The Study On The Incentive Mechanism Of Micro-credit And The Innovation Of Micro-credit Policies

In this thesis, the study starts with the analysis of the historical development and theoretical research of classic international micro-credit institutions, followed by the analysis of incentives mechanism of micro-credit and the construction of the key frameworks and pillars of micro-credit. It is pointed out that the innovation of incentive mechanism is the key for high repayment rates and thus achieving financial sustainability. On the basis of this research framework, emphasis is put on the analysis of the actual implementation of micro-credit policy in China and the defects in terms of incentive mechanisms. The improvement and innovation strategy for micro-credit policies are put forward.First, this paper reviews the international and domestic development process of micro-credit institutions. The following views are put forward:1. International micro-credit experienced the following four stages of development, which are effective touch with low-income groups, high repayment rates, profit covering cost, finding commercial channels for funds to achieve financial sustainability.2. The development of domestic micro-credit starts with poverty reducing. There were many useful attempts. But because of the lack of possessing of or reference to any core incentive mechanism of micro-credit, it was difficult to grow and develop.3. The key for Grameen Bank to achieve financial sustainability is its high repayment rate, while the key for high repayment rate is its innovative incentives mechanism. The successful micro-credit institutions elsewhere in the world today are more or less influenced by the Grameen Bank. Grameen Bank's credit incentive mechanism is key point most worthy learning.4. Grameen Bank displays the following four features:Grameen micro-credit is provided mainly for extremely poor people who are landless or with very little land; Grameen micro-credit has been against usury from the very start; Grameen micro-credit Credit maintains sustainability because of high repayment rates, and the high repayment rates are based on rational incentive mechanism; the market for Grameen micro-credit is closer to monopolized market.Second, through the historical review and summarization of the classical case as well as combing existing literature about the incentive mechanism of micro-credit, this paper proposes the four core pillars to construct incentive mechanism of micro-credit, namely, monopolized market structures, group lending, dynamic incentives and loan officer mode. Monopolistic market structure is the basis and condition to achieve effective incentives, while loan officer pattern is organization form to implement incentive mechanism, and group lending and dynamic incentives are the core for incentive mechanism in the early time and later period respectively.1. Monopolized market structure is the important basis for the generation and maintenance of incentives mechanism.2. Group lending was the classic mode of micro-credit institutions in early times. When the micro-credit institutions entered certain development stage, especially when access to and coverage of the market reached certain degree, the dynamic incentive mechanism gradually replaced the early group lending model as the core incentives for successfully sustainable micro-credit institutions.3. Loan officer model is the major difference of micro-credit institutions from other financial institutions in term of organization pattern, and is an important foundation for the establishment of micro-credit incentives.Third, after the theoretic summary of micro-credit incentives, this paper focuses on analysis and reflection of micro-credit policy in China. From a general analysis of China's current credit policy and difficulties faced by micro-credit policy, five chapters are followed to analyze micro-credit in rural areas, loans for reconstruction of rural houses in the earthquake zone, student loans, small secured loans to promote employment, poverty alleviation micro-loans. The analysis is supplemented by cases.In this paper, the following viewpoints are put forward:1. The dilemmas faced by micro-credit policy in China are that the social expectation has been higher in a long term than the supply of financial industry, the conflict between administrative transmission channels and market mechanism of effect, decentralized management mode leads to high operating costs, micro-credit Loan recovery rate policy-related products has low recovery rates, financial institutions generally lack of enthusiasm then the cost of policy implementation is high, the lack of legal basis leads to the involvement of other administrative then policy incentives are distorted, and it is difficult to assess the effects of micro-credit policy.2. The micro-credit policies in China are all in the form of micro-credit. The prominent issue of micro-credit policies is the low recovery rate and high default risk and loan losses, which leads to the difficulty to achieve commercial sustainability. The important reason for high default risk and low recovery rate is the out-dated policy ideology and lack of effectively positive incentives. The key to improve and innovate micro-credit policy is to fully refer to and apply incentive principles of micro-credit and to design positive incentives to achieve commercial sustainable.3. The methodology to improve the incentive mechanism to improve China's rural micro-credit should be that a sound credit system for farmers should be built on the basis of personal credit system, a dynamic incentive mechanism should be built cross financial institutions by using basis of modern payment tools, efforts should be made to improve the management level of RCCs in terms of operation micro-credit by learning from successful micro-credit institutions in other countries, interest rate controls should be gradually eased and a market-oriented interest rate reform should be pushed forward, the inclusive rural financial services system should be improved in the guidance of market principles, and a sound risk compensation mechanism should be established so that financial institutions will be encouraged to launch micro-credit operations.4. The ideology to innovate policy and improve performance of student loans as micro-credit extended to dependent economic entities is that the status of the borrowers from dependent economic entities to independent ones should be improved, the process from "one-off" policy to the dynamic incentive should be in the relating phase with the said evolution of borrowers, financial subsidy incentives should be designed to prevent distortions and misleading, and perfect positive incentives to universities should be improved. 5. The proposal of reconstructing and innovating small secured credit policy for employment is that a re-clearing of policy orientation and borrowing principal should be implemented, a clear incentive mechanism should be re-designed, the obligation to repay should be cleared, the risk management responsibility undertaken by lending bank should be cleared, positive incentives should be taken into consideration when fiscal funds are to be involved into this business, the attempt to build credit insurance mechanisms should be encouraged, and the "one-off'policy approach should be replaced by dynamic incentives.6. The suggestion to reconstruct poverty alleviation credit policy is that the management of poverty alleviation loans should be improved, poverty alleviation credit discount model should be reformed, interest rate controls should be gradually eased, risk compensation mechanism should be established, and the experience of the classic practice of micro-credit institutions should be referred.Overall, the realistic choice for improving the effectiveness of the micro-credit policies in China is to fully refer to the successful experience of classic micro-credit institutions, reform and innovate incentive mechanism, and to effectively improve asset quality of micro-credit policy related business. The core of micro-credit innovation is to achieve balance between fully implementation of community responsibility and following financial sector operation principles, which is also the final conclusion the author wants to draw.Fourth, the major innovation of this article1. From the perspective of micro-credit incentives, studies are unfolded and summaries are drawn. The core pillars for micro-credit incentives are put forward.Previous researches were more focused on the development of micro-credit institutions, in other words, on how to achieve sustainable operation how to create appropriate policy and institutional environment by regulatory authorities. Innovation of this paper is that it directly probes the key factors for sustainable operations, specifically studies the incentives mechanism, and creatively combines market structure and the loan officer model with incentive mechanism so as to develop the central pillars of micro-credit incentives.2. From the perspective of incentive mechanism, refection is conducted on the micro-credit policies. The conclusion is drawn that the key factor of unsustainability of policy-related micro-credit business is the lack of incentive mechanism. In the light of the successful experience of the micro-credit incentive mechanism, proposals to improving policy-making are recommended innovatively.3. From the perspective of data collection, relevant micro-credit policies specifically the material of reconstruction rural housing loans in earthquake areas are collected and combed.This systemic summary and reflection of micro-credit policies has been an ongoing issue among authorities, but it is not completed. The study and views in this paper are only reflects the personal understanding of this issue. However, the systematic collection of the materials on implementation effects and difficulties faced by micro-credit policies is the innovation of this paper. In particular, the materials related to reconstruction of rural housing credit policy in areas hit by Wenchuan earthquake for academic research is certainly the first time, because the relevant work is not finalized and the important work relating to the improvement and continuity of incentive mechanism and the repayment rates of this credit is still m progress.4. In the aspect of innovation and improvement of micro-credit policies, the paper proposes that the balance between fully implementation of community responsibility and following financial sector operation principles should be. achieved, which probably will be the major direction for the development of micro-credit policies in China, and also is the conclusion this paper trying to achieve.