Development Of Taiwan's Folk Finance In The 60-80 Years Of The 20th Century And Its Inspiration

As one of the representatives of "miracles of east Asia", Taiwan is admired very much all the time. Because it develops rapidly from the closed island economy focused around agriculture into the new export-oriented developing industrialized economy during short decades in the post-war period, and at the same time it provides abundant material for the academic research and the study of policies. There is something we have to watch out for. During the economy flying swiftly upward, Taiwan had a typical financial dualism system. Because it was supervised strictly by the government for a long time, it was the most rigid and backward in the whole economic system, and there was stronger finance repression. In such adverse conditions, Taiwan's economy could achieve the smooth take-off and rapid development over the past decades, the active folk finance's meritorious service should not be neglected. Due to the duality of economy, the existence and development of folk finance is a general phenomenon in developing countries. The folk finance will shrink gradually with the disappearance of economic duality. However, under the situation that Taiwan's dual economy disappeared gradually, there were still large scale, broad scope, and diverse forms of folk finance. Through probing into its history, cause and its function on the economy of Taiwan, we can learn how to promote the sound development of the mainland's folk finance.This article is mainly about the development of Taiwan's folk finance in the 60-80 years of the 20th century. The author carries on the deep analysis to the reasons for the existence and development and function of Taiwan's folk finance. Combining the development of the China mainland's folk finance, it could offer experiences and draw the lessons for the current development of the China mainland's folk finance. So it can promote the benign development of the China mainland's folk finance and maximize its role of promoting economy. This paper is divided into five sections.The first part is the theoretical foundation for the paper, i.e. Literature Review. It formulizes generally the state of development of theory of folk finance .It explains specifically the development and Chinese and foreign research focus on folk finance from two perspectives. It is mainly the discussion of questions such as the intension, reasons, efficiency of folk finance, etc, both at home and abroad. It states the viewpoints of the Taiwan's scholars after giving the foreign and mainland scholars to discuss the issue. Then the author provides his understanding to folk finance.The second part is about the development of Taiwan's folk finance in the 60-80 years of the 20th century. On one hand, it tells summarily the specific development of Taiwan's folk finance during this period. The fund scale of the folk finance of Taiwan is all very huge for a long time. Although the debt-credit interest rate of the folk finance was compared higher than the bank interest rate, the proportion of folk finance in the whole financial system was still high in Taiwan. On the other hand, because there were many organizational forms of folk finance in Taiwan, the author focuses particularly on the Underground banks, Underground investment companies and RCAs. It provides detailed information on their ways of operation and development courses, etc.The third part is about the reasons for the existence and development of Taiwan's folk finance. The first reason is all kinds of measures of finance repression. The first measure was that Taiwan authority took a very long period in bank interest rates. The second measure was new restrictions on new financial institutions and the scope of business. The third measure was public bank and credit rationing control. They provided the soil for the survival of folk finance. The second reason is the Taiwan's economy dualism. Especially in the high-speed developing period of the dual economy, the system of formal bank with external characteristic of the modern banks could not offer sufficient "financing rationing". The market failure of Taiwan's finance was the important reason for forming active folk finance. The third reason is low quality and channel blocked of financial intermediation services. On one hand, there was relatively less quantity of intermediary of the finance of Taiwan. On the other hand, the establishment of the financial intermediary of Taiwan was unreasonable. So it was difficult to obtain bank loans from the formal financial institution. The fourth reason is traditional lending practices deeply rooted. The fifth reason is competitive advantages of Taiwan's folk finance. The sixth reason is the policy orientation that Taiwan's government adapted to folk finance, etc. Through depositing and carrying on in-depth analysis in the reasons with development to folk finance of Taiwan, it indicates that the activeness of folk finance in Taiwan had its objectivity.The fourth part analyzes deeply the functions of folk finance on the Taiwan's economy. On one hand, it elaborated enormous impetus that folk finance had been produced to the economy of Taiwan. They were as follows. To a certain extent, Taiwan's folk finance was up to the lack of formal financial. Folk finance eased partly the difficult situation of private SME financing; thereby it promoted the development of the private economy. It imported private savings into productive sector enterprises successfully and improved the conversion efficiency from savings to investments, so it provided funds for Taiwan's rapid economic development. In a word, the folk finance performed meritorious deeds in the high-speed development of the economy of Taiwan. On the other hand, the folk finance had produced the certain negative consequences on the economy of Taiwan too. The cost and the risk of borrowing funds were higher, so the risk of folk finance was larger. The existence of folk finance was unfavorable to form the unified financial order in Taiwan. It seriously disturbed the financial order; especially the investment behaviors of the underground investment company in the 1980s. Because of its disguise and it ignore existence of "Central Bank ", the folk finance made the function of macro adjustments and controls of the government hardly full play its role in economic regulation.The fifth part mainly introduces the present situation of Mainland's folk finance and learns the lessons from the development of Taiwan's folk finance. Although Mainland's folk finance has been considered legitimate recently, the existence of folk finance in the mainland has a very long history, and its development has not been suspended. In particular, in recent years, folk finance accelerates in Zhejiang, a region of relatively rapid development of the private economy. Meanwhile in the northeast region, including Heilongjiang, the size of folk finance index is at a higher level. In this context, we can not ignore the existence of folk finance. We should re-understand and re-evaluate of the role of folk finance, then standardize and guide it to make it legal. We should strengthen supervision and standardize folk financial business. We could reduce the rate of human intervention through accelerating the pace of market-oriented domestic interest rates. It tells that we should gradually relax restrictions on access to folk capital in the banking industry and allow folk capital to enter the field of financial services. Meanwhile we need to strengthen folk credit and reduce the morals hazards of small and medium-sized enterprises and personal loans, so we can reduce the rate of violation of the bank loans. We should learn from RCAs lease Code of experiences in Taiwan and strengthen the relevant laws and regulations as soon as possible. We should improve the relevant laws about folk finance and use the laws to protect legitimate rights and interests of both sides. So it can guarantee that there are reasonable existence and development space in the folk finance. By drawing on Taiwan's experience in the development of folk finance in the 60-80 years of the 20th century and combining the development of Mainland's current folk finance, we can adopt appropriate measures to realize the benign development of China's folk finance and fully play its positive role in China's economic development.