Preface

SMEs（Small and Medium Enterprises）financing is both a theoretical and practical problem.It will continue to be a problem that our government and industry have to face together in the foreseeable future. Therefore, the study of this issue is of great practical significance and theoretical value.

Since the reform and opening up, the Chinese government has been supporting the development of SMEs. The financial industry, facing financing problems of SMEs, has been emphasizing support for SMEs financing, and the central bank has been repeatedly promoting the introduction of relevant policies.However, the effect is unsatisfactory. The problem has not been fundamentally solved, even at certain times there are signs of deterioration.So, w hich link broken? Many experts and scholars made a lot of research and discussion about it, but opinions are different on this issue.We believe that the inherent flaw s of China＇s commercial banking system is the root cause of SMEs financing constraints, so reconstruction and perfection of the commercial banking system is the correct option.Accordingly, we should learn from the traditional mode of credit, especially, the credit model and institutional arrangements of modern banks. It is necessary to establish a large number of small commercial banks to offer specialized services for SMEs and medium-sized banks to break the existing monopoly.

According to the thinking above, focusing on the financing of SMEs, comparing the differences in ancient time and modern society, in China and foreign countries, and analyzing the Wenzhou model and the selected sample banks, the book suggests reform and reconstruction of the commercial banking system and cultivation of small and medium sized commercial banks based on the distribution of SMEs with economics（finance）and history（economic history）theories and methods.

The main innovations of this book are listed as follow s：

This book has proposed a new point of view for definitions of finance, credit theory, guarantee theory, real bills doctrine, credit radius theory, the principle of 80/20, and asset-liability management theory.For example, we put forward the concept of“flow of wealth”of finance to replace obsolete“financial funds”definition.We believe that the social and economic life consists of material flow and cash flow, but they work in the opposite direction.Material wealth belongs to the category of stock wealth, but financial wealth belongs to flow wealth. Flow wealth is the abstraction of stock wealth.Forms of material wealth are many and varied, but the flow w ealth is homogenous and substitutable.From the perspective of financial investment, especially for investors, it is the self-improvement of flow wealth.The difference betw een financial investment and industrial investment is arbitrage.It is the essence of the insurance industry that converts the risk of the stock of property into a certain flow w ealth to trade. The subject matter of the transaction is just a carrier, not the content.Then we could deepen the theoretical research further.Commercial banks are no longer stuck in the era of monetary funds application, but are promoted into a new stage that regard risk as product, w hich allow s us to have a new aw areness tow ard finance, discard the old w ay of thinking that overly dependent on bank financing, develop multi-channel direct financing mode, attract more social capital into the sphere of production and share dividends of economic grow th.

From the perspective of financial demand and supply, this book reckon that we should learn from native banks, building small and medium private commercial banking system, increase the financial system supply, optimize the structure of commercial banks, and develop diverse forms of financial instruments. Objectively, SMEs need appropriate financial institution supply to meet their financing needs. How ever, large-and-medium-sized commercial banks completely dominate the banking structure in China, w hich results in the tendency of ignoring the SMEs in practice. In other words, the commercial banking system should adapt to industrial structure.Specifically, w e suggest establishing a large number of small commercial banks w hose objective is to serve the SMEs and community residents.Small size, low capital, small service radius and high efficiency, these commercial banks are similar to the modern native banks. Although small commercial banks are independent, banking group or financial holding companies could be set up based on its capital structure, w hich is similar to the modern connected branch banks. Besides, w e suggest restructuring branches and small local branches of big banks, such as BOC, ABC, ICBC, CCB, BOCM, etc.And then, transform them into small holding bank.

Recommendations on contractual equity financing will greatly enlarge financing space.Contractual equity financing is a new mode which combines a direct equity financing with indirect lending practices. This mode offers the small and medium-sized enterprises of growing up type a financing choice which allows them to get access to external financing by selling shares w hile retaining redemption option.Financiers get commitments from companies that they can redeem the shares under certain conditions in a given period.Compared with credit borrowing, the security of the new mode is greatly improved with the support of equity.In addition, some other suggestions are put forward in the book，such as raising the proportion of credit borrowing of SMEs, securitizing asset, practicing loan credit insurance, developing the bill market, setting up financing channels, etc. These recommendations have certain originality and practicality.

We suggest adding more financial functions to farmer specialized cooperatives. There is an obvious flaw in the existing law of farmer specialized cooperatives, only industrial cooperation but no financial cooperation.Industrial cooperation without financial cooperation is not reliable and lacks the conditions for continuous operations. In the modern economy, agriculture can no longer rely solely on the combination of land and labor.Only through combining labor and capital can we form a high-efficiency agriculture industry, complete of the industrial upgrading, and achieve the goal of new pattern urbanization. Furthermore, a general outline of the new rural financial cooperative mode w as made in this book. That is to set up a credit cooperative, similar to small rural community bank, according to a certain population size of rural communities.Its main businesses are traditional, such as deposits, loans, and remittance.And it can also provide other financial services as needed.It ow ns property right structure as shareholders appear as co-operatives instead of individuals. The Council is the highest authority that carries out mutual funds among internal members of farmer cooperatives, and guides them to the mode of“production and business cooperation+credit cooperation”.

As for the ownership reform of rural land, we suggest learning from the historical“Tianhui mode”, implementing secondary land ow nership, and avoiding prohibit regulation of the land properties in the Constitution and other laws periodically. Under the premise of not changing the nature of collective ow nership of land, farmers have a certain disposition of land and implement conditional land transfer.

What's more, the idea to set up united society companies was put forw ard based on innovation issue of folk finance in Wenzhou.So that folk finance will be corporate, open, and institutionalized.The proposal has a strong realistic aim and also provides new ideas for the reform of non-governmental financing in Wenzhou.

The above innovations are the product of our thought over the years.For example, the China Banking Regulatory Commission（CBRC）has attached great importance to the recommendation on building community banks.To some extent, this viewpoint is the main theme of our study in this book.

Author

Zhejiang University

Summer,2016