Legal Control Of The Risks Of Microfinance Companies

Microfinance company , since its establishment in October 2005,developes rapidly. The establishment of microfinance companies is playing an important role in alleviating the difficulty of financing for small business, making the economy of country town active, and prospering the rural financial market. However, because of the different points in its establishment and operation, there is a series of risks hiding in microfinance companies. That these risks can be controlled or not will have effect to the survival of microfinance company, to the development of county economy, even to Chinese order of financial market. This paper, based on the social standard principle of the economic law and the country's status of microfinance companies, analyzes the major risks and their causes of microfinance companies, and explores the legal measures of risk-control for microfinance companies, which provide theoretical guidance for further development of microfinance companies, which has some theoretical and practical significance.This article is divided into four parts: the first part defines the nature of microfinance companies, after analysis on the three present views on this point. The author focuses on the definition of financial institution, then find out the criteria for determining the financial institutions, that is, whether engage in money and credit activities or not. Use the standard to determine the nature of microfinance companies. Microfinance companies are financial institutions. There are different aspects between microfinance companies and other enterprises, such as the establishment of procedures, regulatory, business, and so on.The second part analyzes the major risk of microfinance companies, such as profit risk, operational risk and credit risk. The causes of profit risk are the single way for microfinance company to get capital and difficulty to restructure as village bank. The causes of operational risk are the lack of sound internal control system and the corresponding human resources. The causes of credit risk are the external credit environment and internal disorder of operation.The third part is divided into two levels, first level demonstrate the need to control the risk of microfinance companies through financial theory. The second level, based on the actual situation in our country, analyzes the feasibility to control the risks of microfinance companies from the system elements, theory and intellectual elements.The fourth part divides the measures for controlling the risks of microfinance companies into two categories according to the establishment and operation stage. In the establishment stage, the author suggest to put forward a sound governance structure of microfinance company and make clear the qualification of relevant employees to control the operational risk; expand business scope to control the profit risk; make clear the procedures of establishing branches to control credit risk. In the operational phase, the author suggests to clear regulatory departments and regulatory content, and put the microfinance companies into the credit system to control the credit risk; set up the loan provision system.