Non-formal Financial Organizations In Developing Countries: The Effectiveness And Mechanism

This paper studies the effectiveness and mechanism of the informal finance organization. As a wide spread form of the world, this subject has been neglected for a long period of time. It is common sense that the informal finance organization is the result of the undeveloped financial system and will evolve into a more formal organization with the development of the economy.Bases on the effectiveness of the informal finance organization, we study the information mechanism of the informal finance. In short, this mechanism improves the welfare of the member of the organization and solves the problem of moral hazard and adverse selection in the traditional financial market.Our conclusion is suggestive: the success of the informal financial system is bases on its particular informal mechanism, and this mechanism provides positive cases for the tailoring of financial policy in the developing countries.In our view, the unique role of the informal finance stem from its unique information mechanism and information mechanism. And this determines that the informal finance will not be easily displaced by the formal finance system with the evolvement of the economy.