The Research To The Risk Control Of Informal Finance

The risk control of informal finance has been a hot topic in the research area among home and abroad. As while bringing risk for economy and society, it promotes cash financing in local economy and makes up the lack of formal finance. So its legal status is quite controversial. Then there are not a few scholars who encourage to draw up local informal finance law and bring it into supervision. But all of those proposals lack practical operating mechanisms to control its risk.The paper gets the result that the informal finance rate has objectivity and flexibility of market rate. The rate is the product of demand for and supply of folk cash. It adapts to the theory of financial repression and credit ration and reflects the real state of demand for and supply of folk cash. But because of its hidden nature and non-compliance, there appears higher interest rate in cash financing activity. And as it hasn’t authority and universality, it isn’t real market rate.But informal finance has the advantage of reputation-based private contract enforcement mechanism and local characteristic, so we can employ its hidden reputation guarantee and the mechanism of repeated game, related game to realize effective supervision between participants. After the analysis of facts which affect the informal finance rate and its faults, the author expects to realize the mode of normalized rate according to introducing the mechanism of government guarantee and making use of reputation advantage so as to control its risk in our country.To choose local government as assurance provider could save management cost and information cost. So the author makes the cash flow of bidding Rosca as an example to design the mechanism of government guarantee and there needs to found specialized government guarantee department. This alone department is responsible for making records of the information and supervising the behaviors of participants as the third intermediary and guarantee provider. He can assist the two parts of bidding Rosca to perfect lending agreement, as he can make the rules that define the forms of debt repayment, the mechanisms of mortgage asset and the reward and punishment when there are public report and supervision. When certain participant isn’t qualified, he has the right to intervene and guide the nonstandard behaviors. And he will guide every participant to found common fund account in which the rations of fund between HuiTou and HuiJiao are different as the degree of economic development is different from place to place. The ration of HuiJiao is related to his bidding rate. Only if the bidding Rosca finishes, they can get back their own sum of principal and interest related to the common fund account. When certain participant defaults, the government guarantee department has the right to deal with his mortgage asset established in the process of drawing up agreement by authority and law. This department should set the upper limit that is four times of the normal financial rate at the same time. So we can realize normalized pricing of informal finance rate and control the risk according to decreasing the utility of income gained in the bidding Rosca, binding their own profit with the informal finance rate and under government’s guiding. And the rate is also determined by the market, it can legally exist in credit market.Moreover, the utility of informal finance is gradually valued by the PBOC and CBRC with more and more demand for it. The rules of guiding it into sunshine are also drawing up. In this circumstance, we will gradually accept the assistance of government guarantee mechanism to control the risk of informal finance from the aspect of organizational feasibility, economic feasibility and social feasibility.