Financial Leverage Regulation and Trade-offs between Sustainability and Outreach of Micro-credit Companies in China: Evidence from Dual-Regulation Quasi-experiment
ZHANG Longyao, YANG Jun, CHENG Enjiang
College of Finance, Nanjing Agricultural University; Financial Research Institute, the People’s Bank of China; Victoria Institute of Strategic Economic Studies, Victoria University
Abstract:
Based on the successful experiences of microfinance institutions (MFIs) in many developing countries, China started micro-credit companies (MCCs) pilot reform since 2005. The reform allows private capital to establish MCCs in rural areas to create a formal vehicle for small and micro businesses in rural areas and adopts “central-local” dual-regulation framework for the first time which can be regarded as a quasi-experiment. Under duel-regulation framework, some provincial governments break the financial leverage restriction on MCCs, although the leverage ratio set by central government is limited to 0.5. Using a nationwide dataset of 457 MCCs, we examine how the financial leverage restriction affects the trade-off between sustainability and outreach. Controlling for the possible non-random assignment of restriction via treatment effects and instrumental variables regressions, we find evidence that there is no trade-off between sustainability and outreach to small-scale borrowers and rural clients for MCCs who break the leverage restriction. However, MCCs with financial leverage less than 0.5 instead tend to reduce both profitability and outreach and are shown to be riskier with a higher loan concentration.
张龙耀, 杨骏, 程恩江. 融资杠杆监管与小额贷款公司“覆盖率-可持续性”权衡——基于分层监管的准自然实验[J]. 金融研究, 2016, 432(6): 142-158.
ZHANG Longyao, YANG Jun, CHENG Enjiang. Financial Leverage Regulation and Trade-offs between Sustainability and Outreach of Micro-credit Companies in China: Evidence from Dual-Regulation Quasi-experiment. Journal of Financial Research, 2016, 432(6): 142-158.
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