Research On Interest Rate Issue On Commercialized Micro-Credit In Rural Area

In the short history of rural financial market in China, micro-credit has been regarded as a typical financial product and plays an important role in this market. Commercialized micro-credit has become prevalent in these years, and it has been proved by many developing countries that none but taking the commercialized road can maintain the persistent of micro-credit and achieve its terminate goal of poverty alleviation. Traditional pricing models for the interest rate of micro-credit just consider the single aspect of financial institution but ignore the borrower’s acceptance intention and ability. In this paper I adopt the traditional commercial credit decision model and make some adjustment, calculate an equilibrium interest interval which both supply and demand sides can accept.In recent years, we find that the interest policy of micro-credit in China has become more and more reasonable. Initially interest rate was strictly supervised, but right now the upper limit has been abolished. Micro-credit institution has more pricing power under this flexible policy. In practical level, although China rural financial institution has start the commercialized process for a long time, their interest pricing is pretty conservative, general interest-rate ceiling is smaller than the20%of benchmark interest rate, profit space is very small and persistent is quite weak. There are four reasons can be sued to account the emergence of such a situation. Firstly, the direction of current micro-credit policy is ambiguous, so it is easy to mix up between micro-credit and subsidized credit and their interest tend to be the same. Secondly, Chinese rural financial institutions have little operation experience in competitive market, and they don’t have the ability of pricing independently. Thirdly, there is no scientific idea on capital demand, it is generally accepted that high interest rate can reduce the capital demand of rural resident. Fourthly, rural financial market is lack of a mature and complete individual credit system, which is a key basis of interest rate price in micro-credit. In view of this, the paper used the traditional commercial credit decision model and made appropriate amendments to calculate an acceptable to both the supply and demand equilibrium interest rate range for MFIs reference. Meanwhile, the paper deeply analyzes the latent reasons for above problems from policy orientation, supervision of interest, both factors related with supply and demand sides and market environment, then provides the suggestions for decision makers.