Regional Differences in Chinese Hui Lending Circles
The Trusted Lending Circle is known as a tanda or cundina in Latin America, as a susu in West Africa, as a hui in China, and as a ROSCA to social scientists. The term “biao hui” (标会 or 標會) is the Chinese term used to describe someone participating in one of these informal lending clubs. According to Wikipedia, most hui are structured such that:
“A particular Hui is usually initiated by a trusted figure/influencer within a community. This person is considered as the group leader and is in charge of recruiting and vetting all participating members. While other participants can also vouch for and extend the invitation to their friends and family members, their participation still requires approval of the group leader.
The group leader is usually held responsible for any frauds, embezzlement or defaults within the group, should anyone fail to follow through on their commitment. In this case, the group leader has to cover the losses with their own money to make all other group members whole.
Typically, group leaders will host all of the group members at his/her residence to collect everyone’s monthly contribution and facilitate any borrowing requests. To compensate for a group leader’s risk and hard work, he/she often has the priority in borrowing the money from the group on any given month when needed.”
In addition, most hui lending circles differ from Trusted Lending Circles in other cultures in the way a market-driven interest rate is applied to the distribution of the funds. The person who wishes to receive the funds during any given month must contribute an “interest” payment which is distributed to all of the other members of the hui group, with this “interest” amount usually higher during the early rounds and decreasing toward the later rounds.
Though this description is very typical of a hui Trusted Lending Circle structure, in a country as large and diverse as China regional variations are bound to occur. In coastal Southern Chinese areas such as Guangdong and Fujian, the organizers of the hui tend to be the people who have the most urgent need for funds. As a result, they serve the members of the hui a feast to initiate the Trusted Lending Circle. As the hui continues to operate, a feast is served every time the members meet to pool their funds, but after the first meeting the members split the cost of the feast. In this way, the creator of the hui pays for the entire first feast as a form of “interest”, and all subsequent meetings of the hui no longer have this interest. In addition, this example shows how in Southern China the hui lending circle functions not only as a form of savings and loan, but also serves to bring the community together for social interaction. In some cases, the funds for a hui are completely paid back by providing feasts to the other members of the hui.
Meanwhile, in central southern Chinese cities like Shanghai, the huis are usually organized to last a very long time, as long as 7 years in duration. The “interest” payments on these huis are calculated using a complex system of calculations that often require professional support. Huis in northern Chinese cities like Beijing tend to eschew the social function of southern Chinese huis and focus instead on the economics. The payouts tend to be based on an auction format similar to the reverse Dutch auction used by the WeTrust TLC product. Unlike the communal lending circles in Southern China, these Northern Chinese huis require written contracts for the leader of the group as well as for each of the members. Often times, guarantors must sign on before a member is allowed to join the hui, underscoring the professional nature of these lending circles.
Though the details of their organization may differ, huis throughout China retain the same basic principle: to save money and access funds when necessary using a Trusted Lending Circle.
