Formalising informal finance in Henan, China

"The goal of this thesis is to identify a set of regulatory strategies which potentially enhance the effectiveness of government regulation on Henan’s informal financial sector, so that the role of informal financial sector can be formalised: the positive economic functions could be enhanced and problematic aspects of the financial activities could be mitigated, which allowing the informal financial sector to transform into a more formal, accountable and acceptable financing channel for the residents. To provide a solid platform for the study, various theoretical studies are examined allowing for knowledge on informal finance in Henan, including the definition, the background information and the scale of informal financial sector. To put the need for formalising informal finance in Henan, this thesis also examines different perspectives of informal financial regulation both in Henan and worldwide. A regulatory framework is provided based on analyses of these theoretical studies. In order to fill the gap between theriacal solutions and actual practices in the context of Henan, it is essential to gather field data regarding Henan’s informal finance and its regulation. The scope of the field research is thus covers an online questionnaire survey of 224 Henan’s residents to gain a general picture of Henan’s informal financial sector through seeking their opinions and aspirations. The data generated from the online survey are then triangulated with the considered views of 20 field workers in Henan. The views of the 20 field workers, including the managers of informal financial institutions, the government officials and the financial experts are solicited through in-depth interviews. The key findings that emerged out of the field data analysis is that Henan’s informal financial sector could be potentially formalised through seven strategies, including expansion of private investment channels and promotion of interest rate liberalisation, reinforcement of government control and legislation over informal finance, reformation of credit culture, establishment of a sound credit history system and integration of formal and informal financial institutions. A set of regulatory recommendations based on the key findings is also provided. It is expected that these recommendations, if implemented, would allow Henan’s informal financial sector to gain higher transparency and reliability, eventually become an alternative financing channel for Henan’s residents."--Abstract.