Financial Policy for SMEs

in Japan

T a k a t o s h i M i u r a Director

Finance Division Small and Medium Enterprise Agency

October 2012

1

1.Support System for SMEs

Minister of Economy,

Trade and Industry SME Policy-

Making Council

Director-General (1)

Deputy Director-General (1)

Director-General’s Secretariat (27) Business Environment Department (108)

Director-General (1)

Counselor’s Office (14)

Business Support Department (67)

Director-General (1)

Public Relations and Business

Counseling Office (4)

Administrative Affairs Office

(9)

Policy Planning Division (8)

Research Office (4)

International Affairs Office (3)

Finance Division (16)

Corporate Finance and

Tax Affairs Division (11)

Fair Trade Division (59)

Business Support

Division (24)

New Business Promotion

Division (15)

Retail and Wholesale

Commerce Division (12)

Office for

Business Stability (6) Office for Small Enterprises

Policy (5)

Start-up and Technology

Division (10)

SME Agency (204)

Consultation

Advisory

(Unit: number of people)

Regional Bureaus

of Economy, Trade

and Industry (400)

Minister's Secretariat

Economic and Industrial

Policy Bureau

Trade Policy Bureau

Trade and Economic

Cooperation Bureau

Industrial Science and

Technology Policy and

Environment Bureau

Manufacturing Industries

Bureau

Commerce and Information

Policy Bureau

Agency for Natural

Resources and Energy

Nuclear and Industrial

Safety Agency

Japan Patent Office

2

Establishment of the SME

Agency (1948） Enactment of the SME Basic Act

（1963）

Amendment of the SME Basic

Act (1999)

Prevention of economic

centralization, fostering

of sound SMEs

Dual structure: Correction of disparities between LEs and SMEs

Support for willing

and competent

SMEs

Establishment of Shoko Chukin Bank （1936)

SME Credit Insurance Act (1950)

Japan Finance Corporation Act

(2007)

Antimonopoly Act (1947）

Credit Guarantee Corporation Act (1953)

Establishment of National Life Finance Corporation (1949),

Japan Finance Corporation for Small and Medium Enterprises

(1953) Shoko Chukin Bank Company

Limited Act (2007)

Basic

Philosophy

Financial

policies

2. Transition of SME Policies

The basic philosophy of SME policies has been reexamined in line with the requirements of the

times. Over the years, many policies have been developed and improved, including financial

policies, business promotion policies and organizational policies.

Postwar reconstruction

（1945～）

Rapid economic growth

（1955～）

Stable growth

（1970～）

Transition stage

(1989～) Present

Resolution of the shortage of funds and

development of policy finance

Reform of policy finance:

Limitation of function and

consolidation of institutions

Establishment of

government-affiliated

financial institutions

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・ Since SMEs are often lacking in assets with a weak financial base and have difficulty in

procuring capital from public markets, securing the smooth provision of funds is one of

their most critical issues.

・ The government of Japan, therefore, established “government-affiliated financial

institutions” and put in place frameworks for providing low, fixed-interest and long-term

(maximum 20 years) funds for SMEs.

・ In order to enhance the smooth flow of funds to SMEs, the government made a decision

to utilize funds of private sector financial institutions and put in place a “credit

enhancement system” for guaranteeing loans from private sector financial institutions to

SMEs and making payments in subrogation in cases where repayment was not made.

3. Public SME Financing

279.3

〔90.8%〕258.6

〔90.3%〕238.2

〔89.9%〕228.4

〔89.7%〕221.5

〔89.7%〕

224.4

〔90.2%〕

230.7

〔90.9%〕227.1

〔91.3%〕225.0

〔91.3%〕220.4

〔90.9%〕217.0

〔90.6%〕214.2

〔90.5%〕

28.2

〔9.2%〕 27.6

〔9.7%〕 26.8

〔10.1%〕26.3

〔10.3%〕25.5

〔10.3%〕

24.3

〔9.8%〕

23.0

〔9.1%〕21.7

〔8.7%〕21.3

〔8.7%〕22.2

〔9.1%〕22.5

〔9.4%〕22.5

〔9.5%〕

41.5

〔13.5%〕37.0

〔12.9%〕33.2

〔12.5%〕31.1

〔12.2%〕29.7

〔12.0%〕28.8

〔11.6%〕29.3

〔11.5%〕29.4

〔11.8%〕

33.9

〔13.8%〕

35.9

〔14.8%〕35.1

〔14.6%〕34.4

〔14.6%〕0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Commercial Banks

Japan Finance Corporation and Shoko Chukin Bank

SME loans guaranteed by Credit Guarantee Corporations

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4. Overview of SME Financing

・ Government-affiliated financial institutions provide funds for SMEs as a framework which

complements private sector financial institutions. Currently, their outstanding balance of

loans to SMEs stands at ¥ 23 trillion, i.e. about 10% of the total outstanding balance of

¥ 237 trillion in loans to SMEs, and their outstanding balance of credit guarantees on loans

amounts to ¥ 34 trillion, which is about 15% of total credit guarantees on loans.

( Trillion yen )

Outstanding Lending to SMEs by Commercial Banks and Government-Affiliated Financial Institutions

Source: Compiled from Bank of Japan statistics.

(FY)

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5. Public SME Financing: Loans

Individual proprietors

(approx. 1.03 million) Companies

(approx. 50,000)

Member enterprises

(approx. 70,000)

Financing for

medium-sized

enterprises

Financing for

small enterprises SME financing

for members Investment

Japan Finance Corporation (JFC)

Shoko Chukin Bank (privatized in 2008)

・ Public SME financing includes: ① policy financing (finance for start-ups and overseas development), and ②

safety net financing (finance for enterprises whose business conditions are temporarily deteriorating or which

are affected by natural disasters [earthquakes, typhoons, etc.]).

Government

Investment,

Subsidies

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6. Public SME Financing: Credit Guarantee

Private sector

financial institution

Credit Guarantee

Corporation (CGC) (outstanding balance of

guarantees: approx. ¥ 35 trillion )

SME

Japan Finance Corporation

(JFC)

4. loan

3. Guarantee agreement / subrogated repayments

2. Insurance Contract

If the guaranteed SME defaults, 80-

100% of the debts are repaid by the

credit guarantee corporation in

subrogation.

1. Application for guarantee (Usually, made through banks)

Government

Investment, Oversight

Subsidies, Supervision

・ Credit guarantee corporations (52 in Japan) guarantee loans from private sector financial institutions to

facilitate financing to SMEs that lack credit or collateral.

・ If the guaranteed SME defaults, repayments are made by the credit guarantee corporation in subrogation.

Local government

Investment, Subsidies

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7. Management Improvement Loan

Societies of Commerce and Industry /

Japan Chambers of Commerce and Industry

(JCCI)

Small enterprises No assets with collateral value

Unstable management

Managers lack the skills for accounting or developing business plans

Japan Finance Corporation (JFC)

1. Advice on accounting

and creating business plans

2. Recommendation

for financing 3. Unsecured & low-interest

financing without guarantors

1.75% (the date of June 13th, 2012)

(Standard interest rate －0.3%)

Approx. 35,000 cases, with total lending

at approx. ¥ 150 billion (2011)

In support of management improvement in small enterprises that have particularly poor management

resources and low productivity among SMEs, the Japan Finance Corporation provides unsecured low-interest

financing without guarantors.

The government designated certain industries requiring improvement of industrial structure and enhancement of

international competitiveness and mapped out modernization plans for these industries.

Among designated industries, the government picked specific industries that needed to be urgently reformed and that

had industry-wide willingness to be reformed. These were designated as “specified industries.”

For these specified industries, structural improvement plans were mapped out and implemented in line with the

modernization plan and based on industry-wide consensus.

Survey of current situation and analysis

Mapping out modernization plan

(setting up long-term goals)

Structural improvement plan

Prepared by industry associations, etc

Implemented by industry association and other members of the industry

Designation

Approval

Implementation of Plans

Prefectures

Government-affiliated financial

institutions

Low

-in

terest

loan

G

uidance

Industries

Specific industries

8. Law to Promote Modernization of SMEs of 1963

Assistance (taxation system, etc) Implementation

of Plans

Assistance (taxation system, etc)

National Government (Ministries in charge: METI, Ministry of Agriculture, Ministry of Construction, Ministry of Transport, etc.)

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9

9. Counter-Cyclical Emergency Guarantee Program (February 15, 2008 – March 31,2011)

■Outline

CEGP provides full coverage of lending to SMEs in almost all business categories.

(exceptions: agriculture, finance/insurance industry, etc.)

Government budget: ¥ 2.7 trillion

Total amount of guarantees: ¥ 27 trillion

■Conditions

SMEs can use CEGP if they satisfy the two conditions below.

1. They belong to a designated business category.

2. They have been certified by local mayors as facing difficult business conditions.

(e.g. 3% decline in sales from previous year)

■Content

Credit Guarantee Corporation (CGC) provides guarantee.

- Credit guarantee maximum amount: up to ¥ 80 million for unsecured loans and

¥ 200 million for secured loans

- Covering percentage: 100%

- Maximum term: up to 10 years (※ grace period: up to 2 years)

- Charge rate: 0.8% or less