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Role of the Credit Risk Database in Developing SMEs in Japan: Lessons for the Rest of Asia
Abstract
Small and medium-sized enterprises (SMEs) play a significant role in Asian economies as they contribute to high shares of employment and output. However, SMEs generally have limited access to finance compared to large enterprises. Given the bank-dominated financial systems in Asia, banks are the main source of financing for SMEs. For financial institutions, it is crucial to distinguish sound SMEs from non-healthy ones in order to avoid the accumulation of non-performing loans. Information asymmetry in this sector can be reduced by using accumulated data on SMEs and by employing credit analysis techniques, allowing lending institutions to recognize healthy SMEs. It is crucial for governments to collect SME data and prepare rich databases, such as the Credit Risk Database (CRD) of Japan. This will also help governments to formulate economic policies. In this paper we define and describe in detail the role and characteristics of Japan’s CRD in SME development and explain how it can be an example for other Asian economies to establish similar soft infrastructure that can make important contributions to SME development and boost economic growth.
... It utilized a random sample of 380 SMEs from the 10 administrative regions in Guyana, the Cox Proportional Hazard Model (CHPM), and the Kaplan-Meier (KM) estimator. The study also proposed a prototypical credit risk calculator using an approach similar to Kuwahara et al. (2015). ...
... A prototypical risk calculator was developed by following the procedure in Kuwahara et al. (2015). ...
... However, when the coefficient is statistically significant, the estimated coefficient is utilized. It is noteworthy that the only difference between our proposed calculator and Kuwahara et al. (2015) is that we have replaced financial indicators with the weights associated with the profiles of the SMEs and their owners. We believe this may be an appropriate solution in countries with a paucity of financial information. ...
Most businesses in Guyana are small and medium-scale enterprises (SMEs). SMEs are assumed to generate a significant share of employment and contribute to wealth creation. However, they operate in a less than auspicious business climate, and their failure rate is high. One of the perennial complaints of small business operators is lack of access to credit. Two of the reasons that financial intermediaries are reluctant to grant credit to SMEs are the perceived higher risk of failure and lack of adequate collateral. This study
sought to identify the factors responsible for SMEs’ survival in Guyana using data collected from a country-wide survey which captured the profile of 380 SMEs and their founders. The Kaplan-Meier (KM) estimator and Cox Proportional Hazard Model (CPHM) were employed to calculate survivability of the SMEs based on firm characteristics and founder's profile. Gender, location, and economic activity consistently explained the
survival of these businesses. However, factors such as the age, experience, and educational background of the owner, as well as, the source of start-up funding, access to government procurement, legal form, and business strategy were found not to be significant determinants of SMEs’ survivability. Further, the significance of size as an essential determinant was inconclusive. Based on the estimates derived from our survival function, a prototypical credit risk calculator was developed to illustrate how a model can be constructed with non-financial data to quantify the risk of firm failure. The model could be further refined and used by practitioners to better screen prospective SME loan applicants and reduce some of the imperfect information barriers.
... Sementara di negara maju di Asia seperti Jepang, UMKM berkontribusi sekitar 99 persen dari total perusahaan dan mempekerjakan sekitar 70 persen dari total tenaga kerja (Kuwahara et al., 2015). ...
Tujuan dari penelitian ini adalah untuk mengetahui pengaruh pemanfaatan teknologi terhadap produktivitas perusahaan manufaktur mikro dan kecil di Indonesia. Untuk melakukan hal ini, kami mengeksplorasi dampak langsungnya dengan menggunakan data tingkat perusahaan dari data survei perusahaan manufaktur mikro dan kecil yang dilakukan oleh Badan Pusat Statistik Indonesia pada tahun 2019. Untuk melakukan analisis empiris, kami memperkirakan model ordinary least square (OLS) dengan menambahkan beberapa variabel kontrol yaitu akses keuangan, pelatihan tenaga kerja, pendidikan pengusaha dan usia perusahaan. Hasil utama kami menunjukkan bahwa dampak komponen pemanfaatan teknologi signifikan dan positif terhadap produktivitas tenaga kerja. Selain itu, terdapat juga bukti bahwa akses keuangan, umur perusahaan, pendidikan wirausaha mempengaruhi produktivitas perusahaan manufaktur mikro dan kecil.
... Against the backdrop, we extend the model with two improvements: (i) to avoid borrower selection biases and widen the coverage of the program, instead of providing funds to the banks, in this model the government (a dedicated government agency) provides credit information of the SME borrowers to banks by making a credit scoring of the SME borrowers through credit risk analysis of the respective SMEs, and (ii) the banks use the scores to disburse loans under a digital financing method in order to reduce transaction costs and default risks that will facilitate faster loan disbursement and recovery process [19]. In this model, it is crucial for the government to set up a dedicated agency such as the Credit Risk Database (CRD) of Japan [20] (Japan's CRD is a successful database, which is created by the CRD Association. The members of the CRD Association maintain the database by offering SME financial statements. ...
A sustainable financing strategy for SMEs should aim to enhance a low-cost collateral-free supply of loans to SMEs with good track records of repayments to banks. In this paper, we suggest two alternative financing models for SMEs that address certain borrowing constraints of SMEs. First, the model incorporates institutional mechanisms involving the government, banks, and SMEs. The strategy employs a two-pronged approach: (i) the government enhances the supply of loanable funds to banks, and (ii) identifies good SME borrowers through skills development programs and introduces them to banks. This model will reduce default risk and allow banks to offer lower-interest and collateral-free credit to SMEs, thereby improving their access to finance and performance. Second, the model could be extended to accommodate digital finance using a data-driven credit risk score of the borrowers to reduce banks’ default risks and transaction costs with or without government funds. The proposed model could resolve the moral hazard and selection bias problems. Our proposed models are based on a public-private partnership approach and therefore could solve certain borrowing constraints of SMEs. Our empirical results support the model outcomes and therefore are consistent with the predictions of our theoretical models.
... e world's wellknown credit information databases include World Base of D&B [8], Credit Risk Database (CRD) in Japan [9], Zest-Finance in US, and the Credit Reference Center of the People's Bank of China (PBCCRC) [10]. Most traditional credit databases have centralized and multibackup management of data. ...
The purpose of this interdisciplinary study is to investigate the applications of modern computational technologies in the field of credit investigation and discuss the related legal governance measurements in order to unblock the bottlenecks in the future development of credit investigation market. By analyzing the computational technologies and algorithms most commonly used in credit data collection and data storage, data transmission and data access, data analysis and processing, data calculation, result output and effect evaluation, this paper summarizes and proposes a unified general process of modern credit investigation, pointing out that in this general process, low data quality, privacy violation, algorithmic bias are the main challenges in the big data era, and countermeasures like data quality control, privacy protection, and algorithm governance need to be to be taken seriously into account in order to further explore the great potential of the credit investigation under the legal framework.
... In addition, nationwide SME databases have been established in several countries, such as Credit Risk Database (CRD) in Japan and Public Credit Registries in Malaysia. Kuwahara et al. [9] analyze the characteristics of Japan's CRD and conclude that CRD can create reliable scoring models for assessment of SMEs' risk. Furthermore, the problem that how to provide financing for SMEs in a reasonable way has also been studied [5]. ...
Motivated by the practice from Walmart in China, we investigate Buyer-backed Purchase Order Financing (BPOF) contract by considering a supply chain consisting of one capital-constrained supplier and one well-capitalized retailer. The supplier is a small enterprise and cannot get financing from banks independently. In order to get funds for the supplier’s production, three parties (the retailer, supplier and bank) reach a BPOF contract. In this contract, the retailer provides credit guarantee for the supplier’s loan. As the loan guarantor, the retailer determines the amount of credit guarantee. The bank provides the supplier with the loan as the retailer requests. Then, the supplier gets the loan and determines production quantity. Finally, the market demand is realized and the retailer places order to the supplier. After the supplier delivers products and gets order payment, he can repay the loan. According to BPOF contract, if the order payment is insufficient to repay the loan, the retailer has to compensate the bank for the loss. To identify the optimal decisions for the retailer and supplier, we develop a two-stage Stackelberg game, in which the retailer is leader and the supplier is follower. We find that BPOF contract can help mitigate the supplier’s financial distress and improve the retailer’s revenue. In addition, we show that how the optimal decisions are affected by the supplier’s initial capital and supply chain members’ inventory risk. Our study further gives suggestions to supply chain management practices: small suppliers should take advantage of the retailer’s high credit for financing, and the retailers who cooperate with small suppliers should maintain a good credit rating.
... Furthermore, proper risk management and diversification mechanisms can reduce moral hazard-related problems. In this respect, the Japanese case can offer lessons for Turkey (Kuwahara et al. 2015). ...
... Furthermore, proper risk management and diversification mechanisms can reduce moral hazard-related problems. In this respect, the Japanese case can offer lessons for Turkey (Kuwahara et al. 2015). ...
... In order to solve this problem, the development of a nationwide SME credit risk database similar to the credit risk database of Japan that accumulates SME databases and acts as a credit scoring company for SMEs needs to be established in Indonesia. This could be a useful soft infrastructure for the development of SMEs in Indonesia (Kuwahara et al. 2015). The sector in which an MSME operates also affects the decision to grant credit. ...
Micro, small, and medium-sized enterprises (MSMEs) play a significant role in the Indonesian economy, however most MSMEs have difficulties in accessing finance. The Credit Guarantee
Scheme (CGS) is a popular program for guaranteeing bank lending to MSMEs by the government. The objective of this research is to evaluate and compare the performance of the CGS in rural and urban areas of Indonesia. The data used in this research are from the
Indonesian Family Life Survey (IFLS) 2007 and 2014. We looked at the role of microfinance as a bridge for MSMEs to access credit, however our results show that this role does not function optimally for MSMEs that have no credit guarantee. MSMEs that do not have a credit guarantee do not have much opportunity to access credit from formal microfinance institutions. In addition, MSMEs in rural areas have significantly fewer opportunities to gain access to credit from formal institutions than MSMEs in urban areas.
... Moreover, the models used will improve with time as more and more data are added. A similar database with SME data being shared by members in an anonymous form has been found to be useful in Japan (Kuwahara et al. 2016). The database was set up specifically to encourage bank lending to SMEs. ...
We describe the common financing challenges faced by micro, small, and medium-sized enterprises (MSMEs) in India and some important measures taken to address them, with a focus on the credit rating scheme implemented in 2000. We examine the usefulness as well as the limitations of the scheme, drawing on interviews with rating agencies and MSMEs. With credit rating being an expensive exercise, the availability of government subsidies under the scheme has been an important factor in encouraging MSMEs to get themselves rated, thereby reducing information asymmetry with banks and enabling access to credit. Given the large number of unbanked MSMEs in the country, leveraging the data generated by MSME lending and credit rating in the country through the creation of a credit risk database is necessary. Lenders will then be able to tap into the collective data generated to make more informed credit decisions with regard to MSMEs without relying on subsidies.
Over 63 million micro, small, and medium-sized enterprises in India generate lending and credit rating data. How can lenders leverage these to make informed credit decisions?
... Next we explain the actual use of financial information and the CRD scoring model from the functioning aspect, as in 5-1, Base of evaluation; 5-2, Benchmark; and 5-3, Mutual yardstick. Kuwahara et al. (2016) introduce a variety of the CRD services to members and the overall usage of such services. We cover some of them and add another relevant fact in this chapter. ...
... Japan's credit guarantee corporations (CGCs), the main members of the CRD, have used the CRD scoring models created since April 2006. Given that the number of SMEs in Japan is around 4 million, the database contains information on a full three-quarters of the enterprise population(Kuwahara et al. 2016). ...
This paper tests whether local financial development matters for SMEs’ growth performances. We develop a theoretical model framework based on banks’ and firms’ profit-maximizing behavior that critically hinges upon credit default risk ratio. We argue that an expansion of branch network would increase competition among banks to find good borrowers by reducing information asymmetry, which will likely to reduce credit default risk of banks. Our empirical analysis based on the theoretical framework confirms that decreasing credit default risk would decrease interest rates and therefore increases the demand for loans. Thus, bank branch growth has positive and significant impact on firms output growth and productivity. For the empirical analysis, we have used 3 groups of data of Bangladesh including i. firm level data; ii. financial development data; and iii. sub-district level geographical data. The main policy implication of this paper is that local financial development, particularly bank branch network expansion at sub-district level could ease access to finance and thereby improve performances of SMEs in developing countries.
... Furthermore, proper risk management and diversification mechanisms can reduce moral hazard-related problems. In this respect, the Japanese case can offer lessons for Turkey (Kuwahara et al. 2015). ...
This study examines the recently revived credit guarantee fund (KGF) mechanism in Turkey from a comparative historical perspective and identifies the structural features of the Turkish economy that complicate access to finance for SMEs. The banking-based financial system in Turkey, state banks and the public sector, was unable to resolve the access to finance problem of SMEs in the near past. Consequently, the public authorities revived the KGF in early 2017. The KGF was established in 1993 but stayed idle until recently. Despite these efforts, structural impediments to easing SMEs' access to finance persist in the Turkish economy. This paper identifies the chronic current account deficit, high inflation, large size of the informal economy, and bank-based financial system as the major structural obstacles to easing SMEs' access to finance. Moreover, the global financial crisis has exacerbated the access to finance problem of Turkish SMEs. This paper posits that, for Turkey to resolve the financing problem of SMEs, it is necessary to identify clearly the sustainability of the recently revived KGF and its impact on public and private debt. In addition, the KGF mechanism needs to prioritize SME financing in value-added tradeable goods so that it can contribute to long-term, sustainable economic growth in Turkey.
... Its aim was to facilitate fundraising for SMEs and to improve their operational efficiency. The association's membership increased from 73 institutions at the end of March 2002 to 181 by 1 April 2016 (Kuwahara et al. 2016). The CRD covers SMEs exclusively (Figure 4). ...
Small and medium-sized enterprises (SMEs) are the backbone of the Asian economy. They make up more than 96% of all Asian businesses that provide two out of three private sector jobs in the continent. Therefore, it is vitally important for the Asian economies' economic success that they have fully functioning support measures for SMEs. However, SMEs face major challenges in accessing cheap finance, mainly because there is an asymmetric information problem between suppliers and demanders of funds, which hinders their growth. This paper will highlight the difficulties of SMEs in accessing finance, and provides remedies for mitigating them. The remedies proposed in this paper include the development of credit information infrastructures for SMEs to remedy the asymmetric information problem, utilization of credit rating techniques for SMEs, the development of a sustainable credit guarantee scheme, the development of specialized private banks for SME financing, and the introduction of new ways of providing community-based financing such as hometown investment trust funds. The paper will provide operational examples from developed Asian economies such as Japan and the Republic of Korea, and developing Asian economies such as Thailand with a view to them being implemented in the rest of Asia.
... d the Small and Medium Enterprise Agency. The initial membership was 52 credit guarantee corporations as well as financial and nonfinancial institutions. Its aim was to facilitate fundraising for SMEs and to improve their operational efficiency. The association's membership increased from 73 institutions at the end of March 2002 to 179 byApril 2015. (Kuwahara et al., 2015BanksThe CRD covers SMEs exclusively (Figure 6). As of March 31, 2015, it included 2,210,000 incorporated SMEs and 1,099,000 sole-proprietor SMEs, and it is by far the largest SME database in Japan. The database for enterprises in default covered 500,000 incorporated and sole-proprietor SMEs (Yoshino & Taghizadeh-Hesary, 2015b). The CRD ...
The provision of microcredits has been considered to have an active role in reducing poverty and promoting economic growth for small entrepreneurs. Many academics have referred to the topic of introducing credit scoring models for managing borrowers’ credit risk. These models have the aim to discriminate between good and bad borrowers, aiding the microfinance institutions in lowering their costs and the timing of the credit granting process as well as enhancing their outreach. Over the last decades, these investigations have covered microfinance institutions from all over the world, focusing on developing countries. Some have the objective of predicting the probability of default of any microcredit, while others refer to attrition or the possibility that microcredits may generate a certain spell of arrears. Microfinance institutions that use credit scoring models appear to be more productive at lower costs, increasing their small business loan portfolio, providing geographically diversified loans and expanding the availability of credit. Since the first credit scoring model for microfinance, there has been an intense development in the literature, regarding the type of explanatory variables considered in the models, the different statistical tools applied and the kind of risks predicted. Currently, innovative approaches in the implementation of credit scoring methodology to microfinance institutions are coming to light. The aim of this paper is to present a literature review of the state-of-the-art on credit scoring models for microcredits, pointing their factors in common, evaluating them critically and establishing the topics of future research.
... The success of SMEs has huge implications for the growth and socioeconomic well-being of a country (Kuwahara, Yoshino, Sagara, & Taghizadeh-Hesary, 2015;Yoshino et al., 2016). SMEs foster economic development as well as encourage the flow of trade and investment between different countries. ...
The primary objective of this study is to critically examine the effect of strategic orientation on the performance of small and medium enterprises (SMEs) in Malaysia. Three most comprehensive constructs, namely, entrepreneurial orientation, market orientation, and interaction orientation were adopted to present a holistic picture of the effect of strategic orientation on firm performance. This study adopts a cross-sectional design and uses the stratified random sampling method to select the potential respondents. The complete data were collected from 473 entrepreneurs who operate in the service sector in Malaysia. Findings of this study show that entrepreneurial and market orientations have a positive effect on superior firm performance. As entrepreneurial orientation is shown to be the construct sharing a positive relationship with all the other constructs in the model, it has been identified as the most significant strategic orientation. SMEs in Malaysia should therefore focus on adopting strategies in market orientation by appropriate marketing efforts, and in entrepreneurial orientation where the entrepreneur needs to adopt a proactive stance to counter challenges in the market of new products and changing customer preferences.
... the Small and Medium Enterprise Agency. The initial membership was 52 credit guarantee corporations as well as financial and nonfinancial institutions. Its aim was to facilitate fundraising for SMEs and to improve their operational efficiency. The association's membership increased from 73 institutions at the end of March 2002 to 179 by April 2015. (Kuwahara et al., 2015 Banks The CRD covers SMEs exclusively ( Figure 6). As of March 31, 2015, it included 2,210,000 incorporated SMEs and 1,099,000 sole-proprietor SMEs, and it is by far the largest SME database in Japan. The database for enterprises in default covered 500,000 incorporated and sole-proprietor SMEs ( Yoshino & Taghizadeh-Hesary, 2015b). The ...
Proposed tracks
- Entrepreneurship and the Internet of Things
- The entrepreneurial university
- Corporate entrepreneurship
- Family entrepreneurship
- Public service entrepreneurship
- Social entrepreneurship
- The entrepreneurial behavior
- Challenges for the entrepreneurs in the contemporary business environment
- Entrepreneurship and economic development
Important dates
- Full paper submission: March 18, 2017
Detailed information on the conference, as well as submission procedures: www.entrepreneurship.facultateademanagement.ro
... Its aim was to facilitate fundraising for SMEs and to improve their operational efficiency. The association's membership increased from 73 institutions at the end of March 2002 to 179 by April 2015 (Kuwahara et al 2015). The CRD covers SMEs exclusively (Figure 6). ...
This study analyzes the effectiveness of the government reform in MSMEs tax administration by examining the perceptions of the players on the issuance of tax regulation based on the four canons of taxation related to equity, certainty, convenience, and economy. Data are collected from 518 MSME respondents using surveys. Based on the results, it is concluded that the majority of respondents perceived that the new regulation regarding income tax for MSMEs fulfilled the four canons of taxation. This study provides its originality by analyzing the effectiveness of the current tax reform on MSMEs, especially in the context of a developing country, i.e., Indonesia where its tax ratio to GDP was much lower than other developing economies.
Despite being the focus of numerous policy initiatives, the credit gap of the MSME sector
in India has been persistent. An investment in tapping the data being generated by
lenders to build a database to inform future lending is likely to improve the quality of
lending decisions over time. This, in turn, has the potential to further expand MSME loan
access and reduce MSME borrowing costs. To realize this objective, a credit risk database
(CRD) has been found to play a useful role in catalyzing collateral and guarantee free loans
for SMEs in Japan. The availability of the OCEN network and the account aggregator
framework offers an opportunity to create a CRD involving banks and NBFCs at relatively
low incremental cost. The CRD’s role will be distinct from that of credit bureaus and rating
agencies as it is based on financial and default data for the sector as a whole, rather than
for individual entities. The main benefits of CRD include the development of credit
scoring models based on nationwide data and the availability of benchmarks for different
segments of the MSME sector. Additional benefits are that the credit scores from the
models could be used to develop a more sophisticated pricing mechanism for guarantees
and for potentially aiding MSME loan securitizations.
Despite the plentiful debate on the effects of bank competition on SME access to finance and growth, only few studies have explored the impacts on SME cost of debt. This study examines how bank market power affects the credit costs of SMEs by using unique matched SME-bank data from 17 EU countries. We show that bank market power reduces the cost of debt for SMEs. Such a favorable effect is stronger for SMEs that are less informationally transparent, and in the economies subject to less credit information depth and business extent of disclosure. These findings support the Information-based Hypothesis, whereby market power motivates banks to invest in soft information acquisition and to build lending relationships to reduce information costs. In addition, we show that despite the favorable effects of relationship lending brought by bank market power, SME credit conditions worsen in a more concentrated banking market.
A project on the use of distributed registry technology to improve funding for start-ups in Japan has been considered. The project is based on the application of distributed registry technology, smart contracts, a big database of start-ups credit risk (in Japan CRDS), a local investment fund, a unified marketing and trading platform. The model of investor behavior (taking into account risk and profitability) has made it possible to show, that with growing investor confidence (individuals and households) and a certain level of profitability of startups, investing in startups will be more preferable, than a bank deposit. The features of the project have been highlighted and a conclusion has been made, that under certain conditions, the adduced scheme for financing start-ups can be used in Russia, for example, by the Industry Development Fund.
This paper examines the impact of medium- and short-term financial constraints on the probability of export participation of SMEs in 28 post-communist countries. The regression analysis conducted over the cross-sectional sample of SMEs taken from the BEEPS III-IV-V shows that the medium- and short-term financial constraints produce a significantly negative effect on the probability of exporting. Although there exist arguments for why the effects of medium- and short-term financial constraints can differ from each other, both the medium- and short-term financial constraints appear to reduce the probability of exporting equally by 25%. The regression results also suggest that more productive, innovative, and larger SMEs, and also SMEs with international quality certificates are more likely to export. When the regressions are separately estimated for the first-time and continuous exporters, it appears that only the probability of exporting of continuous exporters is significantly sensitive to the financial constraints. Furthermore, the regressions separately run for the direct and indirect exporters show that the financial constraints have a larger effect on the probability of exporting of indirect exporters. The heterogeneity analysis shows that there is a significant heterogeneity in the effects of medium- and short-term financial constraints on the likelihood of exporting across regions, industries, periods, and firm types.
In Asia, small andmedium-sized enterprises (SMEs) account for the major share of employment and dominate domestic economies, yet providing these companies with access to finance is a challenge across the region. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular with regard to venture capital. As a result, banks are the main source of financing for SMEs. It is crucial for banks to be able to distinguish healthy from risky companies. If they can do this, lending and financing SMEs through banks will be easier. In this paper, we explain the importance of SMEs in Asia. Then, we provide a scheme for assigning credit ratings to SMEs by employing two statistical analysis techniques—principal component analysis and cluster analysis—applying 11 financial ratios of 1,363 SMEs in Asia. If used by the financial institutions, this comprehensive and efficient method could enable banks and other lending agencies around the world, and especially in Asia, to group SME customers based on financial health and adjust interest rates on loans and set lending ceilings for each group. © 2015 Asian Development Bank and Asian Development Bank Institute.
Small and medium-sized enterprises (SMEs) are the backbone of most Asian economies. The main obstacle to the development of the SME sector is the lack of stable finance. Considering the bank-dominated characteristic of economies in Asia, banks are the main source of financing, and the lack of a comprehensive credit rating database has been a bottleneck for SMEs. This paper examines how a credit rating scheme for SMEs can be developed, when access to other financial and non-financial ratios is not possible, by using data on lending by banks to SMEs. We employ statistical techniques on five variables from a sample of Thai SMEs and classify them into subgroups based on their financial health. By employing these techniques, banks could reduce information asymmetry and consequently set interest rates and lending ceilings for SMEs. This would ease financing to healthy SMEs and reduce the amount of non-performing loans to this important sector.
Small and medium-sized enterprises (SMEs) account for the major share
of employment and dominate the Asian economies. These economies are
often characterized as having bank-dominated financial systems and
underdeveloped capital markets, in particular venture capital. Hence,
offering new methods for financing SMEs is crucial. Hometown
investment trust funds are a form of financial intermediation that was
started recently and has since been adopted as a national strategy in
Japan. In the present paper, the authors explain the importance of SMEs
in Asia and describe hometown investment trust funds. They then provide
a scheme for credit rating of SMEs, employing two statistical analysis
techniques, principal component analysis and cluster analysis to analyse
the credit risks of a sample of Asian SMEs by using their financial
variables. This comprehensive and efficient method would enable banks,
to group their SME customers based on their financial health, adjust
interest rates on loans and set lending ceilings for each group. Moreover,
this method is applicable to hometown investment trust funds around the
world.
“Abenomics” refers to the economic policies advocated by Shinzo Abe, who became prime minister of Japan for a second time when his Liberal Democratic Party won an overwhelming majority in the general election in December 2012. Abenomics is distinguished by a set of policies comprising “three arrows”: (1) aggressive monetary policy, (2) fiscal consolidation, and (3) a growth strategy. The Japanese economy faces an aging population and increasing social welfare expenses. No other country has experienced such rapid growth of the number of retired people. In this article we will explain all three aspects of Abenomics, examine the current state of the Japanese economy, and explore what further remedies may be required if Japan is to recover from its long-term deflation. We will look at such proposals as hometown investment trust funds, postponement of the retirement age by introducing a flexible wage rate system, and changing the pension system to 401(k) style instruments.
In Asia, small and medium-sized enterprises (SMEs) account for a major share of employment and dominate the economy. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular venture capital markets. Hence, looking for new methods of financing for SMEs is crucial. Hometown investment trust funds (HIT) are a new form of financial intermediation that has now been adopted as a national strategy in Japan. In this paper, we explain the importance of SMEs in Asia and describe about HITs. We then provide a scheme for the credit rating of SMEs by employing two statistical analysis techniques, principal components analysis and cluster analysis, and applying various financial variables to 1,363 SMEs in Asia. Adoption of this comprehensive and efficient method would enable banks to group SME customers based on financial health, adjust interest rates on loans, and set lending ceilings for each group. Moreover, this method is applicable to HITs around the world.
“Abenomics” refers to the economic policies advocated by Prime Minister Shinzo Abe who became prime minister of Japan for a second time when his party, the Liberal Democratic Party, won an overwhelming majority at the general election in December 2012. Abenomics has “three arrows”: (i) aggressive monetary policy, (ii) fiscal consolidation, and (iii) growth strategy. The Japanese economy faces an aging population and expanding social welfare expenses. No other country has experienced Japan’s rapid growth of retired people. In this paper we will explain these three aspects of Abenomics and the current state of the Japanese economy, and examine what further remedies may be required if Japan is to recover from its long-term deflation. We look at such proposals as hometown investment trust funds and postponing of the retirement age through the introduction of a flexible wage rate system.
This chapter will, first of all, describe how the flow of funds in Japan functions. Second, it explains how Hometown Investment Trust (HIT) funds can fund businesses that are likely to grow in future and are capable of making a social contribution, but entail risks. HIT funds have recently begun to grow, and we will make the case for the urgent need to foster such funds. There are two main reasons why this is important. First, as BIS capital adequacy requirements become more stringent worldwide, banks find it more difficult to provide funding to high-risk businesses and projects. Second, Japan’s public finances are in dire straits. Local businesses outside the main urban centres used to be supported by subsidies from the centre to local regions in the form of national tax revenues allocated to local governments, national treasury disbursements, and government loan and investment funds. Under today’s expanding fiscal deficits, however, issuance of deficit-financing bonds to provide for local regions has reached a limit, and the need to use private-sector funds to finance regional projects has become urgent (Yoshino and Mizoguchi, Financial policy review, Ministry of Finance of Japan, 2013; McNelis and Yoshino, Advs Complex Syst 15:1250057, 2012).
The second half of this chapter will describe the flow of funds in Asia. Chapter 5 of this book will discuss concrete examples in Asia, where the financial systems also rely heavily on indirect financing via banks, so that the supply of funds to risk sectors is very likely to taper off. It is necessary to create mechanisms to supply various kinds of funds, including HIT funds that finance new corporations, businesses and environmental programs.
During the current global crisis, capital inflows into Asian countries have increased, leading to excess liquidity and the risk of potential asset bubbles. A sudden reversal of these inflows would have negative effects on the economies in question. Given the impact of global capital movements on domestic financial systems and thereby on domestic economies, in several Asian countries certain macro-prudential regulations have been put in place, and capital controls and micro-prudential regulations have re-emerged as important tools to handle the issues related to capital inflows from outside of the region. It is important to ensure that global imbalances do not become a source of instability. The issue, thoroughly discussed after the Asian crisis a decade ago, is "using Asian savings for Asian investments" through the development of bond markets and SME’s financial inclusion. Against the backdrop of huge potential demands for infrastructure investment in the Asian region, this note proposes the issuance of "infrastructure revenue bonds" to help develop bond markets in Asia. To facilitate financial inclusion of SMEs, which outnumber other types of business in Asia, this note also proposes creating an SME database and developing regional trust funds.
The Role of the Credit Risk Database in SME Financing. RIETI Discussion Paper Series 13-J-067
- Y Maehara
Maehara, Y. 2013. The Role of the Credit Risk Database in SME Financing. RIETI
Discussion Paper Series 13-J-067. Tokyo: Research Institute of Economy,
Trade, and Industry.