The Reasons Of Informal Financial Crisis

For a long time, China’s financial market has shown the features of the formal finance and informal finance existed simultaneously. Informal finance has become an important financing channel for the small and medium-sized enterprises. But the attitude of domestic scholars on informal finance has been controversial. The government does not support even against borrowing. The second half of2011, many companies collapsed due to high interest rates. This "private financial crisis" pushed informal finance in argument. Many domestic scholars questioned the characteristics in informal finance of high interest rates, non-standard, speculation. Then, what caused so many enterprises closures on earth? Why the interest rate higher and higher. Until the small and medium-sized enterprise cannot bear it? What should government do? Aiming at, this article from the government, financial institutions, private financial perspective, using the paper designed to explain these problems from the aspect of the government, financial institutions, private financial perspective, used the theory of property rights, and combined with the price theory, and put forward the corresponding policy suggestions combined with the defect of property right which existed in China’s financial system.This paper is divided into five parts, structure arrangement is:The first chapter is introduction. Mainly introduce the research background and significance, literature review, research methods and the innovation and weakness.The second chapter defines the concept of informal finance and analyzes economical characteristics of it, elaborated informal finance’s development status and existing problems combined with informal debit and credit crisis. Conclusion: private lending market shows a high rate, speculative, non-standard features, and reflects the contradiction phenomenon that hard financing of small-and-medium-sized enterprises and hard investment of private capital existed at the same time.The third chapter mainly introduces the basic theory of new institutional economics, builds property right analysis frame, laid the theoretical foundation for the later analysisThe fourth chapter uses property rights theory and price theory to analyze the reason of informal debit and credit crisis from the system level, proves the rationality of the informal finance. Conclusion:the reason why private financial market has high interest rates, high risk, rent-seeking lies in the unreasonable property right system-government regulates interest rates and sets up entry barrier; public property right has a low efficiency, private property has been restricted; private lending market is lack of the contract protection system and other factors to guarantee the smooth implementation of the contract.The fifth chapter is the summary of research and policy recommendations. According to previous analysis, this part summarizes unreasonable property right system in China, pointed out the future direction of the institutional innovation. The first is to build effective property right system, guarantee fund owner’s lending rights from the legal, establish the legal status of private lending, improves the efficiency of institutional arrangements. The second is to further reduce barriers to entry the banking industry, ensure the informal finance enjoy equal treatment with the state-owned banks. The last is to accelerate the process of interest rate liberalization. Only in this way, the rent-seeking behavior can be reduced from go up at all.