Research On The Development Of Micro Loans By Micro Lending Companies

Micro lending companies are the outcome of deepening reform of the financial system and improvement of financial services. Micro lending companies grew rapidly since the pilot program was carried out in 2005. Becoming an important supplement of the banking system, micro lending companies played a considerable role in supporting SMEs and economy in rural areas. However, further development was stagnated in recent years due to a series of problems including high financing cost, high operating risks and limited profitability. Micro lending companies commonly serve lower level customers since they are unable to compete with financial institutions like banks due to higher financing cost. Therefore aiming to serve SMEs, rural area and lower level loaners is a preferable market for micro lending companies. It is also crucial for the sustainable development of the micro lending industry,In this paper, we first reviewed relative theories including:financial repression and financial deepening theory, asymmetric information theory and incomplete contract theory. Based on these theories, we analyzed the current state quo of micro lending companies and the problems they are encountering in the development of micro loans. We also discussed marketing models, risk management, internal control, credit approval system and staff performance evaluation system in detail. Furthermore, we analyzed key factors of the sustainable development of micro lending companies by utilizing a series of mathematic models, and demonstrated that micro loans business is helpful in achieving sustainable development. We also made a number of suggestions in both macro policies and company governance in order to develop micro loans business by taking successful experience in other countries.