Research On The Development Of Informal Credit In China

In recent years, the development of informal credit in our country has become increasingly active. The "monetary policy report", published by People's Bank of China (PBC) on 15th August 2008, not only approves the importance of the informal credit, but also points out the informal credit, with the features of standard and orderly development, is beneficial to break the long existing patterns of the market which is monopolized by formal financial institutions, and then promote the formation and development of the multi-level credit market. At the same time, since informal credit has been outside the financial supervision system for a long time, the disordered development of the informal credit has some adverse impacts on market and social stability. Therefore, it has an important theoretical and practical significance of making research on the development of the informal credit in our country.From the perspective of the economics and laws, informal credit, in general, refers to the summation of value transfer by using the monetary funds as the underlying objects and debt services activities, which is undertaken by the economic entities that besides the financial supervision system.With the characteristics of universality, geopolitical, non-regulatory and concealment, it mainly includes private financing (include usury), credit intermediation, pawn, benefit association, private bank, informal raising funds etc.,in which, private financing is the primary form of the informal credit, and private bank is the senior form of the informal credit.Informal credit is a specific operation mode of social economy. Using income expenditure approach could estimate the scale of underground economy, this paper estimates the informal credit scale of our country as well as different provinces, based on the hypothesis, that is, all informal credits are short term credits and both underground economy and open economy have equal proportion of short term credits.For the whole country, at the initial stage of reform, our informal credit scale is relatively small, however, it extends from about 100 billions Yuan in 1991 to above 1000 billions Yuan in 2006.For different provinces, the informal credit scale has a great difference, in general, it appears a decreasing trend between each regions(from east→middle→west).According to the calculation results of each index that measured the strength of dual structure, the difference of urban-rural dual structure is large. By analyzing, the empirical results point out:Firstly, the urban-rural dual structure will trigger the formation of urban-rural dual financial structure, and the distribution of financial institutions is imbalanced between urban and rural area, In other words, the distribution of banking market structure is seriously imbalanced.Therefore, the resulting effects of reflecting the monetary policy make the distributions of resource are imbalanced between urban and rural as well.It is obvious that such imbalance provides not only a space for the development of informal credit in rural area, but also an opportunity for the existence of informal credit in the whole society. Secondly, the dual structure is the Granger cause of the development of the informal credit, and there is a long term equilibrium relationship between the informal credit and dual structure. It is obvious that China, a developing country, has certain financial repression, for the small, medium and large sized enterprise as well as the enterprise in culture, growth and maturity stage, the provision of capital is imbalanced. Therefore, the informal credit is used for supplementing the formal finance.Thirdly, the financial liberalization policy in the early period of enforcement is able to restrain the development of informal finance, but the inhibition effect will disappear after a certain period. Fourthly, both deposit and credit rate of banks have impacts on capital supply and demand of the informal credit market respectively. The results indicate that up-regulating the deposit rate will reduce the informal credit, while, up-regulating the lending rate will increase the informal credit. Clearly, the lending rate has a greater effect than the deposit rate. Therefore, a tight monetary policy will result in an expansion of the informal credit. Finally, both non-state-owned economy and collective economy are one of the major capital demanders in the informal credit market, with the development of them, the result indicates that there is a increasing demand for capital, which can boost the development of informal credit. In fact, the causes of informal credit are various and the development of the informal credit will effected by many factors, that means the existence and development of the informal credit has its inevitability.Informal credit has a promoting effect on economic development, the empirical analysis indicates that the development of the informal credit is the Granger cause of the development of the non-state-owned and non-collective economy, although the informal credit has a less promoting effect on non-state-owned and non-collective economy at current period,it has a significant lag effect, which can promote the development of non-state-owned and non-collective economy. At present, both non-state-owned and non-collective economy have contributed more and more to our economic growth, it makes the informal credit plays an important role in promoting the development of the economy. However, it has a different effect on economic growth in different regions, it is obvious that its promoting force for the development of economy appears a decreasing trend from east, middle, west to northeast region, in which, the east area has the largest promoting force, while the differences between middle, west and northeast area are small.Based on various cases of informal credit, lacking of standard and supervision are easier to induce usury so that harm the interests of the borrowers and involve the intervention of gangdom power, and then affect the social stability. At current stage, informal credit does not fully have a clear legal status, obviously, lacking of legal basis and supervision will cause the operation of the informal credit has a strong characteristic of arbitrariness and enable its infinite extension, therefore, if the capital chain is broken, it will not only enables the capital suppliers suffer losses, but also increase the risk of informal credit market.By learning the experiences of the developed and developing countries, this paper provides following suggestions:it is necessary to standardize the informal credit based on the principles of efficiency first and consideration to fairness, make independent choice and control risks;it is important to accept the legal status of the informal credit on the basis of maintaining its characteristic of informal finance, enhance the supervision for the informal credit, and then direct the senior form of informal credit transferring from informal to formal financial institution. For the scale of informal credit, it requires not only following the inherent law of banking interest rate for deposits and loans, but also controlling the scale that assure the informal credit is in accord with the development of the private economy.