The China's Informal Finance

The informal finance is a concept that is opposite to the formal finance, but there has no way accepted by each economist to define it in academia now. According to Asian Developing Bank (ADB), the informal finance is a department beyond the control by the government in many places, such as capital reserve and liquidity, limited interesting rate in saving and loan, the compulsive responsibility in finance activities and the request of audit report. Financial activities can be divided into formal finance and informal finance at the views of institutional economics. Informal finance can be defined the immediate financing activities among individuals, enterprise for profit and the mediate financing activities engaged by the folk financial department out of actual formal financial system without permission by financial laws.Although the informal finance exists widely in many countries, it never has been gotten proper attention in earlier financial theories. Mackinon and Shaw (1973) came up with the informal finance theory when they researched the finance restraining and the deepening of the finance in developing countries. The informal finance was an inefficient institutional arrangement in their theories. In their point of view, the informal finance would be absorbed into the formal finance system if there were no finance restraining policies in developing countries.The informal finance of China has especial reason in its origin and development. In China's gradualist reform, the private economy departments that their property rights aren't hold by the country grow up out of the economics system, and they have heavy institutional demand for the serves of the financial system. But the reformation of the financial system is lagging and the institutional change controlled by government can't accord with the requirement from the small medium-sized firms and individuals, and, it causes the institutional disequilibrium. The origin of the informal finance is not only a natural response to the delayed supply of financial institution, but also an induced institutional change and institutional innovation happened at the edge of the actual institution as a result. Furthermore, it's equilibrium in the play game caused by the government, small medium-sized and individual in the process of going after their maximal benefit. The contractual governance of informal finance depends on a specific social mechanism in local such as consuetude, tradition...