Informal Finance And Regional Economical Development

Informal financial market has become an indispensable part of financial system of China. Since the formal financial market of our country is still incomplete, the existence of informal finance is reasonable. It meets the financial demands of private enterprises and mid- and small-scale enterprises, which are important parts of China's economy. It also makes efficient allocation of resources and would promote the economy at last. However, the disadvantages of informal finance would also do harm to the stability of the financial system, the construction of the financial market and the development of the economy of China.This paper combines overall analysis and case analysis. The analysis tries to 1) show the necessary functions of informal finance on enhancing regional economical development and private mid-and small-scale enterprises' development, 2) explain the formation and expansion of informal finance in China through study interaction adjustment between the economic structure and the financial structure, 3) put forward policy proposals accordingly to make informal finance develop healthily.There are four chapters:Chapter 1 introduces the background of this research and the past route of the relative research both in domestic and abroad.Chapter 2 describes the definitions, forms and existing reasons. There are at least three reasons for the existence of informal financial market: financial restraint and property discrimination; asymmetric information and high transaction costs; confidential considerations. It discusses the positive role informal finance has played and the negative effects informal finance has made as well to state how it could promote or hinder economic development.Chapter 3 mainly takes Wenzhou as an example to study how informal finance could greatly affects the financing of private mid-and small-scale enterprises and the relationship between informal finance and financial deepening. Since the end of 1970s, informal finance has been so prosperous in Wenzhou. It takes its information advantages and cost advantages to meet the financing demands of private mid-and small-scale enterprises and it plays an important role in the development of "Wenzhou Model". Along with the regional economical development of Wenzhou, however, new problems appear. On the basis of financial deepening theory and the actual situation of Wenzhou, our research brings forward an idea that building private mid-and small-scale financial institutions will produce positive economical effects in economical development.Chapter 4 mainly draws some conclusions. Our research shows that the best way to treat informal finance is to regularize it, put it under government control and supervision and lead it by necessary methods to a right path. Private financial institutions are good choice to accomplish the mission.