What are the risks of microfinance?

Nowadays, in order to improve the difficulty of loans for small and medium-sized enterprises, local governments have allowed the development of small loan companies as a useful supplement to the formal banking system. But the explosive growth of these non-traditional financial companies may have a negative impact on the local economy. The survival situation of small and medium-sized enterprises in China is quite grim. Many small and medium-sized enterprises have very low operating ability, no innovation in products, negative profits, insufficient cash flow, declining capital flow ratio and falling into financial difficulties. These SMEs hope to get loans from state-owned banks, but formal banks are more willing to lend to state-owned enterprises or large private enterprises. These enterprises have sufficient assets as collateral, which reduces the risk of formal bank lending to some extent. Governments at all levels in China have realized the seriousness of the problem and started to encourage local non-traditional financial institutions to directly finance SMEs. Non-traditional financial institutions include pawn shops, small loan companies and private equity. Because some lending behaviors of these institutions are aimed at small and micro enterprises or individuals, they are not easy to be supervised, which is called "shadow banking" in the industry. Shadow banking is developing very rapidly in China. According to the statistics of the People's Bank of China, in 20 1 1 year, there were 70 microfinance companies officially registered in Zhejiang Province, and in 20 12 year, the number suddenly increased to 250, with an annual growth rate of over 47%. There are 327 small loan companies in Jiangsu province in 20 1 1, and the number has climbed to 485 in 20 12, with an annual growth rate of 48.3%. At the end of 20 12, the paid-in capital of small loan companies in Jiangsu and Zhejiang provinces both exceeded 50 billion yuan, and the loan balance was 10366 billion yuan and 731600,000 yuan respectively. Judging from the current situation, this growth trend will continue at least in the next 2-3 years. Of course, there are many ways for shadow banks to lend money. Their risks are also different. At present, the risk of small loans is not big enough, and the bad debt rate of small loan companies 10% is still within the tolerable range, which does not form a heavy blow to the financial industry as a whole. However, the above-mentioned series of problems may completely frustrate some policymakers and experts who are eager to liberalize China's financial sector. Wenzhou City, Zhejiang Province has become the experimental zone for comprehensive financial reform in China. If there is a crisis in the shadow banking system in Jiangsu and Zhejiang provinces, the process of privatization of China's financial system is likely to go backwards. After communicating with domestic government officials and experts recently, I feel that people from all walks of life hope that the new government can make great achievements.