Research On China Informal Financial Problems In The Development Of Rural Economy

Informal finance exists in the world widely, especially been concerned by developing countries in the recent years. Informal finance plays an irreplaceable important role in the economic development of developing countries. There are a lot of researches aboard, but in China, informal finance exists for a long time, but has not. been given attention. As Chinese economic system reform going on, the demand of capital in rural economy is increasing more and more, but the state-owned formal financial in rural areas are gradually shrinking, there have been formal financial supply shortage. Therefore informal finance cannot meet the demand of rural economic development. It creates the condition for the rapid development of informal finance objectively. Informal finance is based on kinship, geographical generated, having a natural advantage compared with the formal finance, making up for shortage of supply in a certain extent and meeting the demand of capital of farmers and business, promoting rural economic developing. However, there are some drawbacks in informal finance of rural areas:for example, because its irregular operating mechanism, informal finances existing a high financial risk, which easily leads to dispute and social instability. The activities are hidden, beyond the supervision and management of government and financial regulatory, the law are absent of the part of the informal finance. Therefore, how to solve the problem effectively, how to deal with informal finance correctly, how to regular the development of informal finance to enable them to track and promote rural economic development better, it is particularly urgent.The article gives the definition of informal finance in rural area of China at first, the concept of informal finance is relative to the formal finance terms, existing in the rural areas, and its financing is not under the supervision and management of financial authorities. The informal finance provides financial services for the majority of rural enterprises and farmers in the form of financial capital. Then the paper introduces the development of informal finance of rural area, including the scale analysis and interest rate analysis. In the following, the paper introduces the major organizational forms of informal finance, private lending, community funds, RCAs, silver back, and private banks, and the pawn industry. Which reveals the positive impact of rural economic development of informal finance, making up for the lack of formal finance and meeting the requirements of the rural economy to conduct to the improvement of financial system and not been limited by macroeconomic policies; it also points out the negative impact that increasing the burden on peasants, leading to violations easily, resulting in financial risks. And points out the main issues of informal finance, including that the operation of informal finance system is not standardized, unsecured credit, high interest rates and beyond the supervision of government and undermine the effectiveness of national macroeconomic policies. Next, the article describes the informal financial models of the United States, Japan, Bangladesh and Taiwan, and provides the recommendations to regulate the development of informal finance in rural areas on the basis of learning from successful overseas models. First, improving the legal system for informal finance. Second, transforming the government functions. Third, establish and improve civil service system. Fourth, increasing investment in the financial system in rural area. Fifth, innovating financial service products to meet the diverse needs of rural areas. Sixth, regulating the informal financial activities. Seventh, strengthening government supervision and improve supervision. Through the implementation of these measures to give full play to the positive informal financial service functions, improve the rural financial system to support rural economic development better.