| The Central First Document of 2010 emphasizes pushing resources and elements to the rural arer, so capital is undoubtedly an important aspect of elements. Meanwhile, extending rural financial reform policies recent years, enhancing the quality and level of rural financial services is a further requirements and objectives for the reform and development of rural finance. Rural Finance is the core of the modern rural economy. By increasing rural incomes and ultimately promoting rural economic growth is undoubtedly the policy objective of the development of rural finance for Chinese government. Effective market system including rural credit markets is the guarantee of rural income growth. The Chinese government has never ceased reforming rural financial sector, but only pause the stratification plane of total system or management system can not fundamentally change the rural financial market. So the rural financial market in China is still inefficient market and still on emerging stage. Similar to the situation in most developing countries, rural households also are facing serious formal credit constraint in China. Rural finance insufficient supply and serious credit constraints in rural areas are the concrete manifestation of rural financial market failure. And the fundamental reason for rural financial market failures is asymmetric information. Meanwhile, unlike financial institutions in cities, rural financial institutions face a large number of small-scale, scattered farmers and rural SMEs. High transaction costs and lack of traditional collateral are the main special characteristics of rural financial market. The special characteristics of rural financial market have greatly contributed to asymmetric information which also determine that rural financial institutions must innovate financial products and services according to the special characteristics rural economic.The decision with regard to numbers of major issues in promoting rural reform and development made by CPC Central Committee" had passed on The Third Plenary Session of the 11th Central Committee in October 2008. This decision definitely put forward "establish modern rural financial system", "innovate rural financial system",''encourage the development of various microfinance suited the characteristics and demand of rural areas", which became the main way to achieve an end. The People's Bank of China and China Banking Regulatory Commission advanced "The proposal on speeding up the innovations of rural financial product and service mode" in October 2008. This proposal called for "establishing and developing a number of financial product and service mode to suit the actual demand of rural areas:innovating and improving new rural financial service mechanism, which can meet various needs of the rural financial service". The innovation of rural finance has become the reform direction of solving the problem that rural finance is hard to meet the demand of rural development, in addition, it's the focus which is concerned by theoretical studies and practice areas at present.Although theoretical studies have shown that the reason for rural credit market failure is asymmetric information. However, due to the limitations of research techniques, research methods as well as different definition of credit rationing caused by market failure, domestic scholars'research results can not fully and accurately reveal the status of the credit market failure. The reason of rural credit market failures need be for further confirmed by empirical analysis. Solution reason of market failures is the direction and objectives of the rural credit markets innovation. Because of insufficient research for this fundamental issue, researches on products and services innovative of rural credit markets are mostly complete. The main drawbacks are lack of systemic theory foundation. So mature theoretical framework has not yet formed.Following the main line of resolving rural credit market failure caused by information asymmetry revealed by the development economics and information economics, this thesis takes the typical cases of domestic and foreign financial products and services innovation as the research object, explores the micro-foundation of rural credit market innovation, refines the main logic line behind rural credit market innovation and provides theoretical basis and the policy recommendations for the development and improvement of rural credit and innovative mechanisms and also improving the level of rural financial services. The full text is divided into eight parts. The main contents and conclusions of the study are as follows:Part 1:The macro and micro performance of rural credit market failure The macro performance of rural credit market failure manifests in two aspects. First, inefficient supply of the rural formal credit sector and difficult to meet the ever-changing rural financial needs, namely unbalance of supply and demand in rural credit market. Information asymmetry and high transaction cost cause the unwillingness of formal financial institutions serving in the rural credit market, therefore, we can forecast some appearances, for instance, the insufficiency of financial institution branches in rural areas, large number of outflows from rural areas, and high bad loan ratio in rural financial institutions, to name but a few. Secondly, there are two separated sections in rural credit market in a long time, namely formal credit section and informal credit section (civil finance). Informal credit sections have the natural strength in collecting and managing lenders' information. As a result, they are widely existed in rural credit market that formal credit sections can't deploy funds effectively. The micro performance of rural credit market failure is the credit rationing exited among rural households and SMEs in rural areas which are the microeconomic agents in rural credit market. This study focuses on four types of information asymmetry non-price credit rationing mechanism, including quantity rationing, transaction cost rationing, social capital rationing and risk rationing. Our questionnaire is designed based on the Direct Elicitation Methodology can more accurately study of the different rationing mechanisms faced by farmer households. Using rural households sample from Jinhu and Sihong of Jiangsu Province, our thesis found that demand-based credit rationing households (including transaction costs rationing, social capital rationing and risk rationing) accounted for 18.77% of sample households, supply-based credit rationing rural households (quantity rationing) accounted for 14.95%. Therefore, non-price credit rationing rural households accounted for 33.72% of the total sample. Taking into account the effective demand for credit (excluding farmers do not need loans from the sample), non-price rationing households accounted for 52.86%.Part 2:The empirical analysis of the causes of rural credit market failureThe result shows that variables including education level of the head of the households, the dummy of households characteristics (whether are individual enterprise or not) are significantly negative affect the probability of demand credit rationing, large-scale farmers are significantly lower in the probability of credit rationing, also wage income is significantly negative affect the probability of all kinds of demand credit rationing. Lending experience which improves the level of symmetric information between farmers and financial institutions also negatively affect the probability of non-price credit rationing but positively affect the probability of quantity credit rationing. The positive correlation between social capital and the probability of quantity credit rationing shows that RCCs haven't make full use of the social capital of rural households. But more social capital the rural households have, the lower probability of non-price credit rationing.Part 3:Analysis of innovation paths of rural credit marketThis part focuses on how to make innovations to rural credit market by means of mitigating or reducing the information asymmetry between borrowers and lenders. The research frame is divided into two parts, first, rural credit mechanisms and product innovation between the two sides of the credit market, and second, credit institution innovation of three parties including lenders, borrowers and agents(for example information agents and risk agents). The first is the credit mechanism innovation, focusing on analysis of modifying effect of the core mechanism of micro-credit especially social capital in group lending mechanism on rural credit market failure. We use field survey data of group lending in Sihong of Jiangsu province to empirical analysis the effect of social capital on repayment performance of the lending groups. The result shows that variables measuring community-level organizational social capital, family network strength and trust pattern can significantly explain the different loan repayment performance of different lending groups. And social sanction can conduct an effective obligation on the borrowers'behaviors. Homogeneous lending groups are more successful. Also, the effect of social capital has its scope of within the community. The second is the rural credit product innovation, focusing on exploring how to use credit technologies based on "hard information" transaction-based and relationship-based credit techniques based on "soft information" to reduce the information asymmetry in the rural credit markets and analysing applicability of credit technology in rural credit markets. The final is the rural credit system innovation. The agent governance in incomplete market provides a guideline our study of rural credit linkage system. According to the different functions of rural agency, our thesis divides agents in rural credit market into information and risk agents. And we theoretically discuss the incentive compatibility conditions for information and risk agents based on the mechanism design theory. Based on international successful experience, we design the framework and elements of China's rural credit linkage system.
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