Research On The Regularization Of Micro-financial Institutions

Rural financial problems have been an important factor in restricting the development of rural economy. Compared with commercial banks, micro-finance institutions have the advantages in resolving the issue of rural finance. This is because the micro-financial institutions can effectively overcome the high transaction costs caused by asymmetric information. And micro-finance institutions are more suitable for rural communities. They can adopt more flexible business strategies according to the characteristics of rural communities, for example, they need no collateral and the issuance of non-productive loans. Of course, micro-finance institutions are also faced with many problems during their development, such as identity issues and financial issues. In order to find fundamental solution to these problems and promote the development of micro-finance institutions, CBRC issued“Guideline about the relaxation of financial institutional accession in rural area”and“Provisional Regulations on Management of Rural Mutual funds”, It allowed and encouraged social capital to create village banks, small loan companies and rural Mutual funds in rural areas, and it started to promote the existing micro-finance institutions regularization transformation.This paper attempts to use financial intermediation theory and national case to analyse the impact of regularization to micro-financial institutions. Firstly by analyzing Baixin rural Mutual funds, we can make the conclusion that micro-finance institutions are superior to the regular financial institutions in solving rural financial problems. And therefore we should develop the micro-finance institutions in the rural community. Secondly I did the research of Baixin rural Mutual funds and analyzed the existing problems, aiming to find the reasons for its regularization. And then by comparing the development of Baixin rural Mutual funds before the regularization and after the regularization, we can analysis the impact of regularization to micro-finance institutions.Through case analysis, we can find that regularization destructed the community base of micro-finance institutions. The regularization increase transaction costs and information costs, increasing operating costs of micro-finance organizations. And regularization does not solve the problem of funds shortage, but exacerbated it. At present, many micro-finance institutions are seeking regularization. The two conclusions can offer another perspective to micro-finance organizations, a more comprehensive perspective on regularization. And also it can provide policy recommendations to promote the regulation development of micro-finance institutions.