A Study Of Interest Rate Mechanism And Supervision Policies Of Informal Financial Market

The informal finance terms is in contrast to the formal finance. It includes borrowing, various forms of cooperation, credit intermediation, private banks, informal funds, rural cooperative, rural credit cooperatives.This paper introduces the organizations of informal financial market, a detailed analysis of organization of informal finance enterprises. Then analize the structure of informal financial markets from the supply and the demand side.From the supply side, since the reform and the opening up, as China's income distribution changes and the mode of economic entities diversify ,the supply and demand for capital is also experiencing a change in the period of economic restructuring, the state financial control to the private sector supply and demand demonstrated the unique nature. The sources of informal financial capital are: (1) savings; (2) non-state-owned enterprises savings; (3) the deposits organized by grassroots government. Why are people willing to put money into the informal financial institutions? The main causes are as follows (1) the networks of informal finance institutions are widely distributed, and are convenient for the people's savings; (2)in the case of township and private enterprises, because of segmented markets they have to face the informal financial markets; (3)the control of interest rates causes a large amount of money to pour into informal financial markets to pursuit high returns. The supply of informal finance has following characteristics: (1) pursuit of the high yield of financial assets; (2) cooperate and help each other. (3) lack of flexibility of supply; (4) easy disputes; (5) low efficiency in the use of capital; (6)too simple services.From the demand side of informal finance market, the main demand are: the farmers, non-state-owned economy. With market-oriented reforms, the welfare system under the planned system happened a corresponding change, particularly in health, education, pensions and other social welfare system and people's consumption is expected to change. From the transition, with the changing in the mode of distribution, the income gap of inhabitants is continuing expanding. People of different income level have different demand for financial assets. A large number of township enterprises have emerged since the reform and privately-owned enterprises have become an important component of the market economy. Their very strong demand for capital and the state's financial system is unable to meet this requirement. So they have to turn to formal financial market.