The Preengagement Indemnity Credit System

Based on SMEs, credit risk and credit system theories at home and abroad, this paper first creative sets up the Preengagement Indemnity Credit System ( for short the PICS)in light of China's social credit situation and the characteristics and the importance of small and medium enterprises. The PICS is a credit system integrate credit assessment,credit management,preengagement indemnity and the third-party liability insurance.Firstly the PICS upbuilds an independence authoritative Preengagement Indemnity Organization (for short the PICO).The PICO has an agreement with small and medium enterprises which become its members. The PICO is as the accept insurance part of the third-party liability insurance, but the member is as the policy-holder. The PICO then rates and marks the policy-holder,and charges an amount of fee. Under the agreement, as soon as the policy-holder breaks faith in the business, the counterparty will claim for compensation from the PICO and the policy-holder. The PICO will pay the preengagement indemnity to the counterparty who had loss according to the member's credit rate. And then the PICO will claim for the preengagement idemnity from the policy-holder, and degrade its credit rate.The PICS can effectively supervise and coordinate the small and medium enterprices'behaviors.The PICS, which shares the credit risk with the potenial bargainer through rate the small and medium enterprices by the independence third-party and tranfering credit. It reduces the cost payed due to communication is asymmetry in the bargaining process, and comes to an agreement.In the PICS, the role-play is as follows.The PICO rates and marks the policy-holder,and promises to all market participants that it should partially compensate the counterparty for loss if the policy-holder disobays the contract.The policy-holder can acquire more and more business opportunities due to the credit promise.The counterparty will gain a low-risk business contract for free or contingent compensation.Three roles each gain benefits from the PICS.The paper discusses the possibility and the inevitability to set up the PICS through testifiing that varies risks can be controled,and concludes that it is feasible to set up the PICS.The PICS, which should build a new small and medium enterprise credit assessment model, establishs a kind trust relationship constrained by the third-party and organises a credit community for the small and medium enterprises by unitive coordination, preengagement indemnity,credit assessment and credit affixation.It provides three important economic service functions such as credit assessment, credit risk control and transaction efficiency improvement,and creates a low-cost and high- fidelity information transmission mechanism and credit incentive mechanism.It will play an important role to promote to establish a China's sound market economy system and develop small and medium enterprises.These should provide conditions to realize the single anonymous transaction eventually.This paper has also created a credit rate system, subrogation recovery credit mechanism and network platform to enrich and improve the PICS itself. The credit rate system includes credit rate design, historical credit rate index and online credit rate index. The concept of subrogation recovery refers to the concept of the third-party liability insurance. The subrogation recovery mechanism makes the PICO enhance the restriction to policy-holder and raise the anti-risk capability. In this paper, the author creates a network platform to protect credit trustworthiness as a supplement to the PICS. The PICO,the pocily-holder and other market participants can do credit assessment online through the credit risk early warning system and the credit information exchange and feedback mechanism of the network platform, preventing various types of risk and minimizing losses on time.Finally, in order to make the PICS sustainable and continuable, the paper stressed the operation principle of the PICS, that is, the principle of safeguarding the interests of the third party, the risk-sharing and part compensation principle, the largest faith principle, the principle of subrogation recoveries, the principle of rights and responsibilities in insurance benefits and the principle of proximate cause. At same time the internal risk management and external risk prevention of the PICO guarantee normal operation. The paper indicates that the Government should support and channel off the development of the PICS from external environment.