A Study On The Relationship Between Formal Finance And Informal Finance

The problem of "dual institutions" in the rural financial market has been a hot topic in the academic circle.As the fact of Chinese economy has entered the "new normal state",the relationship between formal finance and informal finance has been correctly dealt with to improve farmers' credit access to promote economic growth is particularly important.Prior to this,we need to clarify the relationship between the two through empirical.Based on the summary of the research on the relationship between formal finance and informal finance,this paper puts forward the hypothesis.In the last,this paper build Quadri-variate Probit regression model to analyze the relationship between formal and informal finance in the western rural areas by using the data of 2424 rural households in 12 western provinces.The empirical results show that:(1)credit supply and demand in rural areas is also facing a large funding gap.The western households mainly depend on informal finance,but the remaining funds usually flow to the formal financial sector.Due to the low profitability caused by the weak nature of the service in rural areas,the interest rate suppression policy and the information asymmetry restrict the enthusiasm of the formal financial institutions provide funds to the residents in the rural areas and implement the credit rationing policy.(2)There is a complementary relationship between the formal finance and informal finance because of difference in comparative advantages to promote realization of "1 +1>2" non-zero game results,whether it is a formal financial institutions,or informal financial institutions tend to Credit-rich households provide credit support.Complementary relationship is also reflected in many aspects,manifested in the market complement each other,complementary products,complementary service groups,operating costs complement each other.(3)In the aspect of farmers' credit demand,the credit demand of rural residents in Western China is affected by labor force,productive expenditure,education burden,income and major events.(4)In the aspect of rural credit supply,both formal and informal credit supply are affected by age,household income,income structure.In addition,the formal credit supply will also examine whether the farmer is a member of professional cooperative organizations,whether the farmer joined the credit union Moreover informal credit is also affectedFinally,based on the empirical results,the specific methods to promote of formal and non-formal finance financial cooperation and other related policy are given,such as perfecting rural credit policy,promoting financial regulation and informal financial cooperation.