A Study On The Group-lending Of Microfinance In Bank

Early microfinance refers to the credit loans which is with small amount, short-term, high interest rate and unsecured, targeting on low-income groups. It aimed on developing agriculture and helping farmers out of poverty. More precisely, the capital issued by government and financial institution was mainly used to improve agricultural production technology. It played an important role in commonweal and social welfare, and gradually became an organizational innovation and poverty alleviation innovation. With the development of international microfinance markets, microfinance has evolved into a financial innovation. The services extended from loaning to a range of financial services, including deposit service, payment service and relevant insurance service; targeting group also extended to small interpretations and middle-income individuals in both urban and rural areas; and financial services became aiming on financial development and job enlargement other than simply reducing poverty. Institutions which provide small loans began to take profitability and sustainable development into account. Therefore, modern microfinance could be defined as an operation mode which continually provides a range of financial services to low-income enterprises and individuals in both urban and rural areas.China has specific national condition and social environment. The development of microfinance is more purposing on getting rich, not just getting out of poverty as in the 80's. Currently, microfinance is well developing all over the country. However, banks'participation is not enough and cannot meet the credit demand of Micro enterprises. According to some researches, the crucial reason for this situation is that the transaction costs and credit risks of microfinance are relatively high. Thus, the microfinance provided to Micro enterprises is relatively lower than that provided to large enterprises. Therefore, with economic restructuring, limited financial ability will restrict the country economy, and will further effect China's economic development. Group-lending is a kind of credit model to solve this problem. Although some banks have successful loaned to some small enterprise groups, it is still lack of systematic process for program establishment. Moreover, third-party is not deeply involved, operational process is not precise and promotion is not enough. Based on these problems, this paper explores the microfinance operation in banks via "refine customers, refine products and refine operation ". To be more precisely, this paper implements four analysis methods to research:systematic analysis method, analyzing the dilemma banks faced in the microfinance market, proposing solutions systematically and discussing the overall effectiveness; normative analysis method, analyzing the operation costs of microfinance business based on expected profit rate; qualitative analysis method, collecting academic researches and analyzing the essence of problems; behavior research method, analyzing the behaviors of Micro enterprises and banks in the microfinance market.Group-lending has two processes:group-lending project establishment and group-lending business operation. Project establishment is the basic condition for banking business. There are four steps to establish a group-lending project:1, industry analysis; 2, platform creation; 3, credit program designation; 4, risk early warning system establishment. These four steps require the cooperation among different departments of commercial banks. On one hand, headquarters are responsible for industry analysis, determining targeting and position and avoiding industries with high risks. On the other hand, branches are responsible for marketing research, selecting project, establishing platform and designing proper credit model based on actual situation of local economic development. The microfinance project would be operated according to the validated credit program. The whole process need to be group-oriented, standardize, and under control.This paper contains seven chapters. The first chapter is introduction which describes the research background and significance, demonstrating relevant literature; the second chapter analyzes the demand for microfinance; the third chapter analyzes the operation costs of microfinance business, and reaches a conclusion that the high transaction cost is the main reason for the difficulty of microfinance's operation; the fourth chapter demonstrates the establishment process of group-lending projects, including industry analysis, platform architecture, credit program designation and early warning system establishment; the fifth chapter clarifies the operation process of group-lending; the sixth chapter analyzes the advantages of group-lending and illustrates the effectiveness of group-lending; last but not least, the seventh chapter draws a conclusion on this paper.This paper is focused on group-lending's operation and function in banks, leading the domestic microfinance research from rural financial sector to urban financial sector. Moreover, this paper is based on the Relationship Lending theory, transaction costs theory, Credit Rationing theory, Cluster, microfinance theory and "credit factory" concept, proposing detailed credit models.However, there are some drawbacks in this paper. Lack of data and empirical analysis causes the interpretation much weak to convince readers. Moreover, this paper does not analyze the potential legal and political risks.In recent years, some domestic commercial banks have launched group-lending business to cluster enterprises and achieved some results. However, the operation is lack off systematic specification and theoretical guidance. Therefore, based on the achievements in previous studies, this paper proposes detailed measures to solve microfinance problem, expecting more attentions on the development of national microfinance.