Abstract：After 2012, the contagion of loan defaults in the middle and small business’ group lending has been called a financial contagion in the Yangtze River delta. The financial mode of group lending was used to be a life-saving straw of middle and small companies. What is the future of group lending in middle and small business? In this paper, case study has been done on the group lending in Shanghai’s steel trade industry. On this basis, it gets the keys of group lending which make it transfer from life-saving straw to financial contagion. Those keys are the size of the loan, the inner penalty and the outer shock. Then those factors are put into evolutionary game model. After calculation of the model, this paper finds the seesaw of repayment in the group lending. On this seesaw, the person who repay the loans and the person who do not repay the loans sit on the two ends. Based on the seesaw of repayment, this paper gives some suggestion on policies in the future. First, control the place of seesaw’s pivot through increasing the inner penalty and maintaining a suitable size of loan. This way can enhance the group lending’s ability of defense from outer shocks. Second, change the seesaw to balance beam. That means changing the group lending to credit loans. This way can void the contagion of defaults when there is a bigger shock. Third, do not play seesaws when you have grown up, because group lending is not suitable for big business.
Keywords：Middle and Small Business, Group Lending, Evolutionary Game
source:Finance & Trade Economics ,No6,2013