Effect Of Informal Finance Development Of Urban-rural Income Gap

China as a large agricultural country of the world, farmers’ income level is consistently low, so that the income gap continues to widen. Urban and rural development and economic imbalance led to the lack of financial development dualization, not improve the rural financial system and financial funds, enabling farmers to obtain funds from the formal financial channels is difficult, a phenomenon that gave birth to the informal financial development. Informal Finance compared to formal finance has many advantages, on narrowing the income gap also has a significant role in promoting. Informal finance to farmers and SMEs by providing financial support to those who, for rural funding gap will be replenishment; through the provision of credit and savings services to the poor to improve the welfare of the poor and reduce poverty in effect; by improving the uneven distribution of financial resources Situation to raise financial support for farmers and SMEs, thus contributing to their incomes rise, narrowing the income gap.In this paper, based on Financial Repression and Financial Deepening of financial constraints on other related theories, from a theoretical perspective clarifies the basis of informal financial development, informal finance through the supply of rural funding gap and reduce poverty in effect, improve the unbalanced distribution of financial resources to narrow the urban-rural Income Gap. By 2003, China’s 31 provinces- the development of non-formal financial situation and the income gap in 2014 was calculated and found that China’s non-formal financial development and urban-rural income gap has significant regional and Granger causality test found developments and the income gap between urban and rural informal finance a significant causal relationship, through the data further to test the fixed effects model can be drawn from the impact of non-formal financial development of the income gap between urban and rural areas is a significant negative correlation, ie non formal financial development can effectively reduce the income gap between urban and rural areas. Finally, this paper empirical results of our informal financial development made the following recommendations: to face informal development, given its legal status determined; the establishment of a diversified competitive financial markets; accelerate the social credit system construction, and promote information entirely; community development cooperation community financial cooperation.