The Study Of Informal Finance On The Condition Of Asymmetric Information

In recent years, some small and medium enterprises (hereinafter referred to SME) in Wenzhousuffer funding strand breaks and bosses of these enterprises exodus. The phenomenon has caused some badimpact on the economic development and social stability. Non-formal finance has become a hot topic allover our country. Since the reform and opening up, China has gradually established a socialist marketeconomic system, the development of productive forces greatly. In financial markets, on the one hand, theformal financial composed by the money market, credit market, stock market and bond marketdevelopment has improved steadily; the other hand, the reform of the financial system is still difficult toadapt to the requirements of the rapid economic developments, the formal finance sectors tend to object tolarge enterprises, especially large state-owned enterprises as loans, it is hard for SME to get loans frombanks. The face of the credit crunch of formal financial institutions, the collateral is an effective way tosolve the information dissymmetry. But the fact is that it is difficult for SME to provide sufficient collateral,so they become victims of credit rationing. SME plays a vital and irreplaceable role in China’s economicgrowth and increasing employment. With the in-depth development of the market economy, the need offinancial services is increasing. As the gap between capital needs and supply from formal financialinstitutions exists, various forms of non-formal financial institutions develop very fast, with its uniqueadvantages of information costs, transaction costs and implementation costs. Non-formal financialinstitutions provide financial support for ESM development and the economic prosperity to a large extent.However, non-formal financial is not recognized by the Chinese laws, drifting outside the control of thecountry’s financial regulatory authorities, much higher interest rate than the formal financial interest rates,influencing the national macro-control, increasing the instability of the financial order in China, reducing the national financial.To maintain the healthy economy development and financial order’s stability, wemust make the underground financing surface safeguard. And how to effectively solve the problem ofinformation dissymmetry becomes a key point.Paper begins with the definition of the concept of non-formal financial and manifestations, andanalyses the comparison of the formal financial and non-formal financial relations, then estimates the sizeof the informal financial. On this basis, the paper makes a in-depth study of the reasons for the formation ofthe non-formal financial. The paper argues that the credit rationing caused by asymmetric information isfundamental reason for development of non-formal finance. The informal finance advantages ofinformation and other factors meet the needs of financiers, so its development is reasonable, and thegovernment is not able to prohibit it by force. China’s banking sector is highly concentrated whichincreases agency costs, and control of interest rates also contributed to asymmetry of information. Due tovarious reasons, the formal financial and non-formal financial lending risk appetite, causing the high ratecharacteristics of non-formal financial and financial rates two-track system, but high interest rates caneasily result in its financiers unbearable pressure arising from the funds strand breaks tragedy. Therefore,solving the financing problems of SME lies in how to make information from asymmetric toward thesymmetrical trend. Next, the paper affirmed the informal financial negative impact on many positive role ineconomic development at the same time, which leads to the specification of non-formal financial necessityand urgency. This paper argues that, from the experience of countries in the world, the non-formal financialwill not automatically disappear with economic prosperity and development, nor disappear undergovernment’s mandatory policy. For non-formal financial,"sparse" instead of "blocking", should do toestablish a healthy financial environment, make information symmetry, and guide them standardized. Only in this way, can we reduce the non-formal financial interest rates, and do better for small and mediumenterprises. Combing with the actual situation in China, the paper hope to find countermeasures from getrid of the information asymmetry. The paper argues that China and Japan have much similarities in thefinancial system and the development, thus Japan hosted the banking model has important reference toChina. Enterprise clusters financing can effectively reduce bank’s costs of collecting information, and theexpanding of cluster size can increase the cost of dishonesty, and then increase the enthusiasm of the banksto lend credibility chain formation, so it is a way to enhance the symmetry of information.If Informalfinancial information advantage and the advantage of formal financial fund effective combination, it willget rid of the significance of the asymmetric information and the financing of SME, but also to improve theallocative efficiency of social funds. For Chinese credit system and the financing guarantee systemdefects, papers especially research the construction of credit system and financing guarantee systemsolution. In addition, for the end of March2012, the State Council promulgated the Wenzhou financialreform measures in the financing system of registration were analyzed.