The Study On The Cause, Development Of And Policy For Rural Informal Finance

Informal finance is a hot topic in financial deepening and financial development theory and policy practice for developing countries in the past two decades. In China, people become to realize its importance in the restructuring of rural finance system. Rural informal finance has existed for thousands of years. There's a necessity of its emerging, existence and evolution. Contrary to the approach taken in other researches which analyze rural informal finance supposing the existence of formal finance, this paper takes a long historical perspective and studies on its emerging background, historic forms and its evolution, focusing on the influence of China's "two-tier" social structure on the evolution of rural formal and informal financial system, of formal financial arrangement on informal ones, in order to clear up bias on informal finance. The paper also analyze reasons why informal finance exists arid evolves, tying to explain its necessity. Further to study effects of "cheap-loan" policy, rate liberalization in Taiwan, and this paper get its conclusion: we should mainstreaming informal finance. Also, under conductive policy conditions, informal financial institutions would take the opportunity of evolving to formal financial institutions. Thus governments should provide supports for their institutional development, encourage their cooperation with formal institutions, improving rural financial service. Other more, it is important to make supervision systematic creation according to the characteristic of informal finance, in order to provide prudential and effective regulation and supervision.The conclusion of this article has a practical significance in taking a right perspective on and making rational policy for informal finance, elaborating its positive financial serving function, improving peasants' welfare, perfecting rural financial system and reducing local financial risk.