A Case Study On SME Financing Based On Informal Financial Perspective

SMEs play an irreplaceable role in China’s economic and social development.According to statistics, SMEs in China have more than10million, accounting for99%of total registered enterprises, but inevitably, like the rest of the world, difficulties infinancing have become the outstanding problems of the constraints for thedevelopment of SMEs in China. In all kinds of financing methods, the developmentof in formal financing provides an effective solution to solve the financing problemof SMEs. As a useful complement to the formal financial system, informal financehas the legitimacy in the institutional level. Compared with the formal financialinstitution, informal finance has its own characteristics and advantages. It is asupplementary channel to meet the financing needs of various types of marketplayers. However, due to informal finance drifted away from the formal finance, theproblems of hidden transaction, the risk of not easy to monitor. Illegal fund raisingand the crime of money laundering are existed. To solve these problems requiregovernment not only to revise and improve relevant laws and regulations to guide,but also to give corresponding financial support for SMEs. Therefore, the researchof SMEs informal finance has important theoretical and practical significance.This paper searches the related literature of SMEs informal finance and makescollation and synthesis. On this basis, this paper summarizes the contents and typesof informal finance, and systematically analyzes the current situation of China’sinformal finance from scale, formation mechanisms and exist problems. This papermakes objective analysis for the economic effects generated by the SMEs informalfinance from the perspectives of institutional economics and information economics.And it elaborates the negative economic effects of informal finance. This paperrefers to the example of SMEs in Wenzhou, Zhejiang province, and does aquantitative analysis using SPSS, and then discusses the civil interest ratetransmission mechanism. At last, it lists the initiatives for the problems of informalfinance. At the end of the paper, it discusses the informal finance evolution inTaiwan and the measures of resolving the informal finance problems of Taiwan.Combined with the initiatives promulgated by State Council, this paper puts forwardsome proposal to regulate the informal finance.