Research On The Legal Problems Of Small Loan Companies Under Financial Innovation Environment

Micro-credit system is an innovation of the financial system for the economicdevelopment of rural and underdeveloped areas in China. Micro-credit companies canbe described as one of the carriers to achieve such a system. It includes the naturalpersons, corporate legal persons and other social organizations who or which haveinvested in and incorporated a micro-credit company without absorbing publicdeposits. As the new rural financial organizations, micro-credit companies shoulderthe dual mission of poverty alleviation and provision of financial services. Since theGuiding Opinions of the China Banking Regulatory Commission and the People’sBank of China on the Pilot Operation of Micro-credit Companies was promulgated onMay,2008, micro-credit companies have been explosive growth in different areas.Because all aspects of the immaturity of the beginning of the pilot, micro-creditcompanies are currently facing many problems, such as problems of the micro-creditcompanies’ defined nature, functional location, operational risk, funding sources,regulatory body as well as liability issues, all of which pose the challenges to thesustained and healthy development of micro-credit companies. In order to achieve thehealthy development of micro-credit Companies, by the means of comparison andempirical study, the paper systematically expounds and demonstrates these legalissues, and identifies the main reasons for why problems exist. Therefore, to clarifythe legal issues and build an appropriate law system has become the key to promotemicro-credit companies’ sustained and healthy development.The paper is divided into four parts. The first part is the basic introduction of themicro-credit companies. It includes its definition, property, characteristic, developingbackground and differences comparison of other related financial organizations,which highlights the importance of micro-credit companies in our financial system.The second part is about the status quo of China’s legislation on micro-creditcompanies and their major existed problems. By analyzing the current situation andthe main problems existing in the development, the paper identifies the root cause ofthe problem which is ambiguous legal nature and unclear functional location. Thethird part introduces the successful models of micro-credit institutions abroad and theenlightenment to China. Through analyzing and comparing the operational experience of representative national micro-credit institutions in the world, the paper identifiestheir successes, so that China can absorb and learn their successes in the developmentof our micro-credit companies. The fourth part is the specific recommendations toimprove the law system of micro-credit companies in China, which is the focus of thispaper. Combined with the background of China’s financial innovation, throughdefining the nature of micro-credit companies, that is, it is defined as a “non-bankfinancial institutions", the paper addresses the problems such as the problem ofunknown of its funding sources and regulatory body. Then on other legal issuesrelated problems, the paper proposes appropriate legal measures and institutionalrecommendations. The current legal status of micro-credit companies is the bottleneckrestricting their development, so the key point of proposal throughout the paper is togive legal status of financial institutions to micro-credit companies in the futuredevelopment process. Then it can provide the institutional guarantee for solving thecorresponding recent legal problems and clearing obstacles exited in the developmentof micro-credit companies, and further promote the growth and expansion ofmicro-credit companies...