Risk Management Of Small Business Loans

Microenterprise loan refers to providing small amount credit services to low income group, home-based individual businesses and microenterprises. It has many characteristics, such as a small quota, simple procedures, unsecured (or flexible ways to guarantee) and high management cost, etc. By using the special risk management technology, which is different from traditional credit business, microenterprise loan can provide small amount credit services to the customers who are usually excluded from formal financial institutions. Compared with traditional credit business, the credit risk of microenterprise loan is special. Domestic and international practical experience shows that, if there is no perfect and effective risk management mechanism, the development of microenterprise loan business will end in failure.Baoshang Bank’s microenterprise finance has accumulated a lot of valuable experience in business expanding and risk management. Especially in risk management, it has established a comparatively complete management mechanism. However, in some aspects, it also has many inevitable problems, such as unstandardized management of credit file, valuing expansion and ignoring management at the beginning, insufficient industrial analysis and market development of microenterprise loan products, credit mechanism and brain drains, lack of standardization of lending operation, insufficient knowledge, in risk management and audit, etc.The internal reasons of the formation of Baoshang Bank’s non-performing loans are as follows. First, the core concept, key technologies and regulatory framework of microenterprise loan to support and secure the business expansion have been weakened in some degree. Second, risk concentration ratio hasn’t been highly valued as it should be. Third, during the business expanding process of some branches, structural inconsistency exists in customer, industry and distinct which causes non-performing loans growing rapidly. Forth, non-performing loans’disposal is inadequate.In order to keep sustainable development of Baoshang Bank’s microenterprise finance, the credit risk should be controlled well which is the key to success. Baoshang Bank should strengthen the management of credit file and establish the scientific risk management concept and transparent credit culture. It also should focus on the investigation of the regional characteristic industry and credit environment, and the cultivation of a competitive and high-quality loan officer team. Furthermore, Baoshang Bank should standardize the lending operational procedure and strengthen the training of risk and audit.