Informal Financing Financial

Informal financing has gone through a history of more than30years in China since1979. Its scale and speed of development are increasingly expanded and enhance. The attitude of the Financial Authority for informal financing is changing from acquiescence, suppression, gradual adjustment to slowly making it liberalized. Moreover, the importance of the informal financing is also confirmed by the government. Compared with the formal financing, informal financing is able to overcome the problem of information asymmetry and adverse selection effectively. At the same time, it saves the transaction casts and has a flexible collateral arrangement and cultural embeddings. Therefore, the informal financing is an effective supplement to the financial system in China.We can respectively establish models to analyze informal and formal financing from the angle of the theory of information asymmetry and transaction costs and also game theory. It is obvious that informal financing is capable of saving capital cost rate of the company. Meanwhile, the default probability of the enterprise is decreasing, while loan levels of the informal institution is rising. Therefore, both borrowers and lenders achieve the win-win state.However, we can’t deny that informal financing has exposed many disadvantages, such as influencing macro-control and entity economy, disrupting financial order and even causing social chaos. For those problems, we can investigate its crux from the angle of micro level and macro level and then find solutions to regulate and provide a healthy environment for the development of the informal financing.