An Analysis Of The Cooperation Between Folk Finance And Formal Finance

The folk finance obviously plays an increasing important role in our economic development. There's nothing subtle about it, especially when our formal financial institutions are pursuing for profit maximization which would lead them to leave those areas with low returns. The retreat of the big four financial institutions from the rural financial market is the very example. The absence of the fund supply in these areas provides folk finance a golden opportunity of development.However, folk finance in our country have been always being discriminated and couldn't be recognized as legal units which they deserve since they are dispersion , blindfold and nonstandard comparing with those formal financial institutions. It confines the folk finance's exertion of the comparative advantage. What's more , folk finance are likely to be seduced to stay underground and be kept out of the government's watch which is absolutely bad for the development of our economy.An analysis of this issue is deployed through the methods of comparative analysis approach and evolutionary game theory. Firstly, the reasons why folk finance grows are given in the eyes of developed country, developing country and china respectively to prove that the existence of folk finance is logical and necessary. Secondly, this paper roots out the relationship between formal finance and folk finance by studying the history track of the development of folk finance which means they are not only the competitors but also the co-workers. And it makes a further progress in the research of their imperfect substituted relationship through a game model. Further more, in the interest of what are the key factors influencing the cooperation, this paper simulated the process of the cooperation between folk finance and formal finance relying to an evolutionary game model. Finally, take the reform of the rural financial market for example, this paper struggled to put forward a way to take the advantages of the combination between folk finance and formal finance in the condition of an obviously unbalanced rural financial market.All in all, this paper thinks that the development of folk finance can't be forbidden. Only if the government give the right policy to guide folk finance , it turns out to be a healthy and prosper financial market . At present, what the government could do and what the government should do is to provide a good environment for both of the folk and formal finance to facilitate their cooperation. Thus, a system that could attract the huge national savings and investments by offering a competitive rate of return and then inject the national savings into those areas which need capital greatly should be set up.