Research Of Informal Financial Markets Versus Financing For The SMEs

In China as a developing country which is in economic transition, the small and medium –size enterprises (SMEs) (especially the private enterprises) play an important role in economic liberallisation and growth. But their lack of access to finance constrained seriously their further development. The viewpoint which has been accepted widely is the difficulty that Chinese SMEs face in obtaining financing is due partly market failure and partly to the transitional financial system.The informal finance that exists extensively in developing countries and regions play an important role in the finance of SMEs. The main research on informal finance and small business finance has been reviewed in the beginning of this thesis. In the second part, the informal finance has been defined, and the advantage and disadvantage of Informal finance giving service to SMEs has been analyzed. That in the financial markets the borrowers are the same and the lenders are heterogeneous, is always presumed in the mail articles which research the equilibrium of financial markets. However, Informal finance exists rather extensively and has served as an important source of finance for the SMEs. In the third part of this thesis, on the basis of presume that the borrowers are heterogeneous, I made an financial market equilibrium model which contains heterogeneous lenders-informal and formal financial institutions, to study their optimization behavior and the characteristics of the market equilibrium. In the last part, the role that the Chinese private financial institutions play in small business finance and the problem are analyzed.