A Study On The Institutional Change And Development Model Of Private Capital Entering Local Finance

Over the years, financing difficulties has restricted the development of SMEs andthree agriculture, at the same time the investment difficult of private capital is alsovery prominent. The key of solving the "dilemma" is establishing a mechanism tocontact private capital and SMEs, the mechanism is that the private capital providefinancial support to SMEs and farmers through financial sector which can allowprivate capital to come into. This will not only be able to ease the financingdifficulties of SMEs and farmers, but also to broaden the investment channels forprivate capital to solve the difficult problem of investment. How to promote privatecapital to enter the local financial sector in a better and more effective way, and howto achieve sustainable development of new financial organizations which privatecapital as the main form of, are important issues urgently needing to in-depth studyThe article explored in depth the institutional change and development model ofprivate capital into the financial sector, using the theories and methods of moderneconomics, finance and new institutional economics. Firstly, the use of institutionalchange theory and the supply and demand of institution theory was to analyzeinstitutional evolution of private capital into the local financial sector, the paperrespectively discussed five evolutionary stage, include Compulsory InstitutionalChange central government-led, Middle-proliferation Institutional Change localgovernment-led, Capital Need-based Induced Institutional Change largeenterprises-led, Capital Need-based Induced Institutional Change SME-led, CapitalSupply-based Induced Institutional Reform private capital-led.Secondly, the paper improved the local financial model on improving privatecapital into. This article chose small loan companies, village banks, the rural mutualcooperatives, private lending center, intermediary organs and other new forms offinancial organizations as the main subject, we found some disadvantages of currentmode: Since lack of experience in building new financial organizations, policyoptions are limited and don’t meet its long-term development; Due to lacking preferential policies and liberalized interest rates mechanism for new financialinstitutions,it makes the scale of discrimination in the process of service toSMEs,which are against its original intention; Meanwhile new financial institutions’internal management and business model exist inefficiencies, which affect its futuredevelopment. To achieve private capital effectively into the financial sector as well asthe rapid development of new financial organizations, it must promote new financialorganizations to change the existing pattern and to move closer to the private bankingmodel, clear property rights model, effective management model and perfect riskmanagement and control model are core of a new model.Thirdly, this article made some case studies on private capital into the financialsector’s development model. through the case of Yinzhou RCCs conversion tocooperative banks, it could be seen that the development model of attracting privatecapital into could provide a experience for the new financial organizations; the smallloan companies of FuPing as the development typical of new rural financialinstitutions, already has the conditions and qualifications for conversion to privatebanks, However, after the transition, no match between original intention andcommercial business objectives,difficulty to define identity and lack of socialcredibility are issues hindering transformation of FuPing. The rise of the Wenzhouprivate lending service centers and intermediary organs such as RenRen loan justprovide a value-added platform for private capital, there is a hope to explore a newpath of prompting private lending sunshine and standardized.At last, It’s summarizes the above study, and provides propose solutions for theabove issues：Regulate the admittance doorsill of investors; Relax the market interestrates, provide more Preferential policies; Strengthen publicity,raise public recognitionand trust; Reduce the restrictions on new financial organizations to make them have avoice; Increase support for SMEs, reducing it’s loan dependence; Establish andimprove the framework of laws and regulations, define a clear regulation subject.