The Interest Pricing Model Of Micro-credit

Since reform an opening up,Chinese economy growing fast.The urbanization and industrialization of China also speed up during these years.Many middle and small-sized enterprises appeared and made huge contribution to the substantial economy.But the most important factor that restricts the development of these enterprises may be the capital shortage.Because of the small size of these enterprises,they usually cannot supply qualified financial statement and guarantee.Also,the trading record between these companies and banks may be not enough for banks to judge their credit.So there are many middle and small-sized enterprises cannot get loans from banks.But the development of micro-credit relieved the tension.The micro-credit institutions' target clients are those middle and small-sized companies which are badly in need of money and have good performance.Institutions will make in-depth investigation to judge the level of credibility of those borrowing enterprises and price the loan to balance the cost and risk.This can make a win-win situation between borrower and lender.This essay focused on the loan pricing of those unregulated commercial microfinance institutions.Consult three traditional interest pricing model: SDI(Subsidy Dependence Index),Break-even model,Rosenberg model.We based on the theory of price discrimination to analyze the pricing process.The microfinance institution is the monopolist of the micro-credit market,faced a downward demand curve.And they can make price discrimination to different borrowers.By the analysis of the pricing process,we find there may be some connection between the market performance of the borrower and the interest rate of the loan.So we put forward a assumption,if a company perform better in the market,it may get higher interest rate when borrowing from a microfinance institution.This essay chose 15 middle and small-sized enterprises from different industries.And use PCA(Principal component analysis)to get a mixed index showing the performance of the enterprise from main financial indicators.Then we make a regression between the mixed index and the interest rate of every enterprise.The result of the empirical test supports our assumption.In the last part of this article,we chose a case to make a further analysis,and evaluated the applying process and the pricing process.According to the analysis,we raised some advice to improve the risk control of microfinance institutions.