Taking a new direction in its official development assistance policy, Japan will introduce a multibillion-yen program using low-interest yen loans to provide financial assistance to foreign students here, government sources said Wednesday.

The program will be introduced from fiscal 2001 and will benefit foreign students -- especially those from its developing Asian neighbors -- who come to Japan at their own expense rather than at their governments'.

Yen loans at favorable terms will be issued to eligible students to help finance their travel, living costs and tuition, the sources said.

The Japan Bank for International Cooperation will loan about 3 billion yen to some 3,000 foreign students through the Tokyo-based United Nations University during fiscal 2001, the sources said. The JBIC is a government-affiliated aid organ created in October through the merger of the Export-Import Bank of Japan and the Overseas Economic Cooperation Fund.

Students will be eligible for up to 1 million yen in yen loans, which will be repayable for up to 40 years, including a 10-year grace period, the sources said. The lowest-possible interest rate of 0.75 percent will be charged.

If the program is successful, its scale may be increased in five years to nearly 10 billion yen in aid to 10,000 students, the sources said.

The program's goals are to develop human resources in poorer Asian countries and to improve Japanese universities' international competitiveness by accepting more foreign students.

The government also hopes the program will help it achieve its goal, set in the early 1980s, of increasing the number of foreign students studying in Japan annually to 100,000. The original target date for the increase was the end of 2000, a goal that is now impossible to reach as the number of foreign students in Japan stood at just 55,700 in 1999.

Japan has retained its status as the world's largest single aid donor for the past nine years. Yen loans are the main pillar of Japan's ODA, which is extended to developing countries. The low-interest yen loans are usually used to finance power, transportation and other infrastructure projects. Besides yen loans, the other types of Japanese ODA are grants-in-aid and technical cooperation.

In the early 1990s, the government introduced a system of providing yen loans to developing countries to help them finance the costs of sending students to Japan.

But the problem with that approach has been that the governments of developing countries cannot use the system unless they shoulder the greater cost of sending students to Japan for study. As a result, only Indonesia, Thailand and Malaysia have so far received yen loans under the system.

Unlike the government-to-government loan scheme, the new program will offer loans directly to citizens of developing countries who wish to study in Japan at their own expense, rather than at the expense of their governments.

Under the old scheme, loan-recipient countries chose the students to be sent to Japan. The new program, however, is expected to remove the element of political favor from the selections.

Following instructions from two key panels of the ruling Liberal Democratic Party, government ministries and agencies including the Foreign Ministry and the Education Ministry have been working on the new program since early this year. The two LDP panels are the special party committee on overseas economic cooperation, which is chaired by Kazuo Aichi, and the special party committee on issues regarding foreign students in Japan, which is chaired by Taro Aso.

The Finance Ministry had initially expressed reservations about the new foreign student-assistance program because it feared that the yen loans might not be repaid unless some guarantees were established. In the case of traditional yen loans, the governments of loan-recipient countries guarantee their repayment.

The government will grant between 500 million yen and 1 billion yen to the U.N. University -- which will be responsible for collecting loans from foreign students -- during fiscal 2001 for a loan-loss reserve, the sources said.

The exact amount of money to be contributed to the U.N. University for this purpose will be determined soon, the sources said. The Foreign Ministry will submit a budgetary request for the contribution at the end of this month.