China's Microfinance Credit Loan Credit Risk Control

Micro-finance was born in Bangladesh in 1970s.It has become one of effective and important methods of poverty alleviation by offering financial services to poor people. Since the beginning of the 1990s,when China introduced this method, micro-finance has made a positive influence on poverty relief. From 2000,China Rural Credit Union has begun to run this business and give its own business the name of Rural Micro-finance. Up to now rural micro-finance has become an important policy to serve the country. In the long term, rural micro-finance will do a lot in helping developing Chinese rural areas and improving the life of the farmers.Rural micro-finance make small, short, unsecured loans to the farmers. Few of these borrowers have standard collateral, credit-bureau records, or formal wage jobs. Therefore the lenders lacked low-cost ways to judge the risk of these farmers. If lenders set interest rates to cover the high costs of small loans, then they were accused of usury, but if they set lower rates, then they lost money. It seems tremendously necessary to find a new way to judge the risk of the borrowers in order to cut down the costs and make it more efficient.Credit scoring uses quantitative measures to predict the risk of loans. For lenders in rich countries, scoring has been one of the most important sources of increased efficiency. Lenders in rich countries, however, score potential borrowers based on comprehensive credit histories from credit bureau and on the experience and salary of the borrower in formal wage employment. Most rural micro-finance lenders, however, do not have access to credit bureau, and most of their borrowers are poor and self-employment. So the rural credit union can only judge the credit risk...