Research On Financing Path Of Changchun Guangyuan Micro-credit Co.,Ltd

With the release of the Guiding Opinions on the Pilot-operation of Small-SumLoan Companies that was jointly issued by CBRC(China Banking RegulatoryCommission) and PBC(the People’s Bank of China) in2008, the nationwideexperimental operation of small-sum loan companies was officially launched.Changchun Guangyuan Small-sum Loan Limited Company, with a registered capitalof50,000,000RMB, was one of the first such companies approved by the FinancialAffairs Office of Jilin Provincial Government and it has been the leader within thesmall-sum loan industry since Its establishment in April,2009.With substantial business experience, the people who got rich first after decadesof China’s reform and opening-up, put their spare money into the small financialindustry that provides people and businesses credit aid. This is how the organizationof small-sum loan companies came into being within the years. They are pioneers ofChina’s financial reform. Differing from banking institutions, small-sum loancompanies mainly engage in banking retail business, without preferential tax ratesand not allowed to operate deposit business and to borrow among peer companies.Unlike other forms of financial institutions, the source of funds of small-sum loancompanies is limited to their own registered capitals. In this context, to enhance thecapital strength and ensure sustainable profit growth, and as equally important, toadhere to its goal of making service to small businesses and the agricultural industry,are primary concerns for each runner of small-sum loan companies. Most of the small-sum loan companies are hard pressed for source of operatingfunds. Under the Guiding Opinions, their operating money cannot be others thanself-owned capital, endowment fund, or bank loans. However, the past five-yearshows the reality that it is less likely for small-sum loan companies to get bank loans,let alone endowment funds. That is, small-sum loan companies have no othereffective ways to increase capital except for their self-owned money.Through Literature review, descriptive and empirical research method, thispaper describes the financing predicaments that Changchun Guangyuan Ltd faces,analyzes the reasons that caused these predicaments, which mainly include: legalrestrictions, Guangyuan Ltd’s insufficient credit measures, its weakness inmanagement, and deficiency in financial disclosure. In order to help to get rid ofthese predicaments, the paper put forward four suggestions:1) make maximum useof the legal principle, i.e.“what is not prohibited is permitted;”2) optimize theallocating efficiency of assets that could be collateralized;3) study and applyinternational frontier management4) set up an information platform through whichthe problem of information asymmetry between fund borrowers and providers can besolved.