The Credit Risk Management Of Rural Micro-finance

We introduce rural Micro-finance in the early 90s of last century. It alleviates the problem of difficulty of obtaining loan for peasants without mortgages and plays an important in supporting agricultural production, farmers income, rural economic development and improving the rural financial system. However, it sill have problems and shortage, which restrict its healthy development.Micro-credit is advanced to low-income farmers for who is short of mortgage or without mortgage. From the characteristics of credit risk, we analyze the reasons of the Micro-Finance risk. On this basis, we propose the theory of expected income loans for credit risk management, which change the traditional thinking way that only one with adequate collateral or a guarantor can get the loans. This theory is actually to allow the borrower to sell their future income or the income index for changing the time of the future income, so can transfer the credit risk while extending loans to the poor or one lacking of guarantee. Only when combine with Majority Rule and assets Dispersion theory and Market-oriented micro-credit interest rate, the expected income loans can run better, This paper take Guizhou Province as an illustration, applying ARIMA time series model, using the past few years'per net income as indicators to predict the per capita net income of the next few years, and then come to the average credit limit of per household, according to the farmer's credit rating and the purpose of using the loans, we adjust credit line and determine specific credit limit of the borrower.If extending a loan only through this theory, it also has potential risks. This article manages credit risk from the following four aspects. First, we should make microfinance sustainable and market-based: including the diversification of the use of the loans, the market-oriented interest rate, reduction of government intervention, a flexible repayment methods, forest ownership mortgage and other innovative products or innovative technology. Second, regulate all the information required by credit rating,making credit rating scientifically through weighted percentile method, We should pay attention to information distortion, mere formality. Third, regulate the criteria of Five-category classification, describing the major features of normal, substandard, doubtful, loss loans. Fourth, the Government should assist some policy, including giving tax reduction to micro-credit institutions, legalizing private microfinance institutions, strengthening construction of agricultural insurance and agricultural orders.The main innovations are: First from the perspective of expected income-related loans theory, we study the household credit risk management, which make farmers can achieve loans without or short of mortgage, we should combine with Principle of Large Numbers because of the theory's basis.; second: from the perspective of quantitative analysis, this paper uses ARIMA time series model predict farmers net income; third, present some measures about perfect micro-credit system. Imperfect the credit system; further standardizing five classification and proposed to fully extract the full reserve to ensure the stability of micro-credit institutions and anti-capital risk.