GÉNERO Lactobacillus

From the empirical findings, we know that nearly all kinds of SMEs may tap into the informal financing market. Meanwhile, as we have discovered from the interviews, the behavior of informal financial institutions is quite cyclical. In other words, their function is severely disrupted when crises hit. Therefore, macro-policies should guide the informal market to develop properly and healthily, regardless of the business cycle. Here, we propose to set up a rainy day fund as a counter-cyclicality mechanism.

The rainy day fund should be set up mainly locally (at the county level). The SMEs within the county could participate in the fund willingly as registered partners; a third party (ideally, a bank or a group of banks) could participate in the fund as special registered partners as they could commit some funds or merely manage the funds on the SMEs’ behalf. Registered SMEs should provide basic information so that a monitoring and supervising mechanism could be built accordingly. Meanwhile, registered SMEs could put funds into the rainy fund when their business runs well and they have excess capital. Such an arrangement could, to some extent, alleviate the concern of moral hazard. During tranquil times when the funding market works properly, the reserve fund could do nothing but accumulate money as the funds collected could be invested into liquid assets such as treasury bills. However, when a crisis hits, such funds could be lent out to the registered partners. The capital could be offered at the market rate plus appropriate margins. With the rainy fund in place, the volatility of the informal financing market could be lowered.

4.5Conclusion

In this chapter, we firstly consult the extant literature to learn the SMEs' practice around the world, and then we interviewed five managers from a commercial bank to learn the formal and informal financial institutions’ mindset regarding SMEs. The focus is on commercial banks: their strategic incentives, as well as regulative and tactical constraints, are discussed. We find that capital market could offer little to

SME financing under the current circumstances. Moreover, it has been found that informal institutions’ behavior is quite cyclical.

Through the combination of what we find from the literature, interviews, and the empirical results from the previous two chapters, we propose specific policy suggestions, and eight recommendations are developed from three dimensions: the fund providers for SMEs, the SMEs, and the background that underpins them. For fund providers (mainly banks), we advise setting up community banks to serve SMEs, simplifying the SME financing procedure, committing more human and IT resources and cultivating a group of dynamic rural banks to enhance the efficiency of the loan process. For SMEs, we advise that they should build their reputation, try to be engaged in credit rating, should enhance corporate governance, and should be more engaged with banks. Last but not least, we propose setting up a rainy day fund as a counter-cyclicality mechanism.

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Chapter 5 Conclusion

This thesis mainly focuses on studying the SME financing in Zhejiang Province and exploring the how informal lending could play a greater role. In Chapter 2, after consulting the literature, we designed a tailor-made questionnaire to determine the basic information, business establishment, business growth, and funding sources of the firms. With the data collected from 150 valid copies, we could gain an understanding of these firms and its financing situation through basic descriptive statistics.

Subsequently in Chapter 3, we gain further insight into SME financing in Zhejiang. From the empirical results conducted, we find that firms with strong political ties, higher education, larger turnover, and having received a credit rating are more likely to employ formal financing practices. No consistent results were found for informal financing practices. Moreover, we find that more factors worked during the Global Financial Crisis while only political ties and credit-rating status worked during the tightened monetary background of the period after 2010. Combining these results, we conclude that reputation and relationships are vital in helping SMEs to obtain funds from formal financing channels in China, whilst basically all SMEs are able to obtain informal finance. This finding is critical: on the one hand, the criteria necessary to obtain formal finance seem to be quite stringent, while on the other hand, almost any SME can obtain informal finance. In these circumstances, informal financing will inevitably play a dominant role in the financial system. These empirical findings call for specific policy suggestions.

In Chapter 4, we consult the extant literature to determine the global SME practice, and then interview five managers from a commercial bank to learn the formal and informal financial institutions’ mindset towards SMEs. The focus is mainly on commercial banks: their strategic incentives, as well as regulative and tactical constraints, are fully discussed. Meanwhile, we find that capital markets could offer

little to SME financing under the current circumstances. Moreover, it has been found that informal institutions’ behavior is quite cyclical. Combining what we find from the literature, interviews, and the empirical results, we propose specific policy suggestions. Eight proposals are developed from three dimensions: the fund providers for SMEs, the SMEs, and the background that underpins them. For fund providers (mainly banks), we advise four measures: setting up community banks to serve SMEs, simplifying the SME financing procedure, committing more human and IT resources and cultivating a group of dynamic rural banks to enhance the efficiency of the loan process. For SMEs, we advise that they should build their reputation, try to be engaged in credit rating, should enhance corporate governance, and should be more engaged with banks. Last but not least, we propose to set up a rainy day fund as a counter-cyclicality mechanism, detailed arrangement is also introduced.

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