China Sme Credit Rationing Formation Mechanism

Since the launch of open and reform policy, small and medium– sized enterprises have obtained significant developments. At the same time, these businesses have played an irreplaceable role in increasing employment, animating market, increasing income, stabilizing society and forming healthy national economic structure. However the credit rationing problem of small and medium - sized enterprises restricts these companies to further develop. Factors influencing small-medium enterprise credit rationing are identified and analyzed in order to solve the matching of small-medium enterprise's credit. These works may be vital to the further developments of small and medium– sized enterprises.According to the need of the analysis, this article has adapted the S-W model. This model was proposed in 1981.It has made important contributions through introducing the asymmetric information and the moral risks into the analysis of the credit rationing. By using this model, the credit rationing question could be explained fully theoretically. Therefore the S-W model has become the main model for analyzing the small and medium-sized enterprises'credit rationing question. This article used a calculated example to illustrate the concept of this model.Furthermore, based on other reasonable ingredients from other literature, the influence of law system has been incorporated as a factor into the model. How this factor may have aggravated the problem of credit rationing towards small and medium-sized enterprises is also discussed. The relationship has been processed quantitatively. It has been found that, theoretically, the degree of credit rationing of the small and medium-sized enterprises is inversely correlated to the degree of perfection of the legal system or the strength of the contract, Namely when the legal system is more perfect or the contracts are carried out more vigorously, the banks'credit rationings scope for SMEs will be even smaller.Since the domestic credit market has not been completely marketised, the behavior of small and medium-sized enterprises can only be adjusted incompletely by the market rate. Therefore our hypothesis has been constructed in the way that tries to be close to the reality, namely small and medium-sized enterprises'indirect financing cost does not only include bank interest rate cost, but also includes each kind of non-interest cost. This is because of the existence of the non-interest costs put the bank in the dilemma that has caused the banks'behavior of the credit rationing to SME.Through analyzing the factors influencing the credit rationing in the domestic and foreign literature and relating them to China's actual conditions the factors influencing the small-medium enterprise's credit rationing has been identified as asymmetrical information between the banks and enterprises, imperfect legal system, the existence of the non-interest costs, the deficiency of mortgage plaque for small and medium-sized enterprises and insufficiency of the effective guarantee.To solve the credit rationing problem of the small and medium-sized enterprises, the degree of the asymmetrical information must be reduced;the expenses on per unit loan should be reduced and also loaning by the small and medium-sized enterprises should be encouraged. Specifically it includes the following aspects. Firstly, the society credit system of the small and medium-sized enterprises should be established and developed. Secondly, the credit information of the small and medium-sized enterprises should be reformed, and their credit interest rate gradually connected to the market. Thirdly, privately operated small-medium commercial bank should be established and developed. Lastly, more innovative system, technology and product of the credit for small-medium enterprise should be encouraged.