Research On Valididy Of Comsumer Finance Companies' Initial Credit

For the purpose to increase personal consumption, Pilot consumer finance companies were established in 2008, dealing with new types of consumer credit with advantages of offering small amount and unsecured loans, which is a great financial innovation in the new times. Nevertheless, on its way to further development, the consumer finance companies are still faced with enormous difficulties, among which is information asymmetry, a long-term disturbing problem in traditional consumer credit extension. The new consumer finance companies, which are characterized by offering small, fast unsecured loans, undoubtedly exacerbate its impact on their business as a result, especially at the beginning of building relationships with loan customers. All this consequently gives rise to the question as how to lower the influence of information asymmetry on initial credit extension, how to reduce the additional transaction cost due to information asymmetry, and how to make the first credit extension more effective. Based on the above issues, this paper makes scientific research on how to improve the effectiveness of initial credit extension in consumer finance companies, trying to propose some constructive suggestions and countermeasures, as a reference for the future development of the consumer finance companies. To solve the above problems, and to ensure consumer finance companies to develop in a healthy, fast, and effective manner, this thesis follows the guideline of thought as Theoretical analysis-Questionnaire-Data analysis- construction of initial credit evaluation model-empirical analysis, with the application of trust credit theory, asymmetric information theory, transaction cost theory. In view of the real practice of the business in consumer finance companies, the paper analyses the demand structure for clients'credit information, finding out the factors that affect the validity of initial credit extension through a pilot survey integrated with suggestions from experts. Different from traditional credit extension, the paper takes transaction fee into consideration to solve the problem caused by asymmetric information so as to ensure consumer finance companies'profit. With these two factors of effectiveness of credit extension, this paper establishes a multiple objective decision-making model, Possible-satisfaction model, to measure the effectiveness of credit extension, taking both probability of payment and customer satisfaction into consideration. Through the empirical verification, it is found that the model applies highly to different samples, and its probability of right judgments in validity of credit is much higher than traditional ones. Therefore, the thesis concludes that both client's probability of payment and the profitability of finance companies are important factors for the validity of initial credit extension. The consumer finance companies should not only lower the influence of information asymmetry on future credit extension, but also reduce the transaction cost due to information asymmetry, making the credit extension business more effective and successful.