Academic journal article Canadian Social Science

A Probe into the Sustainable Development of Petty Loan Companies

Academic journal article Canadian Social Science

A Probe into the Sustainable Development of Petty Loan Companies

Article excerpt

Abstract

The petty loan companies in China have been in good performance since taken the pilot demonstration, which effectively relieves the rural funds and financing difficulties of SMEs. However, the petty loan companies in the business development also face many problems, such as the unreasonable legal status, the limited sources of funding, the heavy tax burden, high cost, and operational risks, and so on. These issues will be restricted to the sustainable development of petty loan companies. This thesis is in-depth analysis of the problems of petty loan companies in terms of sustainable development, and puts forward suggestions to promote the sustainable development of petty loan companies.

Key words: Petty loan company; New type of rural financial institution; Sustainable development

The appearance of petty loan company is just for solving the issues of agriculture, farmer and rural areas and financing difficulties of SMEs. It is a new type of rural financial institution, no deposit from the public, invested by natural person, business entity and other social organizations dealing with petty loan business. It's called Limited Liability Company or joint stock limited partnership in the service of SMEs, low-income individuals and households, similar to the international microfinance or microcredit institutions. In October 2005 the five provinces of Shanxi, Shaanxi, Sichuan, Guizhou, Inner Mongolia in China were selected to set up the first commercial pilot petty loan companies by People's Bank of China and Banking Regulatory Commission and then it is asked to perform the commercial interest rates in order to provide loans for farmers and SMEs continually In May 2008, the Banking Regulatory Commission and People's Bank jointly issued a "guidance on petty loan company pilot work" comprehensively promoting the petty loan companies' pilot project in 31 provinces of China. According to the latest statistics released by the People's Bank of China, by the end of December 2011, there were 4282 petty loan companies in China, the loan balance of 391.5 billion Yuan, an annual new increase of 193.5 billion Yuan in total. From the petty loan companies' pilot work, we know that the overall operation is in good condition now and the effect of "supporting agriculture and protecting small companies" is obvious, which has obtained the good economic and social benefits. However, with the continuous progress of the pilot work, the various difficulties and problems faced by the small loan companies in the business development is also prominent. These difficulties and problems that exist in the development will restrict the sustainable development of petty loan companies.

1.THE PROBLEMS OF PETTY LOAN COMPANIES IN SUSTAINABLE DEVELOPMENT

To sum up, the difficulties and problems of petty loan companies in the development are mainly embodied in the following aspects:

1.1 Legal Status Needs to Be Improved

From the perspective of legal laws and regulations, China's current development of microfinance organizations is still in the exploratory pilot phase, not yet having a legal framework to define their legal status. In May 2008 Banking Regulatory Commission and the People's Bank of China jointly issued the "guidance on petty loan company pilot work" (hereinafter called "guidance") positioning the petty loan companies as the enterprise legal person, not making clear of its financial properties. It determines that the petty loan companies are not financial institutions without financial license, only operating financial products in accordance with the Companies Law. Also from the perspective of petty loan companies' business model and scope, we know that they are engaged in small lending and financing activities and their essence is carrying out financial services in the name of the company, actually causing a series of problems during the operation, which impedes the further development of petty loan companies. …

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