Research On Legal Regulation Of Folk Finance

The Private Lending Crisis erupted in2011has exposed many problems in China’s private financing sector, such as private capital "investment difficulties", small and medium-sized enterprises and individuals "financing difficulties", illegal financial activities being seriously, the private financial system being in urgent need of reform, etc., and has aroused the widespread concern of the state authorities and the society. How to improve the legal regulation of China’s private finance becomes an important and hot issue in current legal research and practice.From the perspective of law, private finance means the monetary financing (mainly) activities that take place outside the official and formal financial market, not based on the state or formal financial institutions’credit and lack of financial regulation. Private finance may be classified from the angles of legal effectiveness, organizational form, development pattern and legal character.Legal regulation of private finance has its profound rationality basis. From the perspective of theoretical basis, the legal regulation of private finance has the support from the ideology of financial liberalism under the state intervention, the theory of "market failure" and the theory of "social contract". From the perspective of realistic inevitability, the main tasks that are facing by China’s private financing sector, including the improvement of private financial legal system and the regulation of financial market, the prevention and resolution of private financial crisis, the meet of market investment demands and financing demands and the formation of a healthy private financial system, cannot be completed without legal means. The legal regulation of private finance shall regard the principle of distinguishing regulation, the principle of focus regulation and the principle of proportional regulation as the guiding ideology, pursue the unification of economic effect, legal effect and social effect so as to realize the minimum, the most economical and the most appropriate intervene in private finance.There are so many problems exist in China’s legislation and jurisdiction pertinent to private lending that private lending crisis is unavoidable. Private lending may be divided into legal private lending and illegal private lending from the angle of legal effectiveness. Legal private lending may be divided into private civil credit and commercial credit and illegal private lending may be divided into illegal operating credit, usury and illegal fund-raising credit. It is suggested that China should adhere to the principle of distinguishing regulation, the principle of focus regulation and the principle of proportional regulation to enact a piece of special law titled "Non-bank Credit Protection Law" and the laws titled "Law of Limitation on Interest Rate" and "Illegal Finance Regulatory Law" additionally according to the legal classification of private lending so as to regulate private lending comprehensively via multiple legislation.The financial activities of "He-hui" have the most social reality and influence among the intermediate pattern of private finance."He-hui" is a type of reciprocal private credit organization. The legal character of the financial activities of "He-hui" is a kind of private reciprocal collective financial arrangement. The root cause of the "He-hui" collapse risk lies in that "He-hui" financial activities are not based on the modern security interest legal system which can prevent risks effectively but extremely rely on the private credit (trust). It is appropriate for China to learn the regulatory attitude and strategy towards "He-hui" financial activities from Taiwan and Hong Kong comprehensively. China shall regulate "He-hui" distinctively in accordance with the evolvement and status quo of "He-hui", comply with the international trend to enact special laws to regulate the financial activities of "He-hui" and maintain the traditional and private nature of "He-hui".The financial activities of private credit and private offered funds have the most social influence among the professional pattern of private finance and are in urgent need of legal regulation. The private commercial credit is the priority of the regulation on private credit and the private operating credit in hiding is the difficulty of the regulation on private credit. China shall establish the legal standard and discerning rules for the private operating credit in hiding, accomplish the transformation process of publicity, legalization and regularization of the private operating credit in hiding, establish the supervisory legal system over the private commercial credit and bring the guiding role of the policy into play in the development of commercial credit. Private offered funds have experienced six development stages in China and the enactment of the Fund Law of the People’s Republic of China on Investment in Securities (Revised) in2013declared that China’s private offered funds have entered into the development stage of regularization. After making an analysis of the pros and cons of the legislation on private offered funds, it is suggested that China shall make necessary stipulations to regulate the operation of incorporated private offered funds and limited liability partnership private offered funds, enact the "Implementation Rules of the Fund Law of the People’s Republic of China on Investment in Securities (Revised)" or "Non-Publicly Offered Funds Investment Management Measures", further expand the scope that private offered funds may get involved in the futures market and strengthen the supervision, lower the threshold of engaging in the management of publicly offered funds setting up for a fund management institution which specializes in the management of non-publicly offered funds appropriately and take administrative and legal measures to promote the limited liability partnership private offered funds to be the mainstream of China’s private offered funds.Usury should be the most classic one among the abnormal pattern of private finance. It is the common problem existing in the simple pattern, the intermediate pattern and the professional pattern of private finance. China has no special law or criminal accusation to crack down on the activities related to usury. Due to the serious social harmfulness of usury-related activities, lack of legal definition and identification criterion, weak supervision and regulation, constitute an independent crime in practice but lawlessness in terms of criminal penalty, push up the private lending interest rate, etc., it is suggested, on the basis of a comparative analysis of the relevant overseas legislation on usury, that China shall enact the "Law of Anti-Usury" and provide a specific criminal accusation on usury and link up with other laws and regulations so as to supervise and regulate the usury-related activities comprehensively.