Microfinance Wholesale Mechanism Research And Construction Analysis

Since the government started the reform of microcredit companies in2005, the number of microcredit companies experienced rapid development in China. There are6080microcredit companies with outstanding loans of592.1billion yuan and new loans of200.5billion yuan until2012. And a new round of rural financial reform began at the end of2006. This reform reflected that the rural finance was market oriented. On one side, this reform lowed the requests of setting rural financial institutions; on the other hand, it broadened the market access of private capital which could be invested into agriculture in the form of stock shares and others. And the non-governmental microfinance institutions have been incorporated into the rural financial system. But in the actual operation of this process, microcredit companies cannot take deposits. Although regulatory authorities gradually released the limit of exogenous financing and local government also increased the support for MFIs, the "credit-only" mode made many microcredit companies facing the problem of inadequate follow-up loanable funds. Some of them had no money to loan after opening for a few months and had to absorb funds which is forbidden by laws. These illegal operations increased unstable factors to the safety of China’s financial system. According to the guidance about microcredit companies jointly promulgated by China Banking Regulatory Commission and the People’s Bank of China in2008, except getting endogenous financing from shareholders, microcredit companies could get exogenous financing from less than two banking financial institutions, and the funds from exogenous financing cannot excess the50%of microfinance companies’ net capital. According to a research in2010, only6.71%of microcredit companies’ funding is from commercial banks. Since2012, many places have been introduced the policy which increase the proportion of microcredit companies’ exogenous financing, such as Hainan province. If a microcredit company in Hainan is evaluated as excellent or good annually, it could get exogenous financing which is200%of net capital. And Zhejiang province also increased the proportion of exogenous financing from50%to100%. However, in other provinces of China, exogenous financing channels for microcredit institutions do not really play a role. What causes MFIs’difficulty of getting exogenous financing from commercial banks? In microfinance wholesale mechanism, how do the financing, interest rates, risk-sharing and cooperation mechanism run? What are the determinants and formation conditions of these mechanisms? Is it feasible to establish such microfinance wholesale mechanism with wholesale and retail institutions? In China, how to develop its own unique microfinance wholesale mechanism? This paper attempts to find out the answers to these questions.The main content of this paper is to analyze microfinance wholesale mechanism and its application in China. For microfinance, most domestic theoretical research are focused on the commercial banks or microfinance institutions directly facing the final level of customers, rarely involves to the second level of the microfinance wholesale level. Moreover, most of domestic studies are about the financing channels of microfinance wholesale mechanism, not focused on the various mechanism of microfinance. This paper attempts to analyze the various components of microfinance wholesale mechanism. Through analyzing the probability of establishing microfinance wholesale mechanism, paper tries to show its enormous potential in China and in the end, it gives some principles which had to be complied in developing microfinance wholesale mechanism to promote the deeply developing of microfinance.This paper is divided into five parts:The first part is a description of the research’s background and significance. And it also gives a literature status review of the research as well as the methods and innovation;The second part shows microfinance’s theoretical basis, market premise, features, functions and several components of the mechanism, such as financing mechanisms, internal cooperation mechanisms and incentive compatibility conditions, the interest rate decision mechanism and risk-sharing mechanisms. The article also gives out that how each mechanism is formed and what is the determining factors in these mechanisms;The third part analyzes and compares two typical modes of microfinance wholesale mechanism——traditional mode and innovative mode. By using the knowledge of game theory, this article figures out each mode’s features and special mechanisms;The fourth section analyzes the applicability of microfinance wholesale mechanism’s typical patterns in China and points out that both of traditional model of microfinance wholesale mechanism and innovative model could be applied in China. And two modes are not mutually exclusive, but can co-exist in a certain stage of development of the microfinance;The fifth part gives some suggestions to establish microfinance wholesale mechanism in China. It points out the basic principles of building mechanism’s frame, such as the objective of the mechanism, funding agencies and target institutions, internal corporate limits and regulatory frameworks. And in this article, it is recommended that China’s microfinance market is at the early stage. So we should mainly develop the traditional mode of microfinance wholesale mechanism at this moment. When the market is more mature, innovative mode could be introduced gradually. At last, this paper gives some suggestions from the government’s point of view to create a better external environment.