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Small firms need better work to attract loans
( 2002-09-02 10:39) (1)

Small and medium-sized enterprises have become the most active economic force in China with its production value accounting for 65 per cent of the country's total.

These firms have become more important as they have created numerous job opportunities for laid-off workers from State-owned enterprises.

But their development has been blocked by a shortage of funds due to limited access to bank loans. Only 20 per cent of the country's total loans flow to small firms.

Responding to their cries for more funds, the central bank last month urged commercial banks to expand their loans to small firms.

For sure, the central bank's push will surely drive some funds from banks to small enterprises, but the fast expansion of cash can not be expected in the near future.

As the State-owned banks, which occupy more than 70 per cent of the total credits, are focusing on reducing non-performing loans and credit risk, it would be very difficult for them to sharply increase their loans to small firms.

Loans to small firms mean more risk as most of the small firms have no assets for mortgage or could not find big firms to provide guarantees for them.

Furthermore, pursuing profits has made large banks reluctant to offer loans to small firms as the cost for a large sum of credit is almost the same as offering small credits.

To realize sustained development for the national economy, fast growth of small firms is a must and more credits are needed. But it is not a proper way to have large banks bear more risk.

Efforts should be made on both sides, the firms and the banks, to change the dilemma.

First, the small firms should strive to improve their credibility and finance transparency to make banks have more interest and confidence in supplying their credits. A national system measuring the credibility of small firms should also be established.

Second, small banks, like private banks, should have sound development to replace the large commercial banks which are focusing on large cities and large firms.

These small banks can have better knowledge of the small firms, which could help reduce the credit risk.

In other words, small firms' demand for more funds can be met only through deepened financial reform and the establishment of a sound credit rating system.

 
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