Informal Finance And SME Financing

Since the reform and opening, China has been making rapid progress in the development of the medium-small enterprises. The small and medium-sized enterprises are the impetus of economic growth and will play more and more important role in the future. But shortage of funds and difficulty of financing are the main problems to restrict their development. The viewpoint which has been accepted widely is the difficulty that Chinese small and medium-sized enterprises face in obtaining financing is due partly market failure and partly to the transitional financial system. The causes are in many ways. State-owned banks don't want lend funds to small and medium-sized enterprises; the development of medium and small-sized financial institutions is not good enough to support small and medium-sized enterprises; it's hard to small-medium enterprises to get funds from stock market; and the small and medium-sized enterprises themselves also have some problems, etc.On the other hand, informal financial market has become a very important component of financial systems of China and especially has been playing an important role in small and medium-sized enterprises financing.The paper describes the definition of informal finance and the forms of informal finance and describes the definition private information and public information. This paper discusses the model including the moneylenders and borrowers under restriction of the reputation mechanism. And then analyzes the financing of small and medium-sized enterprises in Wenzhou .But we must not lose sight of the fact that informal financial market has some disadvantages. Because of the disadvantages, policies taken to it is severe. So we study the related policies and their effects, then propose the policies should be taken.