What is Different about Informal Finance?. Financing of Private Firms in China
AbstractIn China?s bank-based financial system, in parallel with formal banking institutions, there is a flourishing informal financial market. Informal financial institutions contribute to meeting the ever increasing credit demand of China?s private enterprises that seem to be neglected by the largely state-owned formal banking sector. Private firms would prefer to borrow at lower cost from the formal sector, but in lack of credit history or credit rating they may be rejected. Smaller firms in non-manufacturing sectors and with lower profitability have less chance to obtain formal credit. Formal and informal financial institutions co-exist in China and have different approaches to lending decisions to the private sector. This paper investigates the determinants of the size of formal and informal financing and the conditions of access to formal bank loans across private firms. The result of the empirical analysis suggests that loan officers at formal and informal financial institutions take into account different factors when extending loans. While formal banks focus on past performance of the firm, such as credit rating, previous tax payments and credit history, as well as the size of the firm and manufacturing activities, informal institutions put a relatively higher weight on current operations. The amount of receivables is a very important determinant of the size of the loan extended. Further, informal institutions exploit the information on earlier borrowing from the formal banking sector, suggesting that they may economise on the monitoring costs and that there may be a certain merit of co-existence of formal and informal finance.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Presses de Sciences-Po in its journal Revue économique.
Volume (Year): 59 (2008)
Issue (Month): 6 ()
Contact details of provider:
Web page: http://www.cairn.info/revue-economique.htm
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jean-Baptiste de Vathaire).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.