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Dubai International Conference of Endowments on Innovative Sources to Finance Small and Medium-Sized Enterprises Dubai, United Arab Emirates. Financial Support for SMEs in Japan. February 17 th 2010. Hikaru FUKANUMA. Principal Economist Japan Finance Corporation Research Institute - PowerPoint PPT Presentation
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1
Dubai International Conference of Endowments on
Innovative Sources to Finance Small and Medium-Sized Enterprises
Dubai, United Arab Emirates
Financial Support for SMEs
in Japan
Principal Economist
Japan Finance Corporation Research Institute
Tokyo, Japan
Hikaru FUKANUMA
February 17th 2010
2
Definition of SME in Japan
Type of Industry
Small and Medium Enterprise
( to fulfill either of the criteria) Small Scale Enterprise
Capital Stock (Yen) Employees Employees
Manufacture and Others 300 mil. or less 300 or less 20 or less
Wholesale 100 mil. or less 100 or less
5 or lessRetail 50 mil. or less 50 or less
Service 50 mil. or less 100 or less
Definition in SME Basic Law
Number of SMEs (2006)Large Enterprises: 12,351 (0.3%)
SMEs: 4,197,719 (99.7%)
Small Scale Enterprises: 3,663,069 (87.0%)
Ministry of Internal Affairs and Communications of ”Establishment and Enterprise Census of Japan”
3
Bank of Japan, “Short term Economic Survey of Enterprise”, JFC Research Institute, “Quarterly Survey on Small Businesses in Japan”
Note: DI = Percentage for “Easy” - Percentage for “Difficult”
Financial Position of SME
-50
-40
-30
-20
-10
0
10
20
< Financial Position DI>
Large Enterprises
SMEs
Micro Businesses
98 99 00 01 02 03 04 05 06 07 08 09
4
1. Information Asymmetry
2. Insufficient Collateral
3. Economies of Scale of Lenders
Financial Constraints of SME
Why do SMEs have difficulties to obtain fund?
5
External Finance Measures for SMEs
Direct Finance
StockPublicly-offered
Privately-offered
BondPublicly-offered
Privately-offered
Commercial Paper
Indirect Finance Borrowings(Loans)Private financial institutionsPolicy-based financial institutionOthers
Credit Supplementation System Credit Guarantee Corporations
Trade CreditDeferred payment creditBills payable, Account payable, Others
Capital Lease
6
Fund-raising Structure
Small Companies
Large Companies
Equity Capital (Direct Finance) 12.6 % 39.4 %
Borrowings(Indirect Finance)
Financial Institutions 39.1 % 17.3 %
Others 23.9 % 4.1 %
Trade Credit (Bill Payable, Account Payable, etc.), Other Debt 24.4 % 39.2 %
Total 100.0 % 100.0 %
Small Companies: Capital stock is less than \2 mil.
Large Enterprises: Capital stock is more than \1,000 mil.
Ministry of Finance, Financial Statements Statistics of Corporation by Industry
(As of March 31, 2008)
7
Financial Institutions for SMEs
SMEs
City Banks
Regional Banks
Other Banks
Credit Associations
Credit Cooperatives
Non-banks
LoanGuaranteeInsuranceDepositBanks
Finance CompaniesFactoring CompaniesCredit Card Companies
PrivatePrivate
Policy-basedPolicy-based
Cooperatives
Japan Finance Corporation
(JFC)
Micro Business and Individual Unit
Small and Medium Enterprise (SME) UnitCredit Guarantee
Corporations
Local Government
Shoko Chukin BankSpecial Company
8
Bank of Japan, Monthly Financial and Economic Statistics and other sources. Non-banks and local government’s lending are excluded.
(As of the end of March, 2009)
Loans Outstanding to SMEs
Type of Financial Institutions Balance (billion yen)
Share (%)
Private Financial Institutions 243,167 95.2
BanksCity Banks, Regional Banks, Other Banks 182,233 71.3
Cooperative Financial Institutions
Credit Associations 42,715 16.7
Credit Cooperatives 9,407 3.7
Special Company (Shoko Chukin Bank) 8,812 3.5
Japan Finance Corporation (JFC) 12,161 4.8
Micro Business and Individual Unit 6,533 2.6
Small and Medium Enterprise (SME) Unit 5,628 2.2
Total 255,328 100.0
9
Profile of JFC(1)
StatusPolicy-based financial institution
100% owned by the Japanese government.
Purpose
To contribute to the sound socio-economic development of Japan and the international community, and to improve the lives of Japanese citizens.
Not to Maximize Profit
EstablishmentOctober 1, 2008
(Oldest Predecessor NLFC was Established in 1949)
Capital 3,391 billion yen (as of Aug. 6, 2009)
10
Profile of JFC(2)Branch Offices
152 (in Japan, as of Feb. 1, 2010)
Employees 8,117
Outstanding Loans(as of Mar. 2009)
Micro Business and Individual Unit
7,539 billion yen
Small and Medium Enterprise Unit
5,814 billion yen
Agriculture, Forestry, Fisheries, Food Business and Consumers Unit
2,823 billion yen
Japan Bank for International Cooperation (JBIC)
7,313 billion yen
11
JFC
JFC Bonds
Source of Fund
FILPSpecial Account
Loan
FILP Bonds
Government-guaranteed
Bonds
General Account
EquitySubsidy
FILP: Fiscal Investment and Loan Program
Dividends, etc. Deposit
Loan
Government
Special AccountSurplus Reserve, etc
Industrial Investment
Special Account
Financial MarketGovernment Own Stocks
FILP
Bond IssueMoney Flow
12
International Financial operations
ODA operations
JICA
National Life Finance Corporation (NLFC)
Japan Bank for International Cooperation (JBIC)
Japan Bank for International Cooperation (JBIC)
Small and Medium Enterprise (SME) UnitSmall and Medium Enterprise (SME) Unit
Japan Finance Corporation (JFC)
Japan Finance Corporation (JFC)
Micro Business and Individual UnitMicro Business and Individual Unit
To be privatized
To be privatized
Abolished
Shoko Chukin Bank
Development Bank of Japan
Japan Finance Corporation for Municipal Enterprise
Japan Finance Corporation for Small and Medium Enterprise (JASME)
(After 2012)Okinawa Development Finance Corporation
(Oct 1, 2008)
Agriculture, Forestry, Fisheries and Food Business Unit
Agriculture, Forestry and Fisheries Finance Corporation (AFC)
Establishment of JFC
13
SME Finance Units of JFC Micro Business and
Individual UnitSmall and Medium
Enterprise (SME) Unit
PredecessorNational Life Finance Corporation (NLFC)
Japan Finance Corporation for Small
and Medium Enterprise (JASME)
OperationBusiness loans
Education Loans, etc
Business loans Securitization SupportCredit insurance
Target SMEs micro and small medium
Maximum loan amount
72 million yen 720 million yen
Average Loan amount
6.87 million yen 58 million yen
Employees 4,700 2,000
14
Attribute of SME finance by JFC (1)
BorrowersSME/ Micro and Small businesses Wide range
LoansHuge number / Small amountMid and long termLess collateral
(No Deposit Service) Special Loans with Political Aims
(e.g. Environment Equipment Loan)Supporting Business Start-ups
15
Attribute of SME finance by JFC (2)
Difficult for private sector to deal with
Lisk and CostHigher RiskMore Cost
Complementary Roles
16
SMEs
Well Performing SMEs
Micro Businesses
Badly Performing SMEs
SMEs making Socially Needed Investment
Business Startups
Ordinary SMEsPrivate
Financial
Institutions
(PFIs)
JFC
Complementary Roles of JFC (1)JFC complements private financial institutions by bridging the gap
17
<Growth Rate of Loans Outstanding to SMEs>
Policy-based Financial Institutions
Private Financial Institutions
Sources: Bank of Japan, Monthly Financial and Economic Statistics and Other Sources.
Complementary Role of JFC (2)
-10.0
-5.0
0.0
5.0
10.0
15.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
18
Loans Outstanding for SMEs (Year-over-year growth rate)
Bank of Japan, Monthly Financial and Economic Statistics and other sources.
DI of “Cash Flow Situation”
JFC Research Institute, Quarterly Survey on Small and Medium Enterprises in Japan
Complementary Role (3)
- 50
- 40
- 30
-20
-10
0
10
J an.-Mar.2007
Apr.-J un.2007
J ul.-Sep.2007
Oct.-Dec.2007
J an.-Mar.2008
Apr.-J un.2008
J ul.-Sep.2008
Oct.-Dec.2008
J an.-Mar.2009
Apr.-J un.2009
SMEs
Micro Businesses
(%)
- 10.0
- 8.0
- 6.0
- 4.0
- 2.0
0.0
2.0
4.0
6.0
2007 2008 2009
Private Financial Institutions
JFC
Lehman Shock !
19
Characteristics of SMEs
(1)Insufficient & Poor Financial Data
(2)Depend on Manager’s Character & Ability
(3)Sensitive to changes of Environment
(1)Insufficient & Poor Financial Data
(2)Depend on Manager’s Character & Ability
(3)Sensitive to changes of Environment
(compared with large enterprises)
20
??・Poor financial data(PL/BS)
・ Some SMEs don’t have enough data.
(e.g. bank accounts, account books, etc.)
Most SMEs don’t have audited financial data. We are not sure if those are correct or not.
(1)Insufficient & Poor Financial Data Characteristics of SMEs
21
ambition
human network reliabi
lity
accounting
knowledge
foresight
career
health conditi
on
knowledge for the business
In SME, a manager handles almost everything related to a company, and its success highly depends on manager’s character and ability.
(2)Depend on Manager’s Ability Characteristics of SMEs
22
Easily affected by unexpected changes of environment.
SMEs
depression
Manager’s disease
Retirement of employees
Bankruptcy of business partners
Emergence of competitors
Trends
(3)Sensitive to Changes of Environment Characteristics of SMEs
23
Credit Analysis Keypoints
Qualitative Analysis
Quantitative Analysis
Credit Analysis
Human Aspects
Management Skill
Management Ability
Operation of Organization
Managerial Circumstances
Future Prospect of the Industry
Location
Career, Rank in the Industry
Managerial Operations
Foundations of Sales
Competitiveness of Products
Ability to Get Fund
Financial Situation
Safeness
Profitability
Future Growth
24
(1)Document Investigation(2)Interview(3)On-site Investigation (4)Other Investigation
(1)Document Investigation(2)Interview(3)On-site Investigation (4)Other Investigation
JFC’s approach for the Credit Analysis
Decision by Branch ※Approval of the Head Quarter (Option)
Decision by Branch ※Approval of the Head Quarter (Option)
Loan ContractLoan Contract
25
Official Name Managerial Improvement Loan (Established in 1973)
TargetCommerce and service / 5 or less employees
Manufacturing and other / 20 or less employees
Eligibility Recommendation of Chamber of Commerce and Industry (CCI) or Society of Commerce and Industry (SCI) .
Requirements for the recommendation
More than 6 months managerial consulting by CCI/SCIMore than a year business in the same areaPay up taxes
(As of Oct. 2009)Cooperation with Chambers / Societies of Commerce and Industry
Small Business Loan (1)
26
Terms and conditions
Maximum amount
15 million yen (= $150,000)
PeriodEquipment: 10 years or less
Working: 7 years or less
Interest rate 1.95% per annual
Remark Collateral or a guarantor is not necessary.
(As of Oct. 2009)
Small Business Loan (2)
27
JFC-Micro
Analysis
Approval
CCI or SCI Members
Managerialguidance
(1) Application (2)
Recommendationfor loan
(4)
Credit Committee
Consulting Managers
Evaluation(3)
CCI or SCI
Approval by Chairman
Procedure
(5) Loan
Small Business Loan (3)
28
CCI / SCI
Consulting Managers
JFC
Branch offices
Keep close contact
Teaching how to evaluate SMEs from financial aspect
Providing useful information on member SMEs
Giving information
Training & Meeting
SMEsBusiness Support
Financial Support
Close collaboration with CCI/SCI makes it possible to provide loans without collateral or a guarantor.
Small Business Loan (4)
29
JFCSME Unit
Credit Insurance Sub-unit
JFCSME Unit
Credit Insurance Sub-unit
Private Financial
Institutions
Private Financial
Institutions
SMEsSMEs
Credit Supplementation System (1)
CreditGuarantee
Corporations(CGCs)
(52)
CreditGuarantee
Corporations(CGCs)
(52)
Credit Insurance Contract
Credit Guarantee Contract
LoanGuarantee
Local GovernmentLocal Government
Supervision Contribution
Supervision Contribution
Central GovernmentCentral Government
Supervision
Credit Guarantee SystemCredit Insurance System
30
Used by 40% of SMEs
Average guaranteed amount is 12 million yen (per SME)
Supports 11% of SME Loans
Functioning as a safety net for SMEs ※Implementing “Safety Net Guarantee” for SMEs suffering from credi
t crunches, bankruptcy of trading financial institutions or clients, disasters, etc.
Basic Guarantee Fee: 0.5% - 2.2%
Credit Supplementation System (2)
Mobilize Private Finance Institutions (PFIs)to provide loans for SMEs.
Mobilize Private Finance Institutions (PFIs)to provide loans for SMEs.
31
Subsidy
Tax System
Management Information
Education
Laws
SMEsTechnical
Information
Finance
Support Measures for SMEs
32
Thank You for Your Attention !
E-mail: [email protected]
Web: http://www.jfc.go.jp/english/index.html
Contact Information
Hikaru Fukanuma
Principal Economist
Japan Finance Corporation Research Institute
Tokyo, Japan