Analysis on Risk Prevention Mechanism for Farmers' Default in Small Amount Credit

Through analysis, it is believed that major reasons for default risks in operation of small amount credit include low management level and vacancy of normative system, vacancy of risk sharing mechanism, rating distortion due to imperfect credit investigation system, and uncertainty of borrower's credit. On the basis of these, static and dynamic models are established to analyze the prevention mechanism for default risk in small amount credit. It is concluded that we must establish a restriction mechanism during operation of small amount credit as long as three values increase, namely, N (potential loss of bad credit record due to farmers' default) , Q (probability of successful recovery by small amount credit institution) , and S (cost of small amount credit institution punishing farmers after successful recovery). Finally, following countermeasures and suggestions are put forward: perfect laws and regulations and credit reward and punishment mechanism for risk management of small amount credit; bring into play proper function of loan officer in small amount credit practice; widely promote rural Group Credit Union system.