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

Figures & data

Figure 1. Credit guarantee schemes worldwide: volume of outstanding guarantees in portfolio, 2010.

Notes: For European countries, members of the European Association of Mutual Guarantee Societies, including mutual, public, and private–public schemes. For Chile, Chinese Taipei, Japan, and the USA, the data refer to 2010. Source: OECD (2013).

Figure 2. Real GDP growth rate.

Source: Cabinet Office, the Government of Japan.

Figure 3. Number of corporate bankruptcies in Japan.

Source: Tokyo Shoko Research.

Figure 4. Number of corporate bankruptcies in Aichi Prefecture.

Source: Tokyo Shoko Research.

Figure 5. Business sentiments.

Note: Results for all industries and all firms except the financial industry. Source: The Bank of Japan’s quarterly short-term economic survey (Tankan).

Figure 6. Credit guarantee system in Japan.

Source: Credit guarantee system in Japan 2013.

Table 1. Eligible SMEs and micro-enterprises

Industry	Capitalization	Number of employees
Manufacturing, etc.	Up to ¥300 million	300 or less
Wholesales	Up to ¥100 million	100 or less
Retail	Up to ¥50 million	50 or less
Services	Up to ¥50 million	100 or less
Health care, etc.	—	300 or less

Source: Credit guarantee system in Japan 2013.

Figure 7. Outstanding guaranteed liabilities (trillion yen).

Note: The figure for FY 2013 is that at the end of February 2014.

Table 2. Number of users (in thousands)

Japan Finance Corporation: Small Business Finance Account	47
Japan Finance Corporation: National Life Finance Account	958
Shoko Chukin Bank	73
Credit Guarantee Corporations	1,502
Total number of Japanese SMEs	4,201

Source: Japan Federation of Credit Guarantee Corporations.

Table 3. Historical development of the Japanese credit guarantee system

December 1950	The Small and Medium-sized Enterprise Credit Insurance Act enacted (Establishment of Credit Insurance System)
August 1953	The Credit Guarantee Corporation Law enacted
July 1963	Small and Medium-sized Enterprise Basic Act enacted
October 1998	Special Credit Guarantee Program established
April 2006	Guarantee fee rate that takes credit risk into account introduced
October 2007	Responsibility-sharing system implemented
October 2008	Emergency Credit Guarantee Program established

Source: Credit Guarantee System in Japan 2013.

Table 4. Credit guarantee fee rate classification

Credit guarantee fee rate classification	Unit: Annual rate (%)
	1	2	3	4	5	6	7	8	9
Credit guarantee fee rate under responsibility-sharing System	1.90	1.75	1.55	1.35	1.15	1.00	0.80	0.60	0.45
Special guarantee	1.62	1.49	1.32	1.15	0.98	0.85	0.68	0.51	0.39
Credit guarantee fee rate except responsibility-sharing System	2.20	2.00	1.80	1.60	1.35	1.10	0.90	0.70	0.50
Special guarantee	1.87	1.70	1.53	1.36	1.15	0.94	0.77	0.60	0.43

Notes: Bill discount revolving guarantee, Overdraft revolving guarantee and Business card loan revolving guarantee are classified in the special guarantee.

Credit guarantee fee rates applied to credit guarantee systems employing special insurance, or those to which the same credit guarantee fee rates are applied nationwide, etc. are determined separately.

Source: Credit guarantee system in Japan 2013.

Figure 8. Responsibility-sharing system.

Source: Credit guarantee system in Japan 2013.

Figure 9. Approval amounts of new loan guarantees (trillion yen).

Source: National Federation of Credit Guarantee Corporations.

Table 5. Size of respondents

		Number of firms	Ratio (%)
Employees	Five or less	1597	33.0
	6–10	1254	25.9
	11–20	972	20.1
	21–50	681	14.1
	51–100	227	4.7
	101 or more	115	2.4
	Total	4846	100.0
Capital (million yens)	10 or less	3438	71.0
	10–30	1006	20.8
	30–50	245	5.1
	50–100	123	2.5
	Over 100	31	0.6
	Total	4843	100.0

Table 6. Changes in sales from the previous year

	Number of firms	Ratio (%)
Increased	753	16.3
Unchanged	636	13.8
Decreased	3,222	69.9
Total	4,611	100.0

Table 7. Changes in borrowing conditions

Borrowing rate
1. Rise	11.5%
2. Unchanged	77.3%
3. Decreased	11.2%
Total	4,612
Amount borrowed
1. Decrease	8.6%
2. Unchanged	62.8%
3. Increased	28.6%
Total	4,612
Collateral
1. Stricter	9.6%
2. Unchanged	86.2%
3. Relaxed	4.2%
Total	4,598
Screening
1. Stricter	17.5%
2. Unchanged	78.1%
3. Relaxed	4.4%
Total	4,590
Borrowing period
1. Shorter	4.2%
2. Unchanged	73.8%
3. Longer	22.0%
Total	4,586

Table 8. Usage history of credit guarantees

	Number of firms	Ratio (%)
10 years or longer	3,203	67.7
2–10 years	1,015	21.4
2 years or shorter	515	10.9
Total	4,733	100.0

Table 9. Types of credit guarantee programs used

	Number of firms	Ratio (%)
Emergency Credit Guarantee Program (ECGP) only	948	20.6
Standard Credit Guarantee Program (SCGP) only	878	19.0
Both ECGP and SCGP	2,289	49.6
Do not know either	498	10.8
Total	4,613	100.0

Table 10. Ratio of guaranteed borrowing

	Whole sample		Number of employees
	Number of firms	Ratio (%)	5 or less	6–10	11–20	21–50	51–100	101 or more
80% or more	2,127	45.4	60.3%	48.1%	41.4%	29.2%	13.5%	6.4%
50–80%	1,277	27.3	21.5%	29.5%	34.2%	30.4%	26.1%	8.2%
20–50%	625	13.3	7.2%	11.4%	14.2%	24.0%	25.2%	25.5%
0–20%	370	7.9	4.0%	3.7%	5.9%	11.8%	31.5%	53.6%
Do not know	285	6.1	7.2%	7.3%	4.4%	4.5%	3.6%	6.4%
Total	4,684	100.0	1538.0	1210.0	931.0	667.0	222.0	110.0

Table 11. Measures taken to tackle the crisis

		Number of firms	Ratio (%)
1	Expansion of unguaranteed borrowing from financial institutions	473	10.2
2	Expansion of credit guaranteed loans from financial institutions	3,355	72.3
3	Borrowing from new financial institutions	396	8.5
4	Changing the repayment terms of existing loans	876	18.9
5	Sale of assets	312	6.7
6	Controlling spending that was not urgent, such as the postponement of capital investment	1,283	27.6
7	Reduction of costs by laying off employees	959	20.7
8	Requesting buyers to shorten the collection of accounts receivable	245	5.3
9	Requesting suppliers to defer the payment of accounts payable	226	4.9
10	Study of business continuity, including going out of business	322	6.9
11	Did not take any special measures	513	11.1

Table 12. Who advised firms to use guaranteed loans?

	Number of firms	Ratio (%)
Myself	1,236	31.1
Main bank	2,036	51.2
Financial institutions other than the main bank	488	12.3
Tax accountant	82	2.1
Chamber of Commerce and Industry (such as a management instructor), trade association, firms in the same business, the parent company, and suppliers	47	1.2
Other	18	0.5
Cannot clearly say	70	1.8
Total	3,977	100.0

Table 13. What would the firms have done if their application for guaranteed loans had been rejected? (Multiple choices)

	Whole sample	ECGP	SCGP
I would apply to financial institutions whose loans the CGC refused to guarantee for loans without guarantees (including a rollover of existing debts)	39.7%	41.9%	36.8%
I would apply to financial institutions other than whose loans the CGC refused to guarantee for loans without guarantees (including a rollover of existing debts)	19.3%	21.4%	18.0%
I would review the filings with the CGC and, once again, carry out an application for credit guarantee	24.2%	25.5%	21.3%
I would apply for loans to government-affiliated financial institutions	27.5%	30.4%	24.9%
I would apply for deferment of payment to suppliers	7.4%	7.9%	6.3%
I would postpone or withdraw the projects (such as capital investments)	8.5%	7.6%	9.7%
I would conduct a significant restructuring and sale of important assets	9.1%	10.7%	7.0%
I would give up continuation of the business	10.5%	12.0%	7.3%
There was no trouble, especially	16.3%	12.2%	22.0%
Total (Number of firms)	4,592	2,711	1,209

Table 14. Whether firms will use the credit guarantees and why they do so

	Number of firms	Ratio (%)
I want to use it because I can borrow at a fixed interest rate	699	17.6
I want to use it because I can borrow without collateral	1,879	47.4
I want to use it because there are positive reasons other than those mentioned above	240	6.1
I will use it because financial institutions extended only guaranteed loans to me	734	18.5
I do not want to use it	81	2.0
I do not know	332	8.4
Total	3,965	100.0

Table 15. Opinions on the future of the credit guarantee system

	Strongly agree (%)	Agree (%)	Weakly agree (%)	Weakly disagree (%)	Disagree (%)	Number of firms
The credit guarantee system is important for the support of small and medium-sized enterprises	66.6	27.9	4.4	0.9	0.3	4,624
The target should be limited to companies whose growth can be expected	3.5	16.4	24.3	31.6	24.2	4,460
The target should be limited to companies whose management has deteriorated temporarily	5.5	19.2	23.9	30.8	20.6	4,450
The target should be limited to small firms	2.0	10.5	18.9	38.2	30.4	4,426
The guaranteed amount should be expanded	29.5	30.2	24.2	10.9	5.2	4,485

Table 16. Revenue and expenditure of 52 Credit Guarantee Corporations (FY 2011) (million yens)

Current revenue	426,681
Guarantee fee received	335,031
Subsidy	7,727
Current expenditure	234,550
Operating costs	87,417
Credit insurance fee paid to the JFC	146,490
Current balances	192,130
Non-recurring revenue	110,611
Insurance proceeds received from the JFC	660,119
Loss compensations paid by local governments	75,461
Non-recurring expenditure	1,179,938
Non-recurring balances	−73,838
Net balances	131,064

Note: “Net Balances” is the sum of “Current Balances,” “Non-recurring Balances,” and the reversal of various funds.

Source: Okada (2013).

Table 17. JFC’s credit insurance business (billion yens)

	Insurance balance	Government contributions
FY 1998	−188.3	329.8
FY 1999	−209.3	336.5
FY 2000	−510.4	598.8
FY 2001	−579.6	169.8
FY 2002	−604.8	403.8
FY 2003	−432.4	972
FY 2004	−256	364.8
FY 2005	−167.6	90.2
FY 2006	−172.2	91.5
FY 2007	−149.4	253.1
FY 2008	−459.6	774.8
FY 2009	−567.9	2051.6
FY 2010	−436	601.3
FY 2011	−397.9	1040.9
FY 2012	−349.4	243.6

Source: Okada (2013) and the JFC annual report 2013.

Figure 10. General government net debt (international comparison).

Source: Ministry of Finance, Japanese Government, Japan’s Fiscal Condition as of December 2013. https://www.mof.go.jp/english/budget/budget/fy2014/02.pdf.

Organization for Economic Co-operation and Development. (2013). SME and entrepreneurship financing: The role of credit guarantee schemes and mutual guarantee societies in supporting finance for small and medium-sized enterprises (Final Report). Paris: Centre for Entrepreneurship, SMEs and Local Development.

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Okada, S. (2013). Current status and issues surrounding the credit guarantee system. National Diet Library, Issue Brief 794 (in Japanese).

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