign holding companies, and if I recall correctly, one is based in Bermuda. The parent is in Bermuda, that is a holding company for another foreign entity, which I believe is U.S. That U.S. based entity formed a WFOE in Shanghai. (if you want to read about WFOEs, go to China Law Blog and do a search–you will see a lot of stuff by Dan Harris which is excellent reference material) Using that WFOE, they formed a joint venture with their local Chinese staff.
Qifang is at 6 employees, down from about a dozen. The Chinese staff who run the joint venture is 2 of their employees. The foreign holding companies layered well, check. That’s a good thing. A WFOE as the proper form of incorporation in China (instead of as a Representative Office), another good call. Check. And then the JV. Red flag. I asked Calvin point blank, “you really trust your staff, right?” Of course he did. But as you can see if you search multiple blogs, JVs can turn sour very quickly. And this is a risk that Qifang is willing to take because he does trust his team. If you are ever planning to use a JV legal form in China, you must trust your team–do your due diligence with them, work with them, supervise them. You cannot mess up at this point, or you are asking for trouble.
This company is doing cool stuff, but its also doing it right. Calvin told me they had a good lawyer, and I was happy to hear that. (no, I am not fishing for business) I can only hope that others, particularly my readers, are well situated too.
Hi Thomas, thanks for the post. A little more details and clarity on our corporate structure. Hope this is helpful for you and your readers.
We are not incorporated in the US. As of now, we’re a Cayman Islands company that owns a Hong Kong company that owns a WFOE in Shanghai.
We do not have a JV anywhere in this stack. What we do have is a close corporate relationship with an entity that we do not control, a 100% locally owned company that holds our internet content provider (ICP) license. This local company is as you wrote owned by a couple of members of our local team. We trust them 100%, but also have very good documents in place to bind this relationship as far as business and intellectual property.
Your warnings about JVs are good advice, but a WFOE cannot today get an ICP. Most internet companies here that want the option of accepting foreign/USD investment and have maximal flexibility as far as public offerings, M&A, etc… go for this structure, often referred to as the Sina Model after sina.com. The only difference would be if you are a PRC citizen (or spouses or close relatives are) then you or they could own the local ICP company and be the point of trust.
Calvin, thanks for dropping by. Appreciate the clarification, and the additional information on the ICP. That’s good information for the readers, and also helps me to understand your structure a little more since I know we couldn’t go into detail over lunch.
Calvin, thanks for dropping by. Appreciate the clarification, and the additional information on the ICP. That’s good information for the readers, and also helps me to understand your structure a little more since I know we couldn’t go into detail over lunch.