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The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development Bank Institute (ADBI), the Asian
Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no
responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

Public SME Financing and


FILP System in Japan
Masahiko Furuya
Financial Bureau
Ministry of Finance

Contents
1 SME in Japan
2 Financial Services in Japan
3 Issues in SME Financing
4 Public SME Financing - Loans
5 Public SME Financing - Credit Supplementation
6 FILP System
7 Public and Private Fund

1.SME in Japan

SME in Japan
Definition of SME and SE in SME Basic Act
SME
industry
capital
employees
(million yen)
Manufacturing up to 300
up to 300
Wholesale
up to 100
up to 100
Services
up to 50
up to 100
Retail
up to 50
up to 50
Definition of SME in Corporation Tax Act
capital up to 100 million yen

small enterprises
employees
up to 20
up to 5
up to 5
up to 5

Aspects of SME in Japan

source: METI

2. Financial Services in Japan

Financial Services in Japan

Source: BOJ

Financial Services in Japan

Source: BOJ

Financial Institutions in Japan


Banks
city banks
regional banks, second-tier regional banks
foreign banks in Japan
trust & banking
Cooperative financial institutions
Shinkin banks, credit union
Insurance companies, Security firms, Non-banks,
-------------------------------------------------------------------------------------------------------------------Public financial institutions
Japan Finance Corporation
Micro Business and Individual Unit,
Agriculture, Forestry, Fisheries, and Food Business Unit
Small and Medium Enterprise Unit
JBIC, Okinawa DFC, JICA, JFOC; DBJ, ShokoChukin Bank

Aspects of Banks and Shinkin Banks in Japan


March, 2013

Banks

Numbers

140

Numbers of
borrowers
(million)

2.03

Total
Outstanding
loan (trillion
yen)

441

Average
outstanding
loan
(million yen)

84.62

3 major banks

regional banks
second reg.
banks

Shinkin banks

105

270
1.14

224.5

212.5

63.7

35.76

source: JFC

3. Issues in SME Financing

Issues in SME Financing


Larger credit risks
Lower reliability of financial statements
Fewer collaterals by SME
Lager cost of monitoring
~ information asymmetry
Especially in the situation of the shortage of saving, banks
tend to prioritize lending to large enterprises.
What can or should the government do for SME financing?

4. Public SME Financing


- Loans

Reform of Public Financial Institutions


Lending Outstanding of 8 Government Financial Institutions:
\90.2Trllion (FY2004)
National Life Finance Corporation

(\9.6Tr)

Agriculture Forestry and Fisheries Finance Corporation

(\3.3Tr)

Japan Finance Corporation for Small and Medium Enterprise

(\7.5Tr)

The Okinawa Development Finance Corporation

(\1.4Tr)

Japan Bank for International Cooperation


International Financial Operation

(\19.8Tr)
(\8.5Tr)

The Overseas Economic Cooperation Operation (Yen Loans)

Development Bank of Japan

After the PF Reform


(from October, 2008)

(\11.3Tr)

(\14.0Tr)

The Shoko Chukin Bank

Japan Finance Corporation for Municipal Enterprise

(\9.6Tr)

(\25.0Tr)

\29.4Trillion (FY2011)

Newly established
Japan Finance Corporation
JBIC (split on April 2012)
The Okinawa DFC

\0.9Trillion (FY2011)

Merged with JICA

Full privatization
Local Governments newly
Established Japan Finance
Organization for Municipalities

Outstanding Loan of Private Financial Institutions and


Public Financial Institutions
1,000

900

20.0

179

18.0

175
167
158

800

150

141

133

126

Public financial
institutions

16.0

123
124

122

121

122

700

14.0

600

12.0

500

10.0

Share of public
financial institutions
b
a
b/(a+b)

400

812

797

763

8.0
738

710

719

725

719

725

694

688

690

710

300

6.0

200

4.0

100

2.0

Private financial
institutions

0.0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

source: BOJ
15

Japan Financial Cooperation


Organization
A policy-based public financial institution,
wholly owned by the Japanese government,
that aims to complement financial activities carried out by private financial
institutions and contributes to the improvement in the living standards of
Japanese people.
Statutory Law: The Japan Finance Corporation Act
Head Office: Tokyo, Japan Governor & CEO: Koichi Hosokawa
Capital: 3,455.0 billion yen, Reserve fund: 2,178.4 billion yen (as of Mar. 31,
2013)
Branch offices in Japan: 152, Overseas representative offices: 2
Employees: 7,361

Japan Financial Cooperation


Outstanding Loans
Outstanding Loans: (as of Mar. 31, 2013) (billion yen)
Micro Business and Individual Unit:
Agriculture, Forestry, Fisheries and
Food Business Unit:
Small and Medium Enterprise (SME) Unit:
(Finance Operations)
Operations to Facilitate Crisis Responses:
Operations to Facilitate Specific Businesses Promotion, etc.:

7,248.2
2,626.8
6,459.2

5,362.0
54.1

Feature of Operations of JFC Micro Business


and Individual Unit
Small loans to a large number of micro business
breakdown of borrowers by number of employees
4 or fewer
66.4%, between 5 and9 20.9%,
between 10 and 19 8.4%, 20 or more
4.2%
breakdown of loans by type of collateral
no collateral 74.1% (no collateral, no guarantor 29.4%)
secured by real estate or other collateral 25.9%
(partially secured by collateral 14.0%,)

Safety net financing


Supporting business start-ups
Supporting overseas expansion, social business, business
reconstruction, etc.

Loans of JFC Micro Business and Individual Unit


Loan,
Checking account
Banks
Micro business

Loan
JFC MBIU

General loan up to 72 million yen


(number of borrowers: 130 thousands
total loan amount: 676.7 billion yen)
Special loan up to 72 million yen
(number of borrowers: 810 thousands
total loan amount: 4873.5 billion yen)

Average outstanding loan : 6.66 million yen

Aspects of JFC Micro Business and Individual Unit


March, 2013

Banks

Shinkin banks

JFC(MBIU)

Numbers

140

270

Numbers of
borrowers
(million)

2.03

1.14

0.95

Total outstanding
loan (trillion yen)

441

63.7

7.2

Average
outstanding loan
(million yen)

84.62

35.76

6.66

Loans of JFC SME Unit


Loan,
Checking account
Banks
SME

Loan
JFC SMEU

Breakdown of Loan Amounts (FY2012)


Others 0.6 billion yen 0.0%

Corporate Revitalization Loans


79.1 billion yen 3.8%
New Business Development Loans
98.2 billion yen 4.7%

Great East Japan Earthquake


Recovery Special Loans
295.0 billion yen 14.1%

Loans for Environment


and Energy Measures
114.1 billion yen 5.4%
Loans for Enhancing
Corporate Vitality
354.0 billion yen 16.9%

Amount:
2,095.7
billion yen

Safety-net Loans
1,154.7 billion yen
55.1%
source: JFC

Complementation of private sector by government-affiliated financial


source: METI
institutions
Growth rates of loans from public financial institutions show inverse correlation with the growth rate of loans
from private financial institutions . The financing by public financial institutions work as a safety net during
economic contractions, which tighten lending from private financial institutions.
(YoY %)
30

Growth rate of loan balances for SMEs and small enterprises


Private banks

Japan Finance Corporation(JFC)s SMEs Unit (former


Japan Finance Corporation for SMEs)
JFCs Micro Business and Individual Unit (former
Peoples Finance Corporation)

20

Lehman shock
Uneasiness of financial

10

BIS

-10
Setback of private sector in the
time of tight money
(Increase in the supply of funds from JFC)

Changed
definition of

-20
1979 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13

(FY/quarterly)

JFC Funding Sources


Fiscal Investment and Loan Program(FILP)

The FILP Special Account


(Fiscal Loan Fund Account)

Borrowings

Capital contributions

The FILP Special Account


(Investment Account)

Borrowings

Government-guaranteed Bonds *
FILP Agency Bonds

General Account
Special Account for Reconstruction
from the Great East Japan Earthquake

Capital contributions

* Government-guaranteed bonds with a redemption period of five years or more are included in FILP.

Japan Finance Corporation

Financial Markets

FILP Bonds

Grant-in-Aid for JFC


MOF
11.8
MHLW
1.7
METI
4.0
Total
17.5
Subsidy
0.1
Grand-in-Aid and Subsidy 17.6
(billion yen, FY2013 budget)
source: JFC

5. Public SME Financing in Japan


Credit Supplementation

Overview of the Credit Supplementation System


[Credit Guarantee System]

SMEs and Small


business
operators

Subrogated payment

Recovery

Insurance money

Payments of recovered funds

JFC
SME Unit

Loan

Comprehensive
insurance contracts

Credit guarantees

CGCs
(52 Corporations)

Financial
institutions

[Credit Insurance System]

6. FILP System

Mechanism of FILP
Fiscal Investment and Loan Program (FLIP) consists of three elements, namely, Fiscal Loans, Industrial
Investments, Government Guarantees.
FILP supports policy targets by financing FILP agencies. They provide long-term, fixed, and low-interest (loan
interest = government bonds interest) loans, which are difficult for the private sectors to supply.
Self fund-raising
(FILP Agency bonds)

FILP Plan

Financial
Markets

FILP Bonds

Fiscal Loans

(FILP
agencies)
Government
affiliated
FY2014 plan
16.2 trillion yen

Loans
11.8 trillion yen

Governme
Government-guaranteed Bondsnt
guarantees

Government-owned
Dividends
Stocks
(e.g. NTT, JT)

4.1 trillion yen

0.3 trillion yen

Industrial
Investments Investments

financial institutions

(e.g.)
Japan Finance Corporation
Japan Bank for International
Corporation
Development Bank of Japan Inc.
Japan International Corporation
Agency, etc.

Other agencies

(e.g.)
Japan Student Services
Organization
Welfare and Medical Service
Agency
Innovation Network
Corporation
of Japan
Japan Oil, Gas and Metals
National Corporation, etc.

Local Governments

Loans
Investment
s

People,
companies,
communities

Difference of Fund Flow between the Subsidies of General Account and FILP
Fund Flow of the Subsidies of General Account

Taxes

People

National
Government
(General
Account)

Public services

Subsidies

Public
entities

People

Fund Flow of FILP


Loans and
investments

Issuance of FILP
bonds, dividends

Financial
markets

Interest payments/
redemption

FILP

Interest payments/
redemption, payment to
the national treasury

Public services

FILP
agencies

Fees/Charges

People

Unlike the General Accounts subsidies which lack tracking functions for awarded funds, FILP provides loans which accompanies the redemption process
of the transferred funds in the future. The redemption process includes a long-term checking function to the beneficiaries. This function facilitate the
beneficiaries to use funds in a disciplined manner.
As FILP plays the role of national lender (or investor), if the strong policy needs for a certain project with a certain degree of profitability is proposed,
FILPs financing scheme could be used.

Fiscal Loans and Industrial Investment


Fiscal Loans
Loan

FILP Bonds

Market

Interest bearing
debt
Redemption

Fiscal Loan Fund


FILP Special Account
Fiscal Loan Account

Fixed
interest
loan

Secure &
efficient
Fiscal Loan Fund
Act, Article 1
Project with strong
policy necessity,
and
reliable repayment

Collection

Long term funds,


at fixed low interest
rates

Industrial Investment

Governme
nt-owned
Stocks
(e.g. NTT,
JT)

Loan
with not
necessarily
Collection
fixed
interest

Dividends

Industrial Investments
Past investment
returns

FILP Special Account


Investment Account

Return

Loan

Risk Money

Project
- with strong policy
necessity
- with promising
Investment
return
Investment
- very risky
- not sufficient
funds by the
private
sector alone

Outline of FILP Plan for FY2014

December 24, 2013

Under the overall economic policy target of ending deflation and revitalizing the Japanese economy, FILP for FY2014 is planned to
provide capital instruments (ex. long-term risk money) as a catalyst, to the economy, so as to appropriately address the challenges that it
faces, such as (1) to activate private investments, (2) to support small and medium enterprises facilitating required efforts to improve their
performances, (3) to support expanding the activities of Japanese enterprises in overseas market, and (4) to export infrastructures and secure
natural resources
The total sum of the plan amounts to 16,180.0 billion yen (12.0, compared to the FY2013 initial plan), reflecting the improvement of
SMEs business conditions and the progress made so far in responding to the earthquake disaster
The amount of Industrial investment, which supplies long-term risk money, increases largely for two consecutive years to 317.2billion yen
(20.2, compared to the FY2013 initial plan)
Unitbillion yen

FY2013
(Initial Plan)
Supports to activate private investments
Japan Oil, Gas and Metals National Corporation
Institute which supports overseas transport and urban
development projects
Cool Japan Fund Inc.
PrivateFinance Initiative Promotion Corporation of Japan
Agriculture, forestry and fisheries Fund corporation for
Innovation, Value-chain and Expansion Japan
Innovation Network Corporation of Japan
Financial supports to enterprises
Japan Finance Corporation Small and Medium Enterprise
OperationsMicro Business and Individual Operations

Japan Finance Corporation Operations to Facilitate Crisis


Responses

Japan Bank for International Cooperation


Development Bank of Japan Inc.
Japan International Cooperation Agency (Finance and
Investment Account)
The Shoko Chukin Bank, Ltd.
Institutions supporting education, welfare and medical services
Japan Student Services Organization
Welfare And Medical Service Agency
Japan Community Health care Organization
Other institutions(expressway, urban renaissance)
Japan Expressway Holding and Debt Repayment Agency
Urban Renaissance Agency
Local governments
Local Governments
Japan Finance Organization for Municipalities

FILP Plan
Industrial investment
(Reference)

FY2014
(Initial Plan)

450.8
115.8

570.1
84.4

109.5

50.0
240.0

30.0
321.2

35.0

15.0

10.0
8,362.9

10.0
7,198.0

4,070.5

3,830.5

1,632.0

1,032.0

1,260.0
650.0

831.0
650.0

384.4

482.0

1,408.0
860.5
420.5
3,316.9
2,386.0
491.0
4,851.0
3,681.0
1,170.0

13.5
1,421.6
859.6
398.6
31.9
2,907.3
1,940.0
556.1
4,083.0
3,453.0
630.0

18,389.6
263.8

16,180.0
317.2

Annual
Change(%)
26.5%

13.9%

(Note)Figures are based on the initial plans. Figures in [ ] from FY2008 to FY2013 are total amounts after revision with supplementary budgets and
follow-up funding by the flexible management clause.

(Reference)The FY2014 balance is prospected to 170.5 trillion yen (FY2013 balance is prospected to 172.4 trillion yen).

1.0%

12.3%

15.8%

12.0%
20.2%

FY2014 FILP bond issues will amount to 16.0trillion yen (FY2013 initial 11.0trilion yen), Fiscal Loan Fund security issues
will amount to 2.1trillion yen (FY2013 initial 4.6trillion yen).

Image of the FILP Reform


FILP Reform
in FY2001

Old FILP

New FILP
FILP agency bonds
(self procurement)

Postal
savings

Deposit

Pension
reserves

FILP

Goverment
bonds
interest
0.2

Loan

FILP
Agencies

Financial
markets

FILP
(Government)
bonds

Goverment
bonds
interest
0.2

Postal
savings

Scrutiny of
required
amount

Aggregate
procurement

Pension
reserves

FILP

Deposit

FILP
Agencies

Loan
interest
rate
=Goverment
bonds
interest

Cut off

Independent management
of all deposits

Elimination of the mandatory deposit of all postal savings and pension reserves, and introduction of market-based
Main Points of Reform

fund raising
Introduction of policy cost analysis and rigorous expansion of information disclosure

Obligation to deposit all postal savings and pension reserves was eliminated. Instead, these funds are to be managed independently in the financial markets.
Only the necessary amount of funds is to be raised from FILP bonds in light of thorough scrutiny of the redemption certainty and the complementary function
to the private sector.
Loan interest rates are based on market rates for Japanese government bonds according to maturities.
FILP agencies are to issue FILP agency bonds.
Policy cost analysis is to be introduced and enhanced.
Information disclosure is to be substantially expanded to ensure the discipline of special public corporations.

7. Public and Private Fund

Public and Private Sector Funds


Private sector

government

Business

Fund

government
Sub-Fund

Business

Overview of Public-Private Sector Funds (at the end of FY2013)


(Unit: billion yen)

Name

The amount of Investment and Loan


Government

Government
Guarantees

Private Sectors

286

14

1,800

15.7

Regional Economy Vitalization Corporation of Japan <REVIC>

13

10.1

1,000

Agriculture, forestry and fisheries Fund corporation for


Innovation, Value-chain and Expansion Japan <A-FIVE>

30

1.8

35

Private Finance Initiative Promotion Corporation of Japan


<PFIPCJ>

10

10

300

Innovation Network Corporation of Japan <INCJ>


Organization for Small & Medium Enterprises and Regional
Innovation, JAPAN <SME Support, JAPAN>

100

Public-Private Innovation Program

University of Tokyo: 41.7


Kyoto University: 29.2
Osaka University: 16.6
Tohoku University: 12.5

Cool Japan Fund Inc.

30

8.5

Public-private fund contributing to qualified real estate that


meets earthquake resistance and green standard (Real Estate
Sustainability & Energy-Efficiency Diffusion <RE-SEED>)

35

100*

50 (Own Funds of DBJ)

The Fund for Japanese Industrial Competitiveness


(Development Bank of Japan Inc. <DBJ>)

Total
loan for resources to provide risk money

619.7

44.4

50 (Own Funds of DBJ)

3,135