From big bank to microcredit firm
In June, Joe Zhang Huaqiao dropped a bombshell on the financial world when he announced he was quitting as managing director of China at investment bank UBS to take a job at an unknown microcredit company in a rural district of Guangzhou, to offer people small loans, which many larger lenders shy away from. Two months in, Zhang, 48, talks frankly about his new business and the reasons behind his change.
How has it been since moving to Guangzhou?
I am extremely busy. I am looking for money to feed our hungry credit officers so they can provide loans to the clients who are lining up. Our company is now staffed with 50 people, compared with an average of six or seven in most microcredit loan institutions. However, unlike those companies, which loan millions at a time and call it 'microcredit', we provide real microcredit loans. The average credit size is about 100,000 yuan (HK$122,000). We even lend a few thousand yuan to some individuals. We prefer to loan a smaller amount at a time.
That's because, firstly, we don't have enough cash to meet the fast-growing market demand. Secondly, loaning is like venture capital - the smaller the amount is, the lower the risks will be. Also, real microcredit leads to higher interests. For example, if you loan a billion and ask for 200 million in interest, the borrower will go bankrupt.
However, it's highly reasonable to ask for a return of 20 cents for a one-dollar loan.
When did you shift your sights to the microcredit business?
I had observed it for eight to nine months beforehand. I was born into a farmer's family in Hubei. I started to get into business in the early 1980s and therefore made contacts with rural credit co-operatives. I know how difficult it is to borrow money from them. They can't be bothered to give out money to individuals or small businesses - a loan of 10,000 yuan requires the same assessing procedure as one of 10 million yuan. So, of course, they prefer big businesses like chemical plants or cement factories. And above all, to borrow money, one needs to have guanxi with the banks. However, the demand from these groups of people is strong. Once they are financed, their businesses can start to produce profits to pay off debt. All these factors have opened the door for microcredit businesses.
What made you want to give up a much-coveted job at the investment bank?
There were two reasons. It's definitely not a bad job to work at an investment bank, but I would be lying if I told you I really loved it. Researching [the market] itself is interesting, but I hate the selling side of it. It's showbusiness, a lot of pitching and convincing. It's challenging, it's financially rewarding, but I never thought of it as my business. I'd always wanted to quit, but there was just too much money on the table. I am a human being. It's tough to resist the temptation.
And the second reason?
I'm not talking about a charity here. It was a business decision. I believe microcredit is a profitable business. I am going to make a lot of money out of that. Charity is just another outcome. I respect small businessmen. They make an honest and respectable living, unlike corrupt officials. Giant institutions like investment banks have a set of rules and regulations, but in this industry, we can change things if they're unreasonable.
China has about 3,900 microcredit firms, providing a total of 30 billion to 40 billion yuan in outstanding loans. How do you view the general microcredit market now?
The scale is still too tiny. I say that because the interest rates we charge currently are six to seven times higher than the official bank rates, while in the US, it's only three to five times higher. This shows that the market demand is far from being met. We don't want the rates to be too high. We want them lower so we have smaller risks in getting back our money.
Also, it will enable us to lend more. The government regulations on microcredit loans are still very restrictive. We are only allowed to borrow 50 per cent of our paid-in capital, compared with leverage of 10 to 20 times at banks. We are not allowed to accept deposits or borrow from the interbank market or other sources. I am not asking for any money from the government; I am just asking for permission to let us finance ourselves. With more money coming in, we would be able to give out more loans and meet demand, and interest rates could be lowered accordingly.
Did you foresee yourself doing what you're doing today when you were in college?
Not at all. I wanted to be a government cadre with power, [he says with a grin] so that I could reap the benefits. I was assigned to the People's Bank of China after graduation. Everybody said, 'What a wonderful future you will have', but I knew I wanted to go abroad. At that time, going abroad meant more money. Later, I got an opportunity to study in Australia. Once the plane landed, I told myself, 'OK, this is it. I won't go back'.
After graduation [in 1991], I worked at the Department of Employment in Australia [for half a year] until the University of Canberra offered me a tenured teaching position. It was a big surprise. It meant I wouldn't be jobless until age 65. However, I soon realised that was not what I was aiming for - I didn't want myself to be in the same place at 65. So, two years later, I quit again. In my heart, I've always wanted to do business.
Why is that? Has anybody in your family influenced you?
My father is a carpenter. He taught me that craftsmanship was the basis of survival. My family lived near the Han River, where floods are frequent. Because my father knows how to make furniture, he always survived the bad harvest years.