Title:Why hasn’t group lending become a mainstream SMEs financing mode?
Abstract:SMEs have long financed from banks to keep operation via individual credit financing (CF). Recently, banks have introduced a financing mode based on joint liability-group lending (GL), which has been not prevalent, albeit shows the potential on mitigating negative effects caused by banks' risk aversion. To reveal the hidden reasons and improve GL mode, we model a market with two competitive and impecunious firms, who apply for loans from a risk-averse bank via either CF or GL. Different from the pure competition under CF, GL grants retailers a Co-Opetitive state, i.e., cooperating in financing and competing in market. Interestingly, such Co-Opetitive state may not benefit retailers. Our analysis shows that the bank's risk aversion creates ineffective financing costs under both CF and GL, leading to a financing premium problem (a profit loss) for the two firms. When facing high bank risk aversion and middle firm future revenue or facing low firm future revenue, GL may worsen the financing premium problem than CF, especially for firms with low credit ratings. This result exactly supports the fact of GL's unpopularity among SMEs, who mostly satisfy the above conditions. Further, by developing a mode with partial joint liability (GP), we eliminate the shortage of GL, and derive a possible win-win situation for firms and customers. We also prove GP's feasibility when considering loan amount restriction and multiple firms. Our research exposes the shortage of GL and provides a better method--GP for operation managers serving SMEs.
Invited by:Yan Yingchen
Presenter：Zhao Ruiqing
Location:A622
Title:2021.5.17 16:00-17:00
