Microfinance Regulatory Legal Research Company

Microcredit is a financial innovation which has spread across the world since itsemergence decades ago. In China, microloan companies appeared as a result of rapiddevelopment of economics, continuous booms in the financial market and expandingdemand in financing. Although their establishment is much later than those in some othercountries, these companies have still met with great success. In2005, under the leadershipof the people’s bank of China, microloan companies were piloted in many provinces,direct-controlled municipalities and autonomous regions, which is a milestone in thehistory of microcredit. Based on agriculture, rural areas, farmers and minorenterprises,microloans can draw a large amount of private capital into the financial market,standardize and legalize financing from individuals and nongovernment organizations. Theappearance of microloan companies, to some extent, relieved the difficulty of financing byminor enterprises and brought new support to the agricultural development of China aswell. However, there were still many problems gradually revealed in the years of theirgrowth. The key to ensure sustainability and soundness of the development rests on how tosolve these problems. Regulatory problems are the most critical of all, attributed toimperfections in the relevant laws. The growth of microloan companies has been blockedby indefiniteness of legal status and regulatory subjects, inappropriateness and inefficiencyof regulation. To eliminate these blocks requires structuring an institutional frame workbased on current laws and policies and complying with conditions of China so that theregulatory system can be improved.This article will analyze the regulatory problems in respect of microloan companies inChina, evaluate the current institutions of legal regulation, and proffer suggestions basedon the development situation of Beijing and drawing upon international experience toimprove these institutions.In the first section, Chinese microloan companies and their regulation will be brieflyintroduced. The introduction will begin with both the broad and narrow definitions ofmicroloan companies. An analysis about relevant legal concepts, characteristics andfeatures will follow. Due to imperfections in The Instruction, only the legal concepts aredefinite, but the legal characteristics or features are not, which can be only deduced fromcurrent laws. Then, regulation on microloan companies will be defined, and their necessitywill be demonstrated. In the second section, the current situation of regulation on Chinese microloancompanies will be evaluated, taking Beijing as an example. From the point of legal bases,both The Instruction by the central and The Implementation Measures of Beijing by thelocal belong to The Other Normative Documents, which are forceless at an inferiorposition and demand a prompt improvement. From the point of regulatory subjects, all theChina Banking Regulatory Commission, the People’s Bank of China and local financialbureaus have the functions, which musses implementation of regulation. Such multipleregulation are inefficient and will hinder the long-term development. From the point ofinstitutions, considerable problems are involved mainly in market access, daily operationand market exit, and even cause the coexist of excessive and deficient regulation.In the third section, it will analyze the framework and experience of regulation oninternational microcredit, keep what is good and discard the rest to draw upon for China.The analysis of the framework will focus on subjects, methods and contents of regulation.It will also summarize the experience from Bangladesh, Indonesia and the United States tolay a foundation for the following improvement proposals.In the last section, several suggestions about institutions of regulation on Chinesemicroloan companies will be proffered. An illustration of the legal bases of regulation willclarify the prospect of these institutions. The suggestions will include how to structure aperfect legal system, to define the legal status and regulatory subjects, to improve legalinstitutions and other relevant measures. A year-end examine the writer once participated insuggests that the mandatory limit of loan debtors should be relaxed; a definite list can helpmicroloan companies to lend money more efficiently in every district or county; theinterest rate limits should be abolished and interest rates should be adjusted and determinedby the market; During daily regulation, the government of every district or county shouldcooperate with commercial banks, law firms, accounting firms and other third partyorganizations which have responsibilities to the financial bureau. A combination of theseproposals is supposed to improve regulation on microloan companies.