China's Rural Credit Cooperatives, Micro-credit Risk Management

In 1960s, the micro-finance started from developing countries. It is an efficient tool to help poor countryside families who depend on financial services. It is said that the micro-finance focuses on supply finance service for low-income people who want to expand their small-scale projects. The micro-finance is used in manufacturing instead of consuming commodity. It is a kind of short-term, installment paying and lower interest rate loan.Because of its special features, the credit union has to face both general risks and special risks in operation. To have micro-finance serve the'rural, peasant and agricultural problems'better and continuously, it is necessary to analyze the credit loan risks in operational and controlling system. Credit risk is the possibility the credit union suffers loss because of debtors default to pay back the loans.This paper reviews some correlative theories first, and then introduces different kinds of credit risks of small-scale loan and its origins first. Finally, according to qualitative analysis and quantitative analysis, internal and external case, it tries to find out some efficient ways such as credit scoring model. Therefore, it could find an efficient way to solve the risk problem. It is obvious that credit unions in developing area only focus on qualitative analysis which depends on the workers experiences and their subjective judgments.To solve problem on the basis of qualitative analysis instead of quantitative analysis, this paper has six chapters: the first chapter is introduction, the second chapter introduces theories about small scale-credit loan and commercial bank risk management; the third chapter tries to build credit scoring model; the forth chapter compares the internal and external cases; the fifth chapter is suggestions; the sixth is conclusions.