The High Interest Rates Of Private Financial Research

Private finance is an institution different from formal financial institution. It appears spontaneously in China's market-oriented reform. As a new institution, it has advantages and disadvantages. It becomes more and more actively with the development of farmer and small-medium-sized enterprises. Now most researches on the problem of private finance pay attention to the relationship between private finance and privately operated economy, but not to the phenomenon of high interest rate of private finance. On the base of theoretical knowledge and the interest in private finance, in this paper, we make a research on the high interest rate of private finance in China.This paper chooses the southeast of Zhejiang province, because the activity of private finance in this area is developed, and analyzes the private lending's interest rate in Wenzhou and the tontine's interest rate in Taizhou. Then it analyzes the effects that are brought by high interest rate of private finance. It uses the theories of financial repression, financial growth cycle, Incomplete Information and equilibrium credit rationing to analyze the reasons of high interest rate of private finance through different points of views, for example, the supply and demand parties of fund, the organization of private finance, the government and supervisor. At last it advances some government countermeasures according to the high interest rate of private finance. Government should establish and perfect laws and credit guarantee systems and improve environment of investment to govern the high interest rate. Central bank should bring the private finance into the intendance system, push the reform of interest rate marketability, establish the deposit insurance system and the risk-warning mechanism. Private finance should set up effectual information distribution system about private finance's interest rate. Formal finance should increase the investment for farmer and small-medium-sized enterprise, innovate actively the financial instrument and improve the linkages between formal finance and private finance in order to govern the high interest rate phenomenon.