Financial Policy for SMEs in Japan

Transcription

1 Financial Policy for in Japan Takatoshi Miura Director, Finance Division Small and Medium Enterprise Agency, METI Government of Japan September 2013

2 What are? ~Number of companies / employees etc.~ comprise 99.7% of the 4.21 million enterprises in Japan, while the percentages are 70% and 50% in terms of number of employees and added value (manufacturing) respectively. Number of Enterprises (4.21 million) LEs 企 業 数 ( 約 421 万 社 ) (12,000) 0.3% Number of Employees (42.97 million) 大 企 業 約 1.3 万 社 0.3% LEs million 34% million 66% 製 造 業 付 加 価 値 額 (10 (4.20 million) 99.7% Definitions of SME Basic Act Definition under the Of which Small Corporation Tax Act Enterprises No. of Industry Capital No. of employees employees Capital Manufacturing Up to 300 million JPY Up to 300 Up to 20 Wholesale Up to 100 million JPY Up to 100 Up to 5 Up to 100 million JPY Services Up to 50 million JPY Up to 100 Up to 5 Retail Up to 50 million JPY Up to 50 Up to 5 中 小 企 業 約 万 社 99.7% Added Value (Manufacturing) (80.3 trillion yen) LEs 39.7 trillion yen 49.5% 40.6 trillion yen 50.6% (Source) Ministry of Internal Affairs and Communications, Establishment and Enterprise Census and Ministry of Economy, Trade and Industry, Census of Manufactures. 1

3 Characteristics of SME Finance: Difficulties Compared to large enterprises, SME finance generally faces the following difficulties: 1) Larger credit risks 2) Lower reliability of the financial statements, etc. 3) Lack of collateral that can be provided by 4) Larger monitoring costs Furthermore, in the past growth periods such as the post war rapid growth period, shortages of domestic savings restricted provision of funds by private sector financial institutions. Private sector financial institutions tend to prioritize lending to large enterprises in terms of efficiency. 2

4 Characteristics of SME Finance: Policies In order to urge provision of funds to as a measure of these difficulties, the Government implemented the following policies: 1) Establishment of private sector financial institutions specializing in SME finance Shinkin banks (Shinkin Bank Act, 1951) Credit unions (SME Cooperatives Act, 1953) 2) Support in access to capital through Public finance Credit Guarantee Corporations (guaranteeing borrowing from private sector financial institutions to enhance credit) Japan Finance Corporation, Shoko Chukin Bank (providing long-term and lowinterest funds in such areas as priority policies from the point of view of private enterprise completion) 3

5 Role sharing according to size of enterprises City banks Regional banks 2 nd Regional banks Small and Medium Enterprise Unit, Japan Finance Corporation Shoko Chukin Bank Shinkin banks Credit unions Micro Business and Individual Unit, Japan Finance Corporation Credit Guarantee Corporation Loans Deposits Loans Deposits Loans Deposits Large Enterprises Medium-size Enterprises Small Enterprises 4

6 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 Prevention of economic centralization, fostering of sound Dual structure: Correction of disparities between LEs and Support for willing and competent Basic Philosophy Establishment of Enactment of the SME Basic Act the SME Agency (1948) (1963) Antimonopoly Act (1947) Amendment of the SME Basic Act (1999) Act to activate SEs business (2013) Financial policies Establishment of government-affiliated financial institutions Establishment of Shoko Chukin Bank (1936) Establishment of National Life Finance Corporation (1949) Establishment of Japan Finance Corporation for Small and Medium Enterprises (1953) Resolution of the shortage of funds and development of policy finance SME Credit Insurance Act (1950) Credit Guarantee Corporation Act (1953) Introduction of Finance for improvement of Small Business Management (MARUKEI) (1973) Reform of policy finance: Limitation of function and consolidation of institutions Japan Finance Corporation Act (2007) Shoko Chukin Bank Company Limited Act (2007) Enhancement of Credit Insurance System (2007) 5

7 Support system for Minister of Economy, Trade and Industry Advisory Consultation SME Policy- Making Council Minister's Secretariat Economic and Industrial Policy Bureau Trade Policy Bureau Trade and Economic Cooperation Bureau SME Agency (203) Director-General Deputy Director-General Regional Bureaus of Economy, Trade and Industry (400) Industrial Science and Technology Policy and Environment Bureau Manufacturing Industries Bureau Commerce and Information Policy Bureau Agency for Natural Resources and Energy Japan Patent Office Director-General s Secretariat (27) Business Environment Department (110) Counselor s Office (14) Administrative Affairs Office (9) Public Relations and Business Counseling Office (4) Policy Planning Division (8) Office for Business Stability (6) Research Office (4) International Affairs Office (3) Finance Division (16) Corporate Finance and Tax Affairs Division (10) Business Support Department (64) Business Support Division (24) Office for Small Enterprises Policy (4) New Business Promotion Division (14) Start-up and Technology Division (11) Retail and Wholesale Commerce Division (10) Fair Trade Division (62) (Note) ( ) show the number of people in each unit at FY

8 Public Financing: Loans For the 4.2 million in Japan, securing financing for operations is a key business priority. Government-affiliated financial institutions provide about 10% of all loans to. Added to official credit guarantees, the ratio rises to 20%. Specifically, public SME financing includes: 1 policy financing (finance for startups 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.]). Shoko Chukin Bank (privatized in 2008) Japan Finance Corporation (JFC) SME financing for members Investment Financing for medium-sized enterprises Financing for small enterprises Investment, Subsidies Member enterprises (approx. 73,000) Factories, etc. (approx. 47,000) Individual proprietors (approx million) Government (Notes) These achievements as of the end of FY

9 Public Financing: Credit Guarantees Credit guarantee corporations (52 in Japan) guarantee borrowings from private sector financial institutions to facilitate financing to that lack credit or collateral. If the guaranteed SME defaults, repayments are made by the credit guarantee corporation in subrogation. 1. Application for guarantee (Usually, made through banks) 4. Loan Private sector financial institution 3. Guarantee agreement / subrogated repayments Credit Guarantee Corporation (CGC) (outstanding balance of guarantees: approx. 32 trillion yen) Investment, Subsidies Subsidies, Supervise 2. Insurance Contract Government Japan Finance Corporation (JFC) Investment, Oversight If the guaranteed SME defaults, % of the debts repaid by the credit guarantee corporation in subrogation. Local government (Notes) The outstanding balance is at the end of FY

10 Public SME Financing Users A significant number of the 4.21 million use Public financial institutions. 企 業 数 ( 約 421 万 社 ) Number of all Enterprises (4.21 million) LEs (12,000) 0.3% (4.198 million) 99.7% Of which Small enterprises (3.66 million) 87% Governmentaffiliated financial institutions 大 企 業 約 1.3 万 社 0.3% Of which Enterprises use Public financial institutions: Small and Medium 47,000 Enterprise Unit, JFC Micro Business and Individual Unit, JFC 958,000 中 小 Shoko 企 業 Chukin 約 Bank 万 社 Corporations 99.7% Credit Guarantee 73,000 1,500,000 (Notes) Calculated at the end of FY 2012 (Source) Ministry of Internal Affairs and Communications, Establishment and Enterprise Census

11 Management Improvement Loan In support of management improvement in small enterprises, which have particularly poor management resources and low productivity among, the Japan Finance Corporation provides unsecured low-interest financing without guarantors. Japan Finance Corporation (JFC) 2. Recommendation for financing Societies of Commerce and Industry / Japan Chambers of Commerce and Industry (JCCI) 1. Advice on accounting and creating business plans 3. Unsecured & low-interest financing without guarantors 2.05% (the date of August 13 th, 2013) (Standard interest rate by Micro Business and Individual Unit, JFC - 0.3%) Approx. 35,000 cases, with total lending at approx. 150 billion yen (2011) Small enterprises No assets with collateral value Unstable management Managers lack the skills for accounting or developing business plans 10

12 Law to Promote Modernization of of 1963 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. National Government (Ministries in charge: METI, Ministry of Agriculture, Ministry of Construction, Ministry of Transport, etc.) Assistance (taxation system, etc.) Designation Industries Specific industries Survey of current situation and analysis Prepared by industry associations, etc. Mapping out modernization plan (setting up long-term goals) Approval Structural improvement plan Implementation of Plans Low-interest loan Guidance Governmentaffiliated financial institutions Prefectures Implemented by industry association and other members of the industry Implementation of Plans Assistance (taxation system, etc.) 11

13 Counter-Cyclical Emergency Guarantee Program Outline CEGP provides full coverage of lending to in almost all business categories. (exceptions: agriculture, finance/insurance industry, etc.) Government budget: \2.7 trillion Total amount of guarantees: \27 trillion (February 15, 2008~March 31, 2011) Conditions 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 12 12