Study On The Problem Of Mutual Credit Guarantee As A Financing Channel Selected By SMEs

Due to small size, weak financial strength, disordered accounts, and the low credit level, the problem of asymmetric information between SMEs and banks is serious. So the banks have to allocate credits among the SMEs to avoid adverse selection and moral hazard. The most significant characteristics of SEMs in China is their "Strong Forces while Weak Positions", which focuses on the "financing difficulties" in credit market. The "financing difficulties" of SMEs have become more and more prominent after the global financial crisis recently.SME credit guarantee is a main method to ease the "financing difficulties" problem of SMEs. Credit Guarantee System in China has developed nearly twenty years. Now this system performs as a system based on policy guarantee with commercial guarantee and mutual guarantee as the aid. Although the three modes have their own advantages and disadvantages, by designing a model of tripartite credit transaction composed of MGI, SMEs and banks, the paper proves that MGI (mutual guarantee institutions) can perform better on according with the reality, helping to reduce the costs of discovering information, and increasing the success rate of loaning project.As the first credit guarantee mode in China, the mutual guarantee has played a positive role in alleviating the financing difficulties of SMEs practically. However, compared to the policy guarantee and the commercial guarantee, the mechanism of the mutual guarantee is still lack of theoretical analysis. Therefore, the main contents of this paper are to discuss what and under what conditions the guarantee can stimulate. Effective solution to this problem can better guide the establishment of mutual guarantee institutions. Given the lack of theoretical researches on repeated multi-player games, there have been scanty of conditions on proving the mechanism of mutual guarantee by using perfect multi-player game model. The successful systems or modes in history or reality can be good references. The ancient China's lian-zuo-bao-jia system (which means implicating others related to the one charged or found guilty) and Bengal's banks of the poor have their original solutions on resolving the problems of information asymmetry. With the comparisons, we can find that joint liability in mutual guarantee can be good incentives, with the effects of reducing company's information discovery costs, increasing the costs of corporate default as well as expanding corporate operation aggregates.A tripartite transaction model that composed by MGI, SMEs and banks can effectively resolve the problems of adverse selection and the moral hazard caused by information asymmetry. However, it has to be pointed that the joint liability in mutual guarantee has to be operated under certain conditions. Currently the industrial clusters of SMEs in China are developing rapidly, and have reached to a certain scale. The characteristics of industrial clusters themselves are beneficial to the practices of the joint liability in mutual guarantee. There are many advantages on the mutual guarantee agencies backing on industrial clusters.China's mutual guarantee is growing rapidly. Practically there are several modes, which, to a certain extent, have effectively alleviated the problem of information asymmetry between banks and SMEs. But at the same time there are also a lot of problems which impede the mutual guarantee brought into play. So another important part of this paper is to explore a more comprehensive organizing framework of mutual guarantee institutions.