Study On Chinese Peasant Household Micro-finance

Microfinance originated in Western countries, as a kind of financial innovation, it can provide financial services to the poor and micro-enterprises, alleviate poverty and help them achieve self-development, reduce imbalance of supply and demand, and improve the rural financial system, So micro-finance has caused widespread concern around the world. The Grameen Bank and the Indonesian People’s Bank have already achieved some measure of success in the microfinance business. They proved micro-credit can raise incomes of poor and promote rural economic development by their practice. Also Yunus received the 2006 Nobel Peace Prize because of its outstanding contributions of micro-credit.Micro-finance also provide a new way to solve China’s rural issues. China is a large agricultural country, the majority of population are peasants, but rural areas have a weak infrastructure and develop slowly, so there is a big gap between urban and rural economic development. Although success achieved abroad provide valuable experience and enlightenment for us, the clients of micro-finance have little collateral mortgage so micro-finance should have a special mechanism which need constant research and development. On the other hand, China has its own characteristics, so copying the mode abroad don’t work out. China need to find out the mode that suit itself Which need continuous improvement and innovation. So researching microfinance of China has great theoretical and practical significance.This paper Firstly introduces background and significance of research, concepts and theories of household micro-credit. Secondly it analyzes three success stories in foreign countries to learn their advanced credit technology Then it depicted actual development situation of China, aims to finds out the main problems. At last give the advice of these problems. It is divided into six chapters:Chapter one describe the background, aim and significance of researching micro-finance, and introduce the research method and thought. Based on others’ research, it analyze the current development trend and what need to be improved of micro-finance.Chapter two describes the relevant concepts and theories of Micro-finance, including the definition, development trends and classification of micro-finance, the definition and characteristics of households, and the basic theory of Micro-finance. Micro-finance provides services mainly to the poor who is usually lack of collateral to help them achieve self-development. The services are Comprehensive financial services, including small amounts of loans, savings, insurance, etc. The welfare and the doctrine are two main modes in micro-credit system, the core difference between which is different degrees of attention to sustainable development. Since the development of the international micro-credit history is long, so there are different theories in each of stages of micro-credit development, such as theory of financial innovation, agricultural subsidies theory, Marx capital theory, etc.Chapter three introduced some successful institutions of micro-finance such as the Grameen bank of Bangladesh, Bank Rakya Indonesia and BancoSol. They tell us government play a great role in developing micro-finance, only using commercial interest rate can make micro-credit corporations earn profits. Training for peasants and innovation of micro-financial production also are very important.Chapter four analyzes the development situation of Microfinance in China. Firstly it summarizes China’s development history of micro-finance, then introduces different development models of China’s micro-credit, which are divided into three categories, including non-financial institutions, traditional and new types of rural financial institutions. According to these types it listed China Foundation for Poverty Alleviation, rural credit cooperatives in Hainan and Shanxi Sunrise Long small loan companies respectively, to get a more realistic understanding of Microfinance in China.Chapter five find out the current problems in micro-finance in China, based on the previous analysis. For examples, Firstly, Interest rate is too low which make the micro-credit corporation’s income can’t offset the cost. There is not a scientific calculation method of interest rate. Secondly, peasants’ credit information is invisible and hard to collect, so it is difficult to give the peasants an accurate credit rate. Thirdly, the government don’t give enough support on tax, law construction and rural financial environment construction, but do a lot of intervention on micro-credit corporation’s operations. At last but not the least, micro-credit corporation is poor at management and risk controlling.Chapter six gives the problems above corresponding solutions. Firstly, market-oriented interest rate should be used. When pricing micro-credit, borrowers’credit rating, appropriate profit, investment projects, inflation rate etc. should be considered. Judging from China’s actual conditions, the liberalization of interest rates of micro-finance is a slow process, requiring phased proposing. Micro-credit institutions in China should know their break-even interest rate. Secondly, a simple and practical method of farmer credit rating, the weighted score model, is seted, which consider farmers’asset, debt, capacity and so on. The Government should know What should do and what not to do, such as to create a good system and financial environment, and to let go micro-credit operations and so on. Microfinance institutions should strengthen its own power, to build a perfect management mechanism, grasp the risk control, and keep continuous innovation and improvement.Since micro-finance in China have different patterns and develop in many areas, it is difficult to choose cases that can fully reflect the status and problems of micro-credit. So this article only selects relatively representative cases that may be not comprehensive enough. Specific data of Microfinance institutions is difficult to obtain, so data and information used in this paper is mainly taken from literature which may not detailed enough. In addition, because of space limitations, the depth of research on certain issues is not enough. So the article should be improved and there are many areas need further research, such as innovation of micro-credit mode, development of more complex and accurate models to calculate micro-finance interest rates; improvement of risk control techniques of microfinance institutions and so on.