On the legal characteristics of small loan companies.

Summary:Microfinance companies have officially entered the public eye in my country. It originated from the "Guiding Opinions on the Pilot Program of Microfinance Companies" issued by the China Banking Regulatory Commission and the People's Bank of China on May 4, 2008. The "Guiding Opinions" define microfinance companies as Limited liability companies or joint stock limited companies established by natural persons, corporate legal persons and other social organizations in accordance with the law, and do not absorb public deposits, and engage in microfinance business. This paper constructs the legal characteristic system of small loan companies from the general and special aspects of small loan companies, with a view to benefiting the prosperity and development of small loan companies in China.
    Subject words:Modern financial small loan company general particularity.

In recent years, with the deepening of the reform of China's market economy system, the demand for finance in economic and social development is becoming more and more urgent. Many small and medium-sized enterprises and farmers have to meet the needs of development funds through private lending due to the constraints of credit conditions and other aspects. In this context, some small loan companies that specialize in small loan business initiated by private capital are favored by small enterprises and individual entrepreneurs, and have also been recognized by the Chinese government. As an important part of the modern financial service system, microfinance companies will coexist with other types of financial entities for a long time, each with its own focus, and to a certain extent, to achieve healthy competition. On the premise of sound laws and regulations, we should vigorously develop local small and medium-sized financial institutions, set up small loan companies and even small and medium-sized banks with private capital as the main part, and break the monopoly position of banking financial institutions in the credit market, so as to form a good situation in which agricultural banks, agricultural development banks, rural cooperative finance, postal savings banks, village banks, small loan companies and other lenders provide differentiated products and services to groups with different business scales and different financial needs at different levels of the rural financial market, which is an important part of strengthening market competition and enriching the financial service system, it is also the meaning of solving the current financing difficulties of small and medium-sized enterprises in China and building a socialist harmonious society.
1. the concept of a small loan company
Microfinance organizations appeared in the 1970 s, with the purpose of anti-poverty and promoting development. Because the founder of Bangladesh Grameen Bank (GB), known as the "banker of the poor", Bangladesh Economics Professor Yunus won the 2006 Nobel Peace Prize, which caused a stronger response around the world. Bangladeshi economics professor Yunus won the 2006 Nobel Peace Prize and caused even stronger reactions around the world. However, for the concept of microfinance organizations, there is no unified and standard definition in the world, and there are few public discussions in the academic circles at home and abroad. Generally speaking, microfinance organizations are commercial organizations or non-governmental organizations that provide small credit services to low-and middle-income groups. According to the characteristics of business operations, microfinance institutions can generally be divided into two categories: commercial microfinance organizations and welfare microfinance organizations. Commercial microfinance organizations aim at profitability and are independent corporate legal persons. They enjoy all legal person property rights formed by shareholders' equity investment, enjoy civil rights in accordance with the law, and independently bear civil liabilities with all legal person assets, and need to pay corresponding taxes and fees. Welfare microfinance organizations are independent non-profit legal persons based on the principle of capital preservation and low profit, and engage in public welfare activities in accordance with the articles of association, its public welfare is reflected in the fact that financing services have a certain degree of community and poverty alleviation. Such institutions can not pay taxes and fees and enjoy certain government subsidies.
Small loan companies have officially entered the public eye in China, which stems from the "Guiding Opinions on the Pilot Program of Small Loan Companies" (YJF [2008] No. 23, hereinafter referred to as "Guiding Opinions") issued by the China Banking Regulatory Commission and the People's Bank of China on May 4, 2008. The Guiding Opinions define small loan companies as being invested and established by natural persons, corporate legal persons and other social organizations in accordance with the law, and do not absorb public deposits, A limited liability company or joint stock limited company operating a small loan business. If a small loan company is in the form of a limited liability company, the shareholders shall have limited liability to the company with the amount of their capital contribution, and if it is in the form of a limited company, the shareholders shall be liable to the company to the extent of the subscription of shares, and the company shall bear civil liability for its debts with all its property. Microfinance companies have independent legal person property rights, and shareholders have the right to asset income, distribution and decision-making. Microfinance companies are economic organizations established in accordance with the Company Law, and their business activities must fulfill their obligations under the law, while their legitimate business activities are also protected by law.
  2. the generality of small loan companies
According to the definition of a microfinance company in the Guiding Opinions, a microfinance company should first have the characteristics that it should have as a general company:
Procedure for the establishment of a (I) company
The procedure for the establishment of a company, that is, the establishment of a small loan company must go through the relevant application approval, registration and filing procedures in accordance with the legal procedures, obtain the company's legal person business license, and the establishment of a small loan company in the form of a joint stock limited company must also go through the approval procedures. In accordance with the relevant pilot regulations of the People's Bank of China, small loan companies implement a record registration system, and the pilot government takes the lead in setting up a "pilot coordination group" to guide and organize and coordinate the pilot work; investors apply to the "pilot coordination group" set up by the pilot government in accordance with the regulations, and after approval and approval, go to the administrative department for industry and commerce for registration, and pass legal procedures such as capital verification, the administrative department for industry and commerce issues a business license. After the small loan company receives the business license, it shall, within three working days, submit the articles of association, the composition of shareholders, the registered capital, the capital verification certificate, the notarization of the source of funds and other relevant materials to the China Banking Regulatory Commission and the People's Bank of China for the record. Any small loan company established in China must be established in accordance with the conditions and procedures stipulated in the Company Law, the Regulations on the Administration of Company Registration and other relevant laws and regulations.
The statutory nature of the registered capital of the (II).
Certain property is the material basis for the existence of small loan companies. As a profit-making enterprise legal person, a small loan company must have property under its control and control in order to engage in business activities. The original property of a small loan company at the time of its establishment is made up of capital contributions from shareholders. Once the shareholders fulfill their capital contribution obligations, the ownership of the subject matter of their capital contribution is transferred to the microfinance company, which constitutes the property of the microfinance company, and the property of the microfinance company is separated from the property of the individual shareholders, which is an important feature of the company's property. It is the basis on which microfinance companies can independently assume civil liability and obtain legal personality, and it is also the basis on which shareholders are liable for the debts of microfinance companies only to the extent of their capital contributions. In order to ensure that microfinance companies have the necessary property, the Guiding Opinions and the governments of the pilot areas have stipulated the legal capital system for the establishment of microfinance companies, that is, the property of microfinance companies must reach the legal minimum, otherwise they cannot be established. Small loan companies. The Guiding Opinions stipulate: "The source of the registered capital of a small loan company shall be true and legal, all of which shall be paid-in monetary capital, which shall be paid in full by the contributor or promoter at one time. The registered capital of a limited liability company shall not be less than 5 million yuan, and the registered capital of a joint stock limited company shall not be less than 10 million yuan." The Interim Measures for the Administration of Pilot Small Loan Companies in Zhejiang Province stipulates: "If the organizational form of a small loan company is a limited liability company, its registered capital shall not be less than 50 million yuan (20 million yuan in underdeveloped counties); If the organizational form is a joint stock limited company, its registered capital shall not be less than 80 million yuan (30 million yuan in underdeveloped counties); During the pilot period, the upper limit of registered capital of small loan companies shall not exceed 0.2 billion yuan (0.1 billion yuan in less developed counties)." The interim measures for the Administration of pilot projects of small loan companies in Shandong Province stipulates: "if the organizational form of a small loan company is a limited liability company, its registered capital shall not be less than 50 million yuan (20 million yuan in underdeveloped counties); if the organizational form is a joint stock limited company, its registered capital shall not be less than 70 million yuan (30 million yuan in underdeveloped counties); during the pilot period, the upper limit of registered capital of small loan companies shall not exceed 0.15 billion yuan." The Measures for the Pilot Administration of Small Loan Companies in Shaanxi Province (for Trial Implementation) stipulates: "The source of the registered capital of a small loan company shall be true and legal, all of which shall be paid-in monetary capital, paid in full at one time. The registered capital of a limited liability company shall be no less than 30 million yuan, and the registered capital of a joint stock limited company shall be no less than 60 million yuan. The upper limit of the registered capital of a small loan company shall be no more than 0.3 billion yuan." Due to the uneven level of economic and social development in each pilot area, the registered capital limits set by each region are also inconsistent, but the registered capital limits set by each region shall not exceed the limits set by the "Guiding Opinions.
The entity of (III) organization and operation
The entity of organization and operation means that the small loan company must have its own name, organization and place, and prepare the articles of association as the basis for the company's business activities. The name of a small loan company is equivalent to the name of a natural person and can be freely chosen, but the type of company must be indicated, I .e. limited liability company or limited liability company. The name of a small loan company belongs to one of the absolutely necessary items in the articles of association of the company, and is also one of the company registration items. Small loan companies must have a complete organizational structure. The standardized internal governance structure is one of the important signs that the company legal person is different from many other legal person organizations. As a legal person, a small loan company has no natural entity and must set up a company organ to decide and implement the will of the company. A sound organizational structure of a microfinance company is the organizational guarantee for the realization of its corporate will, which includes the authority, executive and supervisory bodies of the company. According to the relevant provisions of China's "Company Law", the organization of limited liability companies and limited liability companies is roughly the same but slightly different, mainly for the former has more flexibility and the latter has a stronger normative. The "Guiding Opinions" stipulate: "The name of a small loan company shall be composed of administrative divisions, brand names, industries, and organizational forms in turn. Among them, administrative divisions refer to the names of county-level administrative divisions, and the organizational form is a limited liability company or a joint stock limited company." For example, Jiashan County Henglong Microfinance Co., Ltd., Dalian Development Zone Rongjin Microfinance Co., Ltd., Shanghai Fengxian Greenland Microfinance Co., Ltd., and so on. The "Guiding Opinions" also stipulates: "Small loan companies should have articles of association and management systems that comply with the regulations, and should have the necessary business premises, organizational structures, and staff with corresponding professional knowledge and experience." The microfinance company must have its own place of business, which is the place where the microfinance company operates to achieve its purpose of establishment; the microfinance company must also have its own residence, which may or may not be consistent with its place of business. However, the domicile is the central area of the company's legal relations, which is the standard for the settlement of the company's debts, the jurisdiction of litigation and the service of the pleadings. According to the relevant provisions of China's "Company Law", the company usually takes its main office as its domicile, therefore, the microfinance company also generally takes its main office as its domicile. The "Guiding Opinions" clearly stipulates: "Small loan companies shall implement national financial guidelines and policies, conduct business within the scope of laws and regulations, operate independently, be responsible for their own profits and losses, self-discipline, and bear their own risks. Its legal business activities are subject to Legal protection is not subject to interference by any unit or individual."
(IV) independence of responsibility
The independence of responsibility means that small loan companies must be able to engage in civil and commercial activities in their own name and independently bear civil liability in accordance with the law. It can be analyzed from two aspects of rights and responsibilities.
First, the independent rights of microfinance companies. In principle, microfinance companies are almost as independent entities as natural persons for their legitimate purposes. If a microfinance company is to be equal to a natural person, it must have rights, which are quite extensive. Such as the right to own real estate in one's own name, the right to sue and respond to lawsuits, and the right to engage in any legal business activities within the purpose of the microfinance company. However, based on the inherent nature of small loan companies and some legal and policy reasons, the rights of small loan companies are limited. For example, microfinance companies cannot absorb public deposits, and for example, certain rights of microfinance companies in their business activities should be consistent with their business scope in accordance with the requirements of the Company Law and the Guiding Opinions, that is, they can only operate microfinance. And related business.
Second, the independent responsibility of small loan companies. A small loan company is an enterprise legal person, has independent legal person property, enjoys legal person property rights, it must be self-financing on the basis of independent organization and operation in accordance with the law, with all its legal person property, independent responsibility for the company's debts. The shareholders of a microfinance company shall enjoy the rights of asset income, participation in major decision-making and selection of managers in accordance with the law, and shall be liable to the company to the extent of the amount of capital contribution or shares subscribed by them. The independent liability of a microfinance company means that the shareholders no longer bear any other liability, I .e. the limited liability of the shareholders, in addition to the obligation to contribute to the company. This is also one of the essential differences between corporations and other types of economic organizations such as partnerships, sole proprietorships, and branches of legal persons.
Profitability for the purpose of (V) operation
A company is a for-profit organization engaged in commercial activities, and the purpose of establishing a company is to obtain economic benefits through business activities. The purpose of the company's profit comes directly from the shareholders, who set up the company or invest in the company in order to realize their own economic interests. If you do not engage in profit-making activities, you will not be able to meet the wishes of shareholders, so microfinance companies are no exception. The purpose of a small loan company for profit means that the purpose of establishing a small loan company and the operation of the company are to seek economic benefits. To this end, microfinance companies must continuously engage in providing microfinance services for small and medium-sized enterprises and low-income groups. The profitability of microfinance companies is essentially a reflection of the purpose of shareholders setting up microfinance companies. Small loan companies only for the purpose of profit, to maximize the interests of the company, in order to allow shareholders to recover their investment, and thus achieve profitability. Only by recognizing and protecting the profitability of microfinance companies can the law fundamentally realize the sustainable commercial development of microfinance companies, ensure the sustainability of microfinance companies, the sustainability of business operations and the complete financial sustainability, encourage investment, create social wealth, and promote the rapid, healthy and orderly development of the market economy. In this sense, the nature of the microfinance companies currently being piloted in our country should belong to the category of commercial microfinance organizations.
The Particularity of 3. Small Loan Company
As a professional organization engaged in loan business, small loan companies are different from ordinary enterprises, and their operating conditions involve financial, economic security and social stability. Therefore, small loan companies have their own particularity.
Limitation of (I) sources of funds
The source of funds for microfinance companies is not as broad as the source of funds for enterprises of a general nature. According to the provisions of the Guiding Opinions, the source of registered capital of small loan companies should be true and legal, bank loans cannot be used to invest in shares, social fund-raising is strictly prohibited, related shareholders are prohibited from holding shares, all of which are paid-in monetary capital, and the investor or promoter shall pay in full at one time. The main sources of funds for microfinance companies are capital contributions from shareholders, donated funds, and integrated funds from no more than two banking financial institutions, and they are not allowed to raise funds in any form and absorb public deposits. Within the scope of laws and regulations, the balance of funds received by small loan companies from banking financial institutions shall not exceed 50% of the net capital. The interest rate and term of the incorporated funds shall be determined by the micro-loan company and the corresponding banking financial institutions through independent negotiation, and the interest rate shall be determined by adding points to the "Shanghai Interbank Offered Rate" as the benchmark. A small loan company shall apply for a loan card from a branch of the People's Bank of China at the place of registration. Banking financial institutions that provide financing to small loan companies shall promptly submit financing information to the local branch of the People's Bank of China and the dispatched office of the China Banking Regulatory Commission, and shall track and supervise the use of financing by small loan companies.
Region of (II) Service Coverage
The regionality of the scope of services means that small loan companies can only engage in small loan business and small business development, finance, management and other consulting services within the administrative area of the county (city, district), and cannot carry out business activities across regions. The "Guidance Manual for Small Loan Companies" promulgated by the People's Bank of China and the pilot management measures issued by various localities stipulate that small loan companies established on a pilot basis can only conduct business within the administrative area of the place of registration, and are not allowed to operate across administrative regions. Small loan companies shall implement a territorial registration management system. Limited liability companies shall be registered by the county-level industrial and commercial departments, and joint stock limited companies shall be registered by the municipal industrial and commercial departments. During the pilot period, the reason why small loan companies are not allowed to operate across administrative regions is mainly based on three reasons: first, the operating cost factor, that is, the small loan company's own funds are limited, the larger the scale, the higher the operating cost, and the less assets can be used for profit, so the more difficult it is to achieve financial sustainability; second, to coordinate management factors, that is, to ensure the healthy development of small loan companies, each pilot local government has set up a "pilot coordination group" to be specifically responsible for relevant management matters. In order to facilitate coordination and management, small loan companies are not allowed to operate across administrative regions; third, risk control factors, that is, small loan companies operate in an administrative region, which is more conducive to grasp the borrower's credit situation and better control business risks, So as to ensure the financial order and the stability of the financial system. From a practical point of view, small loan companies have gradually become an effective way to finance small businesses and individual entrepreneurs, and have played a positive role in promoting the development of county economy and "agriculture, rural areas and farmers. Although microfinance companies are not formal financial organizations, their main business is traditional bank lending, which is a major innovation in the field of regional financial services and has advantages and characteristics that other financial organizations do not have.
Uniqueness of (III) business types
At present, the business types of microfinance companies are relatively single. According to the "Guiding Opinions" and "Microfinance Company Guidance Manual", microfinance companies are positioned as "only loans but not deposits". Microfinance companies can only operate a single loan variety with the amount of shareholder capital contribution, can not absorb deposits, can not operate such as bill business, asset transfer business, entrusted loan business and other low-risk business, therefore, loan interest income is the only source of profit for microfinance companies. At the end of September 2008, the national interest rate policy was loosened, and the bank loan interest rate dropped again and again, which directly affected the profit level of small loan companies and compressed the profit space of small loan companies. The speed of capital lending of microfinance companies is faster than the speed of capital recovery, when the operation of microfinance companies due to the financing structure and loan structure does not match, or the lender has more arrears, because its financing is restricted, it is very easy to happen liquidity risk, the capital is inevitable to face a tight situation. The liquidity risk caused by the singleness of business types has become an important factor in the further development of China's microfinance companies.
The floating nature of (IV) lending rates
The loan interest rate of small loan companies is higher than that of financial institutions, but lower than the average level of private loan interest rate. The Guiding Opinions and the local pilot management measures stipulate that small loan companies operate in accordance with the principle of marketization, and the upper limit of loan interest rates is liberalized, but it shall not exceed 4 times the benchmark loan interest rate announced by the People's Bank of China; the lower limit is the benchmark loan interest rate. 0.9 times; the specific floating range is independently determined in accordance with market principles. The floating and autonomy of loan interest rate is conducive to the sustainable development of small loan companies and the low-and middle-income groups to obtain loans from small loan companies. From the point of view of the interest rates of the pilot microfinance companies, their loan interest rates are based on the risk situation, capital status, loan term, collateral or credit rating of different customers, based on the benchmark interest rate of the People's Bank of China, with reference to the level of interest rates of rural credit unions in the region.
Flexibility of (V) service approach
Microfinance companies adhere to the tenet of "simple procedures, quick lending, and flexible interest rates", and in accordance with the principle of "small and decentralized", innovate loan methods, reform lending processes, and use efficient operating mechanisms and multiple economic and social benefits. It provides better financial services for local economic development, which is of positive significance for promoting the reform of the rural financial sector. In terms of loan methods, in accordance with the "Guiding Opinions", the relevant loan terms and loan repayment terms and other contract contents shall be negotiated and determined by the borrower and the lender in accordance with the law under the principle of fairness and voluntariness. Small loan companies in the form of loans to take credit loans, but also to take secured loans, mortgages and pledge loans. In the form of loans, small loan companies actively promote farmers' joint guarantee loan services, that is, mutual guarantee between farmers, especially the rich to help the poor, the strong to help the weak. Attempts have also been made to carry out new varieties of credit, such as "student-assisted production portfolio loans", "buyer's credit" for agricultural and sideline products, special loans for agricultural and sideline products processing, loans for rural demonstration villages and credit villages, community loans and credit community loans for corporate farmers, in order to meet the diversified loan needs of rural areas. In terms of loan repayment methods, small loan companies can adopt monthly, quarterly, semi-annual, one-year, equal or unequal, installment or one-time repayment of principal and interest according to different conditions such as the customer's repayment ability and loan purpose. Various flexible and diverse repayment methods. For farmers who are indeed due to production and living needs, have good credit status, and have the ability to repay, small loans are allowed to be used across years, especially for loans with long production and operation cycles such as greenhouse planting, forest and fruit planting, and special breeding. The loan period can be extended to 3 years.
Vulnerability of (VI) service object
Under the principle of serving farmers, agriculture and rural economic development, micro-loan companies independently choose loan objects, provide credit services to farmers and micro-enterprises, and strive to expand the number of customers and service coverage. solve the problem of loans for micro-enterprises and farmers. It can be seen that microfinance companies mainly solve financing problems for "vulnerable groups. At present, some small and medium-sized enterprises, individual industrial and commercial households and farmers, due to limited conditions, it is difficult to obtain bank loans. Even if these "vulnerable groups" can obtain bank loans, there is still a time difference between loan repayment and re-lending, which seriously affects the normal operation and development of enterprises, individual industrial and commercial households and farmers. On the other hand, microfinance companies pick up and make up for their deficiencies, taking these customers as their service targets and mainly issuing short-term microloans, effectively alleviating the financing difficulties of some small enterprises and "agriculture, rural areas and farmers", and making up for the time difference between loan repayment and re-loan. it has supplemented and improved the multi-level rural financial service system. In the pilot process, some microfinance companies have created a number of typical experiences to support disadvantaged groups. For example, some companies have successively designed and implemented a variety of microfinance products such as "get rich loans", "entrepreneurial loans", and "business loans". Solve financing problems such as unsecured and unsecured.
Based on the above particularity, in recent years, based on the service of "agriculture, rural areas and farmers", microfinance companies have played a certain role as a supplementary form of rural finance, and have achieved remarkable social and economic benefits. in the field of rural finance, it is increasingly showing a unique charm and vitality.

This article won the second prize of Jinan lawyer's business paper selection in 2011

References:
[1] China Banking Regulatory Commission and People's Bank of China: Guiding Opinions on the Pilot Program of Small Loan Companies (CBRC [2008] No. 23).
[2] Microfinance Project Group of the People's Bank of China: "Guidance Manual for Microfinance Companies", China Finance Press, 2006 edition.