The evolution from informal micro-finance institutions toward formal banking institutions is a long march of one hundred years as far as small businesses and the island of Taiwan are concerned. It began in 1895 when the Chinese Imperial government relinquished sovereignty over the island and ceded it to Japan (Treaty of Shimonoseki). It ended in 1995 when Small and Medium Business Banks did not have to manage any longer some tontine-based funds, (hehui jin ). First, the Japanese colonial government (1895-1945), later the Chinese government (1945-1995) have relied on similar strategies in dealing with tontine-based forms of finance: regulating them, rarely banning them, and allowing certain types of micro-finance institutions to absorb them. This policy was designed for increasing the availability of credit to low-income entrepreneurs and eliminating their reliance on supposedly usurious but actually unpredictable financing means. This paper will examine the stages of this transformation.
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