Institutional Arrangement And Performance Analysis Of Micro-loan Company

Micro-loan companies are commercial Micro-Finance Institutions,which have two objectives for achieving financial self-sustainability and providing credit to the rural population.Yet in practice,micro-loan companies fail to reach the rural population and even make little progress toward self-sustainability.The poor performance of micro-companies is related to insititutional design.It has a strong practical and theoretical value to study the relationship between institutional design and performance.The ermergence of micro-loan companies is an institutional innovation under the guidance of government,and its institutional design is more based on people's subjective design than on the endogenous evolution of the market(liu zuoxiang,2017).The Chinese government set up micro-loan companies in order to increase the supply of rural capital and promote the competition in rural financial market.Therefore,it is worth discussing whether the micro-loan companies can realize the goal of serving rural popultian while pursuing sustainable development.This paper analyzes the relationship between institutional design and the dual performance of micro-loan companies from the perspective of ownership structure to explore the effectiveness of institutional arrangement.The study is divided into three steps.The first step is to introduce the background of micro-companies including the reason for accurence and its development,analyse its business characteristics and build a dual performance evaluation system of micro-companies.The second step is to explore whether the initial institutional arrangements of micro-loan companies can achieve compatible development of dual performance,that is,to achieving financial self-sustainability while take social responsibility associated with microfinance.From the perspective of ownership structure,this paper puts forward the related hypothesis,and proves it through constructing a simultaneous equation model to conduct empirical analysis based on the data of Zhejiang Province.The third step is to analyse of the impact of adjustment of post-institutional arrangements(ownership structure adjustment)on the dual performance of micro-loan companies.In this part,on the basis of theoretical analysis,empirical analysis is carried out by using the data of Zhejiang Province.The questions answered include whether the micro-loan companies enhance the dual performance after expanding the scale of the equity,what are the key institutional factors that affect dual performance of micro-loan companys,and how to improve the relevant institutional arrangements to promote the dual performance of micro-loan companies.The study found that: first,the initial ownership structure design is difficult for micro-loan companies to achieve both financial self-sustainability and subatantial outreach to the target population.Sustainable micro-loan companies prefer to issuing big loans to serve high-end clients and exclude micro-lenders in rural areas.Second,ownership structure adjustments have increased total factor productivity of micro-loan compaies,which shows that the relaxtion of eligible shareholder and its proportion in the policy arrangement promtes the improvement of organiztion's financial performance.The increase in shares held by private corporate not only enlarges the credit scale,but also improves credit allocation efficiency and management of micro-loan companies.Third,ownership structure adjustments have not improved the social performance of microfinance companies.They still tend to issue big loans to high-end clients in rural area.Private corporate investing in microfinance companies are more concerned with the profitability of the organization.After entering the microfinance company,they use their own industry resources to carry out typical “relational loans” to obtain short-term high profits,and their target customers are positioned rather than rural population;in addition,compared with other groups,it is more urgent to design risk control mechanism to meet the credit demands of rural population.However,private enterprises can not have a positive impact on risk control technology and product innovation that they belong to "New entrants" in the financial sector and have limited understanding and mastery of lending rules.Based on conclusions,this paper finds that the ownership property is a key factor affecting the dual performance of microfinance companies.The trade-off between financial performance and social performance of microfinance companies depends more on the property,identity and motivation of their shareholders.Therefore,it is suggested to adjust ownership structure by appropriately increasing government shareholding,Strengthen financial business training for industrial investors and promote competition of rural financial market three aspects to facilitate the sound development of micro-loan companies.