Literature review Example | Topics and Well Written Essays - 2000 words

Literature review ExampleThe Chinese government has legalised on the loose(p) financing with the conditions that the money must not be brocaded from the general public and the maximum rate of interest must not exceed quadruple of the interest charged by formal institutions. Since ROSCAs typically vivify the interest through bidding among the potential loan receivers, they exceed the interest limit of the government and are thus considered illegal and operate under cloak (Chen, 2003 OECD Publishing,2005 Li and Hsu, 2009). Informal lending institutions are officially allowed to charge much higher than formal lending institutions, which is why the cost of borrowing from such sources becomes in truth expensive. Judging by their resources and capabilities, this puts additional financial burden on cliquish businesses. However, most of the loan applications by private businesses to banks and financial institutions get rejected to begin with on grounds of absence of a previous trust hi story, sufficient collaterals and guarantee of repayment. Thus, whereas formal lending institutions shy away from granting loans to private businesses, the credit infatuation created due to non-availability of finance is being increasingly tended to by informal lenders. The article tries to get an insight into the financial system of China and analyses the dynamics of formal and informal financial institutions (Tanaka and Molnar, 2008). Research and Analysis The literature primarily wants to estimate the sizes of formal and informal lending markets, the criteria based on which loans are granted in apiece of these markets and the propensity of private businesses to borrow from the formal and informal lending institutions. To fulfil its objectives, the authors Kensuke Tanaka and Margit Molnar primarily use data from modified copy of a 2002 survey, conducted on 2500 private enterprises in China by the State Administration for Industry and Commerce, modified by Chinese University of H ong Kong in 2004 (Chinese University of Hong Kong, 2004). Using the data, the authors have drawn a purview of the finance industry of China as given below Business size by sales (million ?) upto 1 1 to 3 3 to 10 10 to 20 20 to 50 more than 50 Businesses with borrowed funds 46% 57% 61% 64% 71% 58% Borrowings from formal lenders 14% 23% 28% 35% 44% 36% Borrowings from informal lenders 20% 18% 15% 12% 10% 8% Informal borrowings in products arena 23% 24% 20% 26% 9% 4% Informal borrowings in services sector 44% 35% 9% 12% 12% 9% The authors find that informal lenders are a significant source of finance for small private businesses, since formal lenders find them the riskiest due to unavailability of onetime(prenominal) credit history. Moreover, borrowing from informal lenders is more rampant in services sector than the products sector, chiefly because they have less tangible goods to keep as collateral. The authors canvass the calculations with the findings of a survey conducted by C entral Finance University that stated that the least developed areas of China (which coincidentally host the smallest private businesses) have the highest share of credit from informal lenders (Central Finance University of China, 2005). Next, the authors try to understand the