A Study On The Evolution Mechanisms And Efficiency Of Microfinance In China

For a long time, microfinance had been generally considered as behavior of granting small loans to low-income or poor village residents, and this was particularly common in underdeveloped countries. In the following development period, represented by developed countries, the scope of microfinance includes providing financial services to small and medium-sized enterprises as well as city, village and community residents; therefore, the service targets of microfinance have been largely extended. Nevertheless, in the theoretical field, the main attention is still on the traditional focus of microfinance—the disadvantaged group’s received loan amount and the number of people or micro, small and medium-sized enterprises under converge and the risks faced by small and microfinance institutions, but little attention is paid to the evolution mechanisms of microfinance on the macro level.Different from above mentioned research fields, this paper focuses on studying the evolution process and mechanisms of Chinese microfinance from macro perspectives, and also undertakes empirical study on the efficiency of microfinance. This paper suggests, there exists obvious tracks of staged evolution of Chinese microfinance, which can be categorized into three stages—stage of government-led rural credit unions operations, stage of banking institutions comprehensive competition, and stage led by the new trend of internet finance; each stage has its evolution mechanism. Under the background of financial repression system, the model of government-led rural credit unions operations is created; and based on the financial deepening, the pattern of banking institutions competing in the microfinance filed is formed; and since the financial deepening continues, the internet finance system is built outside the formal financial system; therefore, the evolution process of microfinance indicates the process of financial system transitions and financial deepening in China.Key contribution and innovation aspects of this paper include:1) It creates new research angle. This paper studies the evolution process of Chinese microfinance on macro level, and defines the evolution process of microfinance as three stages, and explains the evolution mechanisms using classic theories—financial repression and financial deepening theories. This is the innovation of this paper.2) It extends the content of microfinance. This paper does not define microfinance particularly as those small loan activities to village residents provided by microfinance institutions, but rather this paper extends the above concept and defines microfinance as an integrated operation organism that incorporates small loan activities to village and city residents, all formal and informal financial institutions with small loan businesses, microfinance instruments, and micro, small and medium-sized enterprises. This is also one of the innovative aspects of this paper. This paper gives some original viewpoints:the first is that the operation of microfinance should be market oriented and it should not involve any element of poverty-relief finance; the second is that big banks, such as state-owned commercial banks and etc., should exit the microfinance market and transfer their market shares to small banks and small loan companies and informal financial institutions, and run the operation based on the symmetric position principleof "big banks—big companies, small banks—micro and small companies"; the third is to strongly support and build private community banks as leading power of Chinese future microfinance institutions, and this is decided by the strengths and features of community banks have in microfinance business, since community banks have unique advantages in solving the information asymmetry problem between the bank and the community residents and micro and small-sized enterprises.3) It adds new element to microfinance research area. Current literature pays little attention to the microfinance efficiency, but this paper undertakes on-spot investigation and empirical analysis on microfinance efficiency from three aspects, which are the efficiency of supply—operation efficiency of financial institutes and informal financial institutes, the efficiency of demand—operation efficiency of micro, small and medium-sized enterprises and private businesses and city, village and community residents, and the efficiency of society.