The Research On China’s Legal Issues Related To Small Loan Companies

Since1970s, Grameen Bank, founded by Professor Yunus, has been a great success toprovide banking services to the poor. The practice of microfinance organization was followedby many countries and regions around the world and played an active role to address thedifficulty for small and medium enterprises and vulnerable groups to get loans in rural areas.Chinese government has long been very concerned about the agriculture-related issues. Forseveral consecutive years, the first policy document of the year, issued by central government,has repeatedly emphasized efforts to improve the rural financial system, financial services andsupport to promote the rural economy and speed up rural development. But due toprofit-driven nature and other reasons, most commercial banks have gradually withdrawnfrom the rural credit market. Furthermore, for various reasons, the existing rural financialinstitutions shoulder too much burdens and it’s difficult for them to meet the rising financialneeds in rural areas. In addition, the difficulty for small and medium enterprises to get loanshas not found a good solution, and thus is still a problem plaguing Chinese government.Starting from2005, China has launched several trial small loan companies. The purposeis to encourage sizable amount of private capital to flow into rural microfinance market, andto best utilize small loan companies’ advantages, such as being “small, fast, convenient, andflexible". Since then, domestic small loan companies have been developing very rapidly.However, China’s small loan companies, from birth, were treated "unfairly" and accompaniedwith many problems. These problems are closely related to under-developed relatedlegislation. Therefore, it’s important to study the legal issues related to small loan companies,both in theory and practice.The main points of this article are: China should vigorously develop small loancompanies to reduce the difficulty for small and medium enterprises to get financing; Todevelop small loan companies in China needs to learn from the experiences of success andlessons of failure; China needs to improve the legislative level, formulate relevantadministrative regulations and introduce specific laws to regulate small loan companies; Tosolve the problem of unclear legal status, small loan companies should be regulated asfinancial institutions, and managed as part of the national financial system; China shouldsolve the conflicts between local regulatory documents and the higher-level laws, as well as unify local regulatory documents in the scale and scope related to major problems; Illegalfund-raising and usury must be forbidden for small loan companies; Better fiscal and taxpolicy is needed to support small loan companies.