Research On The Risk Of Informal Financial Market In China

In the aftermath of the international financial crisis in 2008, the risk of informal financial market is increasingly obvious with the number of default in the private lending and civil financing climbing in C hina. Based on the reputation incentive mechanism and social network theory, this thesis analyzes how the informal financial market risk forms and the concrete risks in China's informal financial market. The main conclusions are as follows:(1) Taking the internal operating mechanism of the informal financial market into consideration, it is found that, whether the information is sufficient, the interest rate, that is the price of money, is an important factor in the defaults by borrowers and whether the lenders in the financial market have perfect information about the other party has a crucial effect on the probability of the default. Based on the analysis of the structure hole in social netwo rk theory, it is found that the structure hole is the source of profits of private lending, while the structure holes continue to accumulate, also the process of the participants “Ponzi finance”, and ultimately exert great influence on the risk of large-scale outbreak in lending market.(2)Taking the external factors about the macroeconomic conditions into consideration, it is found that the negative factors of outside economic world may increase the probability of the borrower choice(committing the promise or defaulting).(3)Overall, the process of the outbreak of the informal financial market risk is the combined effects of information liquidity of lending market yield of investment projects, the probability of investment success, the high cost of capital, the participants "Ponzi finance" behavior, whether borrowers need to continue lending and external factors such as the results of policy risk and institutional risk.(4)Typical types of informal financial market in C hina like the offline folk lending, P2 P are faced with negative economic policies, flaw of the risk control mechanism, high interest rate and “Ponzi finance” behavior. The shadow bank is faced with the operational risk, default risk, liquidity risk and the market risk.Based on the analysis and the status of the informal financial market development, key points are recommended as follows:(1) to fully investigate borrowers' investment objectives and investment feasibility before loan.(2) to clarify the legal status of non- formal financial markets, and open access mechanism of private banks.(3) to strengthen the interest rate monitoring mechanisms, and establish SME Credit Guarantee Fund Loan.