Chinese Banking Credit Structure - Research Paper Example

Research Philosophy The purpose of any research is to establish a theory and this requires a body of knowledge. This body of knowledge in turn is produced through the process of research (Amaratunga et al., 2002). The method of research cannot be predetermined or predefined. Different methods of research may have to be used for different purposes as research means differently to different people. Despite the differences, research has certain characteristics – it requires investigation, it is a process of inquiry and it increases knowledge. It relies on facts, experience and data. Generally qualitative and the quantitative methods of research are the two methods employed and each method has its own purposes, advantages and disadvantages. While qualitative data covers a range of material collected from previous research, literature review, case studies and unstructured interviews, quantitative data is numerical in form (Jones, 2004). However, knowing about the different research methods is not sufficient. It is important to understand the difference between the two approaches as it allows the researcher to take an informed decision (Knox, 2004). The researcher is also able to take into consideration the constraints of the method of research used and understand the significance of each method knowingly. Research Methodology Based on two different schools of thought on the how research should be conducted, arguments have to be evaluated in different ways because arguments have different roles and purposes. Besides, people assess according to the purpose in their mind. Research can either be quantitative (deductive) or qualitative (inductive). Arguments are important because they provide useful information on how the world functions. Arguments hence can be evaluated in two qualitatively different ways – either in terms of their deductive correctness or in terms of inductive strength (Rips, 2001). Arguments can range from worthless ones to ones to which there can be no doubts raised. If the conclusion is true the arguments is deductively correct. If the premises support its conclusion it is inductively strong. The inductive method focuses on words and observations to describe people in natural situations. According to the deductive approach, generalizations can be made from a set of events in that past and future decisions can be taken accordingly. There is also a great emphasis on numbers representing opinions or concepts. Both methods discussed here have their own strengths and weaknesses which makes the selection of methodology difficult. Research Design Research design would include primary data collection but before that secondary research through extensive literature review is important. Literature review is a quick and easy collection of general information about the subject (Obenzinger, 2005). A substantive, thorough, sophisticated literature review, contend Boote and Beile (2005) is a precondition for doing substantive, thorough, sophisticated research. Literature review would help to understand what has been done and segregate from what needs to be done. Literature review helps to understand to understand the strengths and weaknesses of the existing studies and its implication. Literature review helps to synthesize the previous perspectives and gain and new one. Literature review gives the perspective of different researchers over the past period and extends over more than one research. This implies that it would be possible to understand the trends in credit extension. Based on the literature review the context of the study would be set and demarcate what is and what is not within the scope of the investigation. Literature review would also critically examine the research methods and a productive insight into the literature helps to develop the next step in the research process. It is essential to get the right perspective of the way credit lending functions in China among the SMEs. This would require the opinion/views and experiences of not just the government and the bank officials but also of the direct customers or the SMEs. The opinion of the SMEs is important because it impacts the economy of the nation. Hence based on the literature review the interpretive or the inductive method of research would be employed here. The attitude theory would be used because it is basically the attitude of the entrepreneur of the SMEs that is vital in determining the extent they are willing to go to take credit. It would help to understand why they feel discouraged from taking the credit extended or why they experience problems in the process. The attitude of the government and the banks is equally important. Logical positivism or the quantitative and experimental methods will be used which helps to test deductive generalizations (Amaratunga et al.,). In the quantitative method there is independence of the observer from the subject being observed, which is very essential particularly for this research. The explanations in this method will be reduced to the simplest possible elements in order to facilitate analysis. This study would help to make generalizations from a set of events in the past and future decisions can be taken accordingly. The quantitative approach places great stress on numbers that represent opinions or concepts. Based on the requirements, an objective observation is needed and we also want to find results which can be extrapolated. It is essential to identify the general principles of behaviour in order to formulate some recommendations to the government to enhance the credit to the SMEs. Data collection method For quantitative analysis data can be collected through mail questionnaires, interviews and published statistics (Gable, 1994). For this study, interviews will be used as it is a highly flexible method, can be used almost anywhere and has the potential to produce data of great depth. The purpose of this study is to determine the impact that the Chinese banking credit structure has on the financing of Chinese Small and Medium Enterprises. It would highlight the challenges that the SMEs face and enable the government to take appropriate decisions in the interest of the economy. To have a deeper understanding of the encounters and the challenges that SMEs face in approaching a financial institutions or a bank, telephone interviews will be conducted and survey through email will be held. Email address and the name of the contact person will be collected from the company websites, and government directory and an appointment sought for telephone interviews. The self-completion questionnaire for SMEs is as below: Questionnaire for SMEs 1. What are the hurdles that you face in getting the loan sanctioned? 2. How many days does it take to get the loan sanctioned? 3. How many days does it take to process documents after loan has been sanctioned? 4. What are the pitfalls in getting the disbursements? 5. Do you think the sanctioning process could be streamlined? 6. Do you suggest any ways to improve the disbursement process? 7. Is there heavy margin money required to receive the disbursement? 8. Is the rate of interest reasonable? 9. Which are the various offices/departments that require clearance for final disbursement? 10. Do you know of any SMEs that have given up projects for lack of credit or because of the tedious sanction and disbursement process? 11. Has collateral been a constraint in receiving credit? Such simple format allows the ability for unambiguous quantitative data to be collected (Redmond & Griffith, 2003). The format has been kept relatively simple and straightforward because it is not possible to have control over the respondents’ interpretation of questions. Interviews are a mode of data collection; it is chosen as a mode of inquiry because it helps to understand an experience and derive meaning from that experience (Seidman, 1998 cited by Eggenberger & Nelms, 2006). Interviews, more than a data gathering technique, are socials encounter where knowledge is constructed. The individual in-depth interviews are also important because it enable the interviewer to delve deeply into social and personal matters (DiCicco-Bloom & Crabtree, 2006). It unveils a person’s emotions, beliefs, problems, experience and actions (Eggenberger & Nelms). This would particularly help with this research as the objective is to determine how the SMEs react to the credit policies of the government and the banks. Questionnaires for the Public sector banks/small private sector banks are as under: Questionnaire for the Public sector banks/small private sector banks 1. How many SMEs have you extended credit to in the past 10 years? 2. How many SMEs have you turned down in the past ten years? 3. What has been the average amount of credit extended to the SMEs? 4. What is the average tenure for which the credit is extended? 5. What is the moratorium period? Is it negotiable? 6. Do you have SMEs requesting for extensions on the moratorium when the loans become due? 7. Do what extent have SMEs failed to repay the credit extended? 8. What has been the average rate of recovery of credit from the SMEs? 9. Do you invite suggestions from the SMEs to understand their grievances? 10. To what extent collateral is necessary for the SMEs in order to receive credit? 11. Is profitability the only motive in extending credit to SMEs? 12. Do you deal directly with the SMEs or is there any agent involved? Questionnaire for the Government: 1. What is the support that the government provides to the SMEs enabling them to access credit from banks? 2. What is the support that the government provides to the banks to extend credit to the SMEs? 3. Do you prefer certain sector over other when extending credit to SMEs? 4. What is the measure in force to evaluate non-performing loans? 5. What tax benefits are extended to the SMEs facilitating the credit? 6. Does the interest and credit structure vary at different stages of the industry? 7. Is there a quota that public sector banks have to adhere to while extending credit to SMEs? 8. How is the system in China different from the developing countries in extending credit to SMEs? Interviews can be close-ended or fixed-alternate answers, or open-ended interviews. Individual in-depth interviews are important of the government and the bank officials. For the purpose of this study, the open-ended interviews will be conducted in which the prepared questions can be reformulated depending upon the responses received. Open-ended interviews are more spontaneous, and also offer a two-way interaction which is not generally permitted by the standardized approach (Herod, 1993). Interviewees are able to introduce topics and speak in their own words and do not have to follow the categories dictated by the researcher. This would be particularly helpful for this research because generalizing about their attitude would not serve any purpose. In this qualitative method of study, a positivist conception of the approach will be adopted so that the social interaction between the interviewer and the interviewee is kept to the minimum. Maintaining the necessary social distance is important for the researcher so that no biases affect the outcome of the interview by injecting personal opinion or values. This method ensures objectivity, detachment and hierarchy which are more important than individualized concerns. Data Analysis The research topic has to be seen from the perspective of the interviewee. To determine the reasons that banks and financial institutions are apprehensive of credit facility to SMEs, quantitative data in the form of interviews would be helpful. To be useful, such primary data needs to be analysed (Saunders, 2003, p.327). Sphinx software, a personal computer based analysis software will be useful to establish relationship between variables. SMEs from different sector and geographical locations in China would be interviewed to get the true picture. Reliability and validity Reliability and validity are an important part of the research. Reliability is a precondition to validity. Reliability is ‘the degree to which measurements are consistent’ and validity is ‘the extent to which the procedure measures what it is intended to measure’ (Redmond & Griffith, 2003). Reliability gives researchers the confidence and also ensures that worthless and misleading data is not unnecessarily collected. Amaratunga et al., (2002) describe valid measure as “one which measures what it is intended to measure”. If the same results in the same circumstances come up repeatedly, the measurement procedure is considered reliable even if it is measured by different people. The outcome of this research relies not just on the research conducted by other people and but also on interviews directly with the SMEs and the banks and the government representatives. Articles published in academic journals and popular newspapers will be concentrated upon. Hence the validity of the data is ensured. This form of methodology is expected to deliver reliable results as all important variables have been considered. It is expected that that data analyzed and the outcome would contribute to the existing knowledge and make the decision making process easier for the SMEs in China in availing of the credit facility from banks and other financial institutions. It is also likely that the apprehensions nurtured by the SMEs regarding barriers like bureaucracy and security are proved false. Ethical concerns The interviewees will be clearly informed of the purpose of the research and no incentives would be offered for would not be pressurized into giving the answers. The participants would be assured of anonymity and all data collected will be destroyed after the interview to avoid complications. References Amaratunga, D., Baldry, D., Sarshar, M., & Newton, R. (2002). Quantitative and Qualitative Research in the built environment: application of mixed research approach, Work Study, 15 (1), 17-31 Boote, D. N., & Beile, P. (2005). Scholars Before Researchers: On the Centrality of the Dissertation Literature Review in Research Preparation, Educational Researcher, 34 (6), 3–15 DiCicco-Bloom, B., & Crabtree, B. F. (2006). The qualitative research interview, Medical Education, 40, 314–321 EGGENBERGER S.K., & NELMS T.P. (2007). Family interviews as a method for family research. Journal of Advanced Nursing. 58(3), 282–292 Gable, G. G. (1994). Integrating case study and survey research methods: an example in information systems. European Journal of Information Systems. 3 (2), 112-126 Heord, A. (1993). Gender Issues in the Use of Interviewing as a Research Method, Professional Geographer, 45(3), 305-317 Jones, C. (2004) Quantitative and Qualitative Research: Conflicting Paradigms or Perfect Partners? Available online 06 October 2009 from http://www.networkedlearningconference.org.uk/past/nlc2004/proceedings/symposia/symposium4/jones.htm Knox, K. (n.d.). A Researcher’s Dilemma - Philosophical and Methodological Pluralism. Available online 06 October 2009 from http://www.ejbrm.com/vol2/v2-i2/vol2-issue2-art7-knox.pdf Obenzinger, H. (2005). What can a literature review do for me? Available online 06 October 2009 from http://www.stanford.edu/dept/undergrad/urp/PDFLibrary/writing/LiteratureReviewHandout.pdf Redmond, E. C., & Griffith, C. J. (2003). A comparison and evaluation of research methods used in consumer food safety studies, International Journal of Consumer Studies, 27 (1), 17–33 Rips, L. J. (2001). Two Kinds of Reasoning, American Psychological Society, 12 (2), 129-134 Saunders, M., Lewis, P., & Thornhill, A. (2007). Research methods for business students (4th ed.). Madrid: Pearson Education. Read More