The Development Of China’s Folk Financial And Risk Prevention

Folk financial forms spontaneously, which conforms to the needs of economic development and is divorced from the financial regulatory system. It has a long history, diverse forms and a rapid development in recent years. The development of folk financial has a certain reason. In our country, because of public ownership as the main body of the economic system and special historical reasons, banks mainly provide state-owned enterprises and large enterprises with funds in the formal financial market, and it is very difficult for small and medium-sized enterprises and rural market to get money from the formal financial market quickly and effectively. Financing becomes difficult and financing needs are not met, so these enterprises can only turn to the informal financial market. With the development of informal financial market and private investment, the folk finance has been an important power to promote the development of local economic in China, adjust the local industrial structure, drive the prosperity of urban and rural economy, and expand our social employment. But in this process, informal finance also brings huge risk. In Wenzhou, which is the birthplace of China’s private economy, small and medium-sized enterprises accounts for more than90%of local enterprises, and they need a great deal of financial support in the process of operation. But because of their small size and weak anti-risk ability, they rarely get loans from formal financial institutions, and can only turn to the informal financial market. In this case, huge demand of funds causes the need of funds in the informal financial market is greater than the supply and a lot of reasonable folk lending becomes risky usury, which leads to the crisis of Wenzhou folk loan happened at the end of2011. The crisis has brought a heavy blow to the economy of Wenzhou. Besides, it is reported the fund chain in the private financial market all over the country has ruptured, entrepreneurs run away and creditors’ funds do not come back again, and the creditors go bankrupt, which have serious damages to the social and economic stability, and private finance is pushed on the waves.What scale does folk finance have? Does folk finance development promote the economic development? What risks and defects does folk economy has in the development? How to avoid the risks and guide the healthy development of private finance? It is particularly important to solve these problems. This paper will analysis one by one. In this paper, we regards the folk finance as the research object, summarizes the folk finance from its definition, form, characteristics, and use empirical analysis to estimate the scale of folk financial and the influence of its expansion on economic. In the process,we find that private finance can promote the economic development, but the folk finance itself and its peripheral system regulation has risks and defects, and then we put forward countermeasures according to the defects existing in the folk finance.In this paper the author divides the article into five parts:the first part is introduction, in this part, it mainly introduces the topic’s background, research theory and practical significance, the review of research on folk finance, this research idea and methods used in the study. The second part is about the overview of the folk finance, in this part the author firstly defines folk finance in this article, and then describes the characteristics of folk financial,such as diversity, flexibility, concealment and professional, explain the causes of the folk financial expansion, and finally states the folk financial simple, intermediate and advanced form in the practical operation. This part can make us understand the folk finance better and clearer. The third part estimates the relationship between the folk financial scale and economic development by the empirical analysis, in this part, the author takes Anhui as an example, collects the relevant statistical data in Anhui from1997to2011, estimates the scale of Anhui folk finance by indirect calculation method, and finds Anhui folk finance is developing in the scale. And then according to the estimated data and the GDP data of Anhui, the author uses Eviews5software to make unit root simple test, cointegration test and Grainger test and obtains the conclusion that Anhui folk finance has a long-term and stable relationship with the economy of Anhui and the folk finance can promote the economic development. The fourth part is about the risks of folk finance, in this part, it mainly introduces the risks contained in the folk finance itself, such as, the risk of higher interest rates due to the tension between supply and demand, moral hazard, adverse selection and credit risk caused by asymmetric information. The folk financial operation environment also has defects, such as the illegal status of folk finance, the lack of legal regulation, backward legal system and the unreasonable current legal system and regulation. According to the fourth part, that fifth part is about folk financial regulation strategy. In this part, it puts forward some countermeasures,such as perfect the system of risk aversion, establish folk credit and guarantee system, establish association of folk lending, adopt registration and filing system and establish the deposit insurance system; perfect the folk financial market legal system, determine the legal status of private financial, establish a market access and exit system; perfect the folk financial market supervision mechanism, clear supervision body, take differentiated regulation. Finally the author summarizes the whole article.