Jointly issued notes: a financial instrument to improve SME credit worthiness in China

Abstract

A financial instrument to improve the credit worthiness of small and medium enterprises (SMEs), i.e. Jointly Issued Notes (JINs), improves the average credit rating of SMEs by eight notches, from BBB to AA+, thus reducing borrowing cost by 298 basis points. This research note describes the various kinds of JINs, and then analyzes their effect on the credit worthiness of SMEs. We conclude that the JINs successfully facilitate access to credit at lower rates in China.

Keywords:

• jointly issued notes
• credit worthiness
• small and medium enterprises
• financial instrument
• China

JEL Classifications:

• G12
• G24
• G32

Acknowledgments

The authors thank Michael B. Connolly, Judith Clifton, Tianran Shu, Xiaoxin Zhang and an anonymous referee for their helpful suggestions. The authors also gratefully acknowledge the ‘Scholarship Award for the Excellence in Doctoral Research granted by the Ministry of Education’ and the ‘Hunan Provincial Innovation Foundation for Postgraduate Studies’.