Community Financial Project Of Wuhou District Review

SMEs (Small and Medium Sized Enterprises) serve as an important part in our national economy. The development of SMEs will help enhance employment and relive the unemployment pressure, stimulate entrepreneurship and innovations, advance the reform of SOEs (State Owned Enterprises), bring out the potential of local economy, as well as speed up local economy.In the course of SMEs’development, financing is the bottleneck that checks their growth. The difficulty of financing and loaning has become a shared obstacle facing every SME. The reasons lie within the following aspects:1), the internal reasons, i.e. the scale is small, the risk stands high, the mortgage capacity is inadequate, the financing system is not mature, the incidents of contract breach and collapse are higher;2), external reasons, i.e. the higher borrowing costs, lack of proper underpinning policy system, the information asymmetry of the debtor and creditor. All these factors contributed the financing difficulties confronting SMEs.In order to effectively solve the financing problem of SMEs, Wuhou District has conducted a research, and in collaboration with the Provincial Opening Bank, the Wuhou District launched China’s first pilot project of Community Finance in2004.Community Finance is based on the principle of mutual interests, that is to establish a win-win and mutually-bound mechanism by companies, through group loans plus a pool mutual insurance funds. Meantime, the problem of information asymmetry among banks has been settled by the local government’s effective supervision on information flow.The tripartite cooperation among banks, governments and companies has been initiated via capitalizing on the government recourses and broadening the channels of communication between companies and the government. After6years of operation, Community Finance has proven to be an effective solution to the funding obstacles of these companies, reduced financing costs and loan threshold, established a credit system of enterprises, further expanded the business scope of the banks, effectively circumvented the un-due commitment, and rendered these banks more profitable. Meanwhile, the rapid growth of SMEs has contributed greatly to accelerating the development of local industry and economy, expanding employment opportunities, reducing the pressure on social security and thus achieving a win-win situation.However, there still remain some problems with the Financial Community, such as the small scale of projects, the relatively slow development, the relatively simple business and so forth. Targeting above problems, this paper makes the following recommendations:to further improve the risk control mechanism, and to actively expand and promote support policies.