Japanese SMEs and the credit guarantee system after the global financial crisis

Abstract

This paper provides a brief explanation of the Japanese public credit guarantee system and analyzes what role it played during the global financial crisis. The author conducted a questionnaire survey of small and medium-sized enterprises (SMEs) in Aichi Prefecture, the prefecture most seriously hit by the crisis, in collaboration with the Aichi-ken Credit Guarantee Corporation. Using the survey, which provides valuable information about the usage of the credit guarantee program, this paper finds that the credit guarantee system was effective in protecting the economy from collapsing. The system was so generous that now almost all SMEs want it to remain unchanged. However, as the generous system brings heavy financial burdens on the Japanese government and, more seriously, discourages firms and banks from improving their efficiencies, the author insists that reforms, such as limiting the target and the guarantee coverage, are inevitable.

Keywords:

• credit guarantee system
• Japan
• financial crisis
• questionnaire
• small and medium-sized enterprises

JEL classifications:

• G01
• G21
• G28

Public Interest Statement

This paper provides a brief explanation of the Japanese public credit guarantee system and analyzes what role it played during the global financial crisis based on a questionnaire survey of Japanese small and medium-sized enterprises (SMEs) that the author conducted. Japan is known as the largest user of the public guarantee system in the world. This paper finds that the credit guarantee system was effective in protecting the economy from collapsing under the global financial crisis. The system was so generous that now almost all SMEs want it to remain unchanged. However, as the generous system brings heavy financial burdens on the Japanese government and, more seriously, discourages firms and banks from improving their efficiencies, the author insists that reforms, such as limiting the target and the guarantee coverage, are inevitable.

Acknowledgements

This paper is part of the results of a joint study receiving a Grant-in-Aid for Scientific Research from the Japan Society for the Promotion of Science. The author expresses his thanks to participants for giving various comments at the international conference held by the Daejeon and Chungnam Branch, Bank of Korea, on June 9, 2014.

Notes

1. See Yamori, Kondo, Tomimura, Shindo, and Takaku (2013) for more details about various policies that the Japanese government took.

2. For example, the definition of non-performing loans was revised. Now, many loans to dubious borrowers were classified as performing loans if they could develop a reliable recovery plan.

3. The explanation in this chapter relies on Japan Federation of Credit Guarantee Corporations, credit guarantee system in Japan 2013.

4. Another important reform was the introduction of the principal of not requiring third-party guarantees.

5. The program expired in March 2011. Ono, Uesugi, and Yasuda (2011) analyze the ECGP, while Uesugi, Sakai, and Yamashiro (2010) examine the effects of the SGP.

6. Aichi-ken is the most industrial region in Japan. For example, Toyota Motor Corporation has its head office in Aichi.

7. As our sample firms are users of the credit guarantee loans, it seems natural that the support for the credit guarantee is high.

8. “Large-boned Policy” or Honebuto-no-Houshin, decided and released by the Abe cabinet on June 14, 2013, mentions that the primary balance of the central and local governments should be recovered by FY 2020.

Additional information

Funding

Funding. This work was is supported by Japan Society for the Promotion of Science (JSPS), JSPS KAKENHI [grant number 24653075].

Notes on contributors

Nobuyoshi Yamori

Nobuyoshi Yamori was born in Shiga Prefecture in Japan and graduated from Shiga University in 1986. He received an MA degree at Kobe University in 1988 and PhD at Nagoya University in 1996. Before becoming a professor of Kobe University in 2014, he taught at Nagoya University. He was also appointed as a visiting scholar at Columbia University, Federal Reserve Bank of San Francisco, and University of Auckland (New Zealand). He has published many academic articles in international journals, such as Economics Letters, Journal of Banking and Finance, Journal of Financial Intermediation, Journal of Financial Research, Journal of Financial Services Research, Journal of International Financial Markets, Institutions, and Money, and Journal of Risk and Insurance.