Research On China's Rural Informal Finance

The current inadequate supply of rural finance has become an obstacle to development of China's rural economic. Prior to the formal finance produced, there are a large number of informal financial forms exist in China's rural areas. Informal finance took a back seat for the rise of informal finance, but it has never been out of the stage of history. In this paper, based on the theoretical analysis put forward policy recommendations to promote the healthy development of China's informal finance.China's rural informal finance has far-reaching historical roots. An important indicator of the informal finance's origin is the generation monetary and credit. According to historical records, China's of currency appeared as early as the Shang period. The emergence of "jiaozi" in Northern Song Dynasty marked the emergence of China's currency notes. Borrowing appeared in the primitive stage. the emergence of private property, the expansion of the gap between rich and poor are the cause of credit.Since the reform and open policy, the Government has proposed a lot of documents to regulate the development of informal finance. These documents are on behalf of the Government's attitude to informal finance, but also determine the status of informal finance. China's informal finance has experienced the rise boom-recession-recovery process.Weak competitiveness of farmers and rural SMEs disadvantage determines it is difficult for SMEs to obtain financial support from formal financial institutions in rural areas. There is a big gap in the supply and demand of funds. Flexibility, diversity of informal finance adapts to the needs of financial activities in rural areas. A lot of drawbacks also exist in Informal finance such as irregularities, high interest rates, high wind, which determine the informal finance affecting our financial order in a certain extent. Informal finance has positive effect on the economy but also many disadvantages. How to select application of informal finance is the main thrust of this article.In this paper, interest rate is being considered because it is start at supply and demand of fund. In the presence of interest rate control of the situation, the supply of formal financial resources can not meet the demand. This gap can not be padded in the formal financial sector and capital requirements will turn to the informal financial sector. Normal financial sector and capital requirements will turn to the informal financial sector. In this paper, the analysis of the interest rate should be combined with the case of Wenzhou.The preceding analysis is intended to promote policy recommendations for the healthy development of informal financial, and policy proposals are the focus of this article.To promote the healthy development of informal finance, a very important measure is to legalize informal finance in business and guide informal finance to build a new financial body. This article covers the main players of small loan company and Village banks.The emergence of small loan company offers an effective way to legalize informal financial. The government supervision, standardize their operations, product design, etc have made a specification. To set up small loan company is an important way to the legalization of informal finance.Compared with normal-bank financial institutions Village banks is with a "threshold is low, the characteristics of strict supervision". Village bank's threshold is low and more conducive to the entry of private capital finance. If the informal financial effectively alliance with "big banks", not only improve the efficient use of private capital, but also effectively eased the shortage of supply of rural finance. Informal finance ease insufficient supply of rural finance, however there are a lot of drawbacks of informal finance. This paper analyzes the advantages and disadvantages of informal finance to propose countermeasures. This paper argues that it is a the main measures that putting informal finance into the formal financial system and legitimize it.