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Mathematical Morality Risk Model for Financing in Small Enterprises

Ran Zeng

Abstract


This paper constructs the morality risk model that depends on the borrowers’ financing condition based on supervision mechanism, comparatively analyzing the impact on small and micro enterprises financing situation caused by supervision efficiency and methods of supervision of different sizes of financial institutions. The result indicates that the existing commercial banks lack the comparative advantage of obviously direct supervision but taking the way of indirect supervision as the second-best choice. The small financial institutions represented by small-loan companies have efficiently direct supervision on small loans and can effectively improve the enterprises financing condition but the higher financial capital cost would weaken this advantage some degree. However, the method that the government’s supervising department utilizes that gives out franchise value to help the bank loaners who aim to create an imbalance is very limited. Providing support on small financial institutions is an effective way of solving the financing struggles that small and micro businesses encounter.

Keywords


Small and Micro enterprises, Direct Supervision, Indirect Supervision, Financing condition

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