Study On Credit Risk Evaluation Model And Stability Of Credit Rating Of Rural Household Microcredit

The breadth and depth of Microcredit have been further broadened since its introductionto China in the end of1993. And it has played a huge role in the practice of reducing poverty.But compared to the80s of last century, in terms of the wide development of Microcredit inforeign countries, the time of its development in China is relatively short and the developmentmechanism of those various microfinance institutions is inadequate. Therefore, it has exposeda series of credit risks in the process of its implement. As the main issuing authority ofMicrocredit and also the major financial institutions to support rural economic development,the rural credit cooperatives have been playing an important role to support the "three rural".Meanwhile, microcredit is the main business and profitability in the loan business of the ruralcredit cooperatives, so the study of the rural household microcredit risk evaluation and thestudy of credit rating stability are very necessary.On the one hand, in order to solve the problem of the complexity and ineffectiveness ofthe existing methods using to evaluate the rural household microcredit risk, this paper usescatastrophe progression theory and the three common catastrophe models to get thecomprehensive evaluation of the farmers’ credit risk by establishing the evaluation indexsystem. And the result is accurate and reliable, which provides a scientific basis for ruralcredit cooperatives. On the other hand, as a micro-system, the level of farmers’ credit itself isaffected by many factors, and the interaction and influence of each factor may result in thecatastrophe of farmers’ credit rating. Therefore, in order to help the rural credit cooperativesto identify the sudden changes of farmers’ credit rating, which can ultimately improve theeffective utilization of funds, this paper uses the butterfly catastrophe model to study thestability of farmers’ credit rating. Through this research, we find that it has great significanceto have a comprehensive and scientific evaluation of the rural household credit risk and aprecise judgment of the stability of the farmers’ credit rating with regards to further pushingthe rural financial system and building the new rural financial systemThe paper consists of an introduction and five chapters. Chapter1: Introduction.This paper firstly does the normative research on related articles at home and abroad,bringing forth to the direction of this study. In addition, this chapter summarizes the purpose,background and significance of the research, and at the time it points out the research ideas,methods and the possible innovations.Chapter2: The definition of Microcredit and the theoretical basis of the credit risk，catastrophe theory and credit emergencies.This chapter，on the one hand, defines the concept of Microcredit, and also makes a briefcomparison of Microcredit and other similar financial terms. It outlines the emergence anddevelopment of Microcredit. And it briefly defines the concept of credit risk and analyzes itscauses deeply. On the one hand, this chapter outlines the ideology, the basic principles andmathematical models of the catastrophe theory. And on this basis, it gives a brief introductionof the application of the catastrophe theory in the field of natural sciences and socialsciences. This chapter proposes and explains the concept of the credit emergencies, whichpaves the way for subsequent analysis.Chapter3: The review of related theories and methods of credit risk evaluation.This chapter analyses and compares the past credit risk evaluation methods in detail.Through the analysis of the principles of these past methods, the chapter points out itsshortcomings in the evaluation process, leading to the rationality of the method chosen in thispaper.Chapter4: Risk evaluation method of rural household microcredit based oncatastrophe theory.This chapter puts forward the innovative use of the three catastrophe models in thecatastrophe theory to evaluate the credit risk of the Microcredit to solve the drawbacks of theexisting evaluation methods. Firstly, it establishes the system of evaluation indexes ofMicrocredit risk based on the rural credit rating table which is provided by the cooperatives.Secondly, the set of index system is classified into the corresponding catastrophe model. Andfinally, it uses of a normalized formula to make a comprehensive evaluation.Chapter5: The stability of credit rating in rural household microcredit-based onthe butterfly catastrophe model.Because farmers’ credit rating will still change resulting in reduction of the efficient useof funds of rural credit cooperatives, this chapter presents a method based on catastrophetheory, to study the stability of the farmers’ credit rating. In accordance with the needs ofresearch and modeling, the stability of the farmers’ credit level in the future is separated intothree states: trustworthiness, dishonesty and compromise. As these three states can be transformed into each other, the butterfly catastrophe model can be used to the study of thestability. Studies have shown that the method is easy to understand and operate, and thismethod can be used as the basis for the rural credit cooperatives to manage loans.Conclusions and Prospects.This chapter summarizes the whole article. It points out the shortcomings of this studyand also the further improvement of research.