Comparative Analysis & Recommendations For Improvement Between Formal Financial System And Informal Financial System For SMEs' Financing

With the rapid development of china's economy,the small and medium -size enterprises(SMEs) become more and more important in national economy.SMEs play an Irreplaceable role in activating market competition,improving market effienciency, creating employment opportunities and promoting technology innovations,however, Compared to large enterprises,there is higher demand for funds in SMEs.On the one hand, SMEs can not obtain funds in the bond market or stock market due to asymmetric information.in addition,not received third-party effectively guarantee,They lack direct investment channels.On the other hand,the informal financial organizations provide SMEs for most of their current fund.Although the informal financial organizations overcome some shortcomings of the formal organizations and have The flexibility to give financial support to SMEs.But it is Vulnerable to loan sharking and some illegal activities such as fraud,default and violent crimes causing social unrest.Furthermore,it will impact formal financial systemand bring failue of monetary policy in some degree..So with the experience and practice working in commercial bank for eight years in Suzhou area,the author advises that both of the financial systems should learn from the other's strong points to be eclectic.On the one hand,not contrary to regulations,formal financial organizations have to change their methods to build a Customer-centric system gradually.Humanized product design can meet market demand to a greater extent.On the other hand,informal financial organizations should prevent from risk through Modern Enterprise System reform.Private capital Have the right to speak.Financiers who are Familiar with formal operational procedures manipulate in actual operating.Long-term profit is realized depending on a operating system.Thus informal financial organizations are absorbed in the mechanism of formal financial organizations.Both of the financial systems form a joint force and create a harmonious situation for SMEs' financing.