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Ways for Addressing Financing Difficulties of Small and Micro-Enterprises: Reducing Information Asymmetry and Improving Professional Services(No. 53, 2016)


By Zheng Xingchen, Member of the Research Team on "Chinese Financial Reform Strategy", Research Institute of Finance, DRC

Research report No. 53, 2016 (Total 4936) 2016-4-28

Abstract: The primary cause of small and micro-enterprises’ financing difficulty is due to the fact that banks couldn’t get to know the effective information about their financial conditions, the actual controller status, as well as their production and sales conditions, leading to severe information asymmetry. This has increased bank’s risk-control difficulty as well as enterprise’s financing cost. It is also improper for the prevention and control of regional financial risks. These are related to several factors: the financial statements of small and micro-enterprises are not standardized; public financial information service mechanism is incomplete; and bank’s traditional risk-control mode doesn’t pay enough attention to "soft information". To ease the financing difficulty of small and micro-enterprises, this report suggests: first, in light of China’s social information system construction plan, we should, based on the improved public financial information service platform of local governments, reduce banks’ cost in gathering client’ basic information. Second, we should push for the establishment of a complete and professional credit service mode for small and micro-enterprises among commercial banks. Third, we should support and move forward with the localized micro-loan technology. And fourth, we should promote moderate competition and encourage community banks to improve and innovate their credit service for small and micro-enterprises.

Key words: small and micro-enterprises, financing difficulty, information asymmetry, professionalized service