Research Of Informal Finance And The Response Of The Legal Risks In China

Due to the longtime legal discrimination against informal finance, the dividing lines between informal finance and illegal financing are becoming more and more blurred, and the lack of rights guarantee mechanisms and legal system of supervision become obstacles to the development of informal finance. Reasons resulting in such phenomena not only include the type of government leading way of economic reforms, but also include the shortcomings of informal finance itself. More importantly, the original formulated legal system doesn't keep pace with the current economy development in some aspects. With the establishment of market economy, by listing the basic principle of"running the country according to law"into the country's constitution, and the issue of Property Law, Anti-Monopoly Law, and Tort Law, the concept of economy governed by law is widely known. Besides, the market entities require to be treated equally. What's more, the principle of fair competition also sets us reflecting upon the legal risk that informal finance is facing in our country. According to the non-perfect theory of law, financial legislation must keep up with the pace of socio-economic development. Our state must give up excessive intervention in the financial sector, allow non-nationalization, non-bank financial institutions into the financial system, and break the pattern of financial monopoly, so as to establish a competitive financial system.There are many forms of informal finance in china, such as private lending, rural cooperative foundations, underground banking and private equity funds. They play an important role in making up for the lack of formal finance, SME development and improving China's financial system. However, there are a number of legal risks existed in informal finance. These legal risks mainly include: legal entity's lacking of status; lack of legal protection of rights, rights vulnerable to violations of government policy; a blank of law supervisory system, and etc. As the financial regulatory legislation emphasizes the unity of the financial safety and efficiency, preventing financial risks and safeguarding the financial security is the basic objective of financial supervision. Actually, it is always sacrificing some efficiency to achieve the order and stability, which also led to informal finance legal risk. Therefore, we should learn the successful experience from foreign in the way of managing informal finance. By compared the development of informal financial system and the legislation in the United States, Japan, India and other countries, we come to the conclusion that: Financial legislation must keep up with the pace of socio-economic development, countries must give up too much intervention on the financial sector and allow non-nationalization, non-bank financial institutions to enter the market. Breaking financial monopolies and fostering a competitive financial system are important, too.The research of informal finance and the response of the legal risks are important issues in China's financial market, and it is a hot spot in China's financial laws as well. To have a better understanding of the legislative value orientation can help eliminate the discrimination against informal finance, give legal status to it, protect its legal rights, and provide a fair development environment for it to achieve the goal of free trade and fair competition. Therefore, to resolve the legal risks of non-formal finance in market is for the needs of promoting the diverse finance development in China's financial system and the needs of improvement of financial legal system.