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The Institutional Choice of Legalized Informal Finance: Non-deposit-taking Lending Institution or Banking
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TitleThe Institutional Choice of Legalized Informal Finance: Non-deposit-taking Lending Institution or Banking  
AuthorPeng Jiangbo, Wang Ying and Guo Qi  
OrganizationSchool of Finance , Shandong University of Finance and Economics;Jinan Branch, The People’s Bank of China;; 
Key WordsLegalized Informal Finance; Micro Financial Institutions; Financial Arrangement; Non-deposit-taking Lending Institution; Banking 
AbstractHow to build continuous financial organizational modes in order for satisfying financial demands of the real economy has plagued all parties. The form of non-deposit-taking lending institution in addition to banking provides another institutional choice for legalized informal finance, but it is unclear whether the former will be superior to the latter and where advantages lie in. In this paper, we will explore these problems focus on micro financial institutions. We find that, the form of non-deposit-taking lending institution is not only conducive to gaining an advantage of absorbing non-public deposits, but also avoiding value loss induced by prudential regulation; by contrast, banking will incur value loss resulted from prudential regulation. In the follow-up research, adjustment of micro financial institutions leverage character two-stage: in the first stage, there is no need to raise any external financing, with carrying out certain polices such as fictitious capital requirements or lower thresholds; in the second stage, micro financial institutions must raise more external financing to achieve two aims with enforcing upper limit on leverage. In a word, the form of non-deposit-taking lending institution will relieve even eliminate goal conflict, which provide good references not only for the institutional choice of legalized informal finance but also for perfecting financial institution systems and filling credit gaps. 
Serial NumberWP1133 
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