Research On The Constraining Factors Of Chinese Rural Microfinance And Countermeasures

The Twelfth Five-Year Guideline defined explicitly the duty of solving the countryside questions. The first one is to accelerate agriculture modernization; Second, to speed up the new socialism rural reconstruction. To complete these two tasks smoothly, there must be massive funds. Microfinance as the rural finance market's main financial product should play its important role. It is significant to study the petty loan project systematically.Microfinance is based on the theory of information economics theory and system economics theory. The information asymmetry problems of rural areas' financial market need small loans to resolve. Microfinance has their own unique advantage to solve the problem of information asymmetry problems. Microfinance is focus on farmers directly. So numerous staff can get touch with the rural life closely, and they can get rural economic information in time. Microfinance is on the basis of in full investigation of peasant household credit conditions of implementing lending, so its default rate is low. In addition, the means of reimbursement are flexible, utility efficiency is higher. Financial inhibition theory is another key theoretical basis on which Microfinance exists. The cost of rural credit is high, so there must be a high mortgage rate to cover the cost. Now central bank control interest rate, which shaped a financial repression phenomenon in the rural financial market. In addition, the financial market is developed. Besides, the rural financial market is backward, rural financial institutions have a lot of money without effective use, and a large number of farmers' effective capital demand can not be met. How to improve the efficiency of rural financial institutions' financial services to rural population and how to meet the farmers credit demand is the key problems must be solved in the process of rural economic development.During the 1980s, there were two purposes why China introduced Microfinance: the first one is to relieve poverty; the second is to introduce competition mechanism to make the rural financial market operating on a market-oriented basis. However, because the drawbacks of the internal system, there are many problems in practice, for example lending targets have blind spots, the structure of the term of a loan is unreasonable, the sources of the funds is single, the technology of management is backward, interest rates system is restricted, the assignment of property right is not clear, etc. all of these are internal factors. There were external factors, such as regulatory measures do not work effectively, the field of regulation was not clear, government intervened improperly and so on. These problems make small loans' development is restricted, supply and demand exist big gap. To solve these problems, the article put forward some constructive suggestions,such as improving management level, strengthening risk control, Innovating financial products, ensure income over costs, loan types' flexible management within limit time, expanding credit funds sources, enhancing the small loans, making supervision measures and so on.This paper is divided into five chapters. The first chapter is the introduction part mainly illustrate the purpose and significance of the study, this paper briefly introduces the research progress of Microfinance at home and abroad. The purpose of this study is to analysis reasons why there are various drawbacks in China's rural microcredit, and to improve the understanding of these specific problems.The second chapter briefly introduces the theory foundation of microcredit and development process. There are two big theoretical basis of microcredit. The first one is the information asymmetry theory. The second is the financial inhibition theory. In addition, there are other theories such as credit rationing theory, capital restriction and self employment theory which can provide theoretical support for Microfinance.The theory of information economics thinks that information is not complete in the real economic life, and information has cost and will affect economy. What's more, the main party's economic behavior is uncertain. So, promoting Micrpfinance can effectively solve the problem of the asymmetry of information in rural areas. In addition, McKinnon, the founder of the theory of financial depression, think that when a country's domestic capital market happen institutional distortion; the country's economy will appear financial repression phenomenon. So opening the rural financial market and cancelling the control of interest rate would be necessary. The theory gave birth to the Microfinance. All of these theories laid a theoretical foundation for microfinance. The third chapter is the current status of China's Microfinance. This part is to argue there are big gap between the demand and supply of Microfinance. And making Liaoning province as an example, this paper briefly introduces the Microfinance supply, and the impacts small loans to the income of farmers. Finally the paper used simple economic theory to explain the existing of the gaps and concluded that Liaoning provinces' microfinance market was affected by some factors.The fourth chapter discusses the restricted factors to the operation of Microfinance from two sides. The deep analysis of the affecting factors of the development of the Microfinance is the necessary process to solve problems during the small loans development. Now there were some factors affecting the operation of Microfinance, such as institutional arrangements is unreasonable, supervision mechanism is not sound and administrative intervention is tight and so on. These elements seriously hindered the further development of Microfinance.The fifth part put forward some countermeasures to the problems. This paper has a great significance to the research of China's rural microcredit projects, this paper researched rural financial market's focus-farmers Microfinance programs to find the behavior of the farmer credit changing rules, in order to know overall and accurate farmers financial demand conditions and the rural financial market operation characteristics and trend of development. In addition, this paper also has a strong theoretical significance to the Microfinance. This paper analyzes the countryside microfinance restricting factors and puts forward countermeasures, it is part of the research of farmers' behavior or farmer's financial demand, which deepened the research of farmer financial behavior and farmer's financial needs, deepened the understanding to China peasant's economic and social behavior, and enriched the content of the rural finance and farmers' economics.