• Kyodo


In the wake of the global financial crisis, the government introduced a provisional law aimed at rescuing indebted small businesses in December 2009.

The legislation, the brainchild of then-financial services minister Shizuka Kamei, obliges lenders to “make efforts” to ease loan-repayment terms for borrowers.

Although Kamei eventually left the coalition government over policy differences, the law has remained, apparently helping some companies survive difficult times.

But the measure, officially called the Small and Medium-sized Enterprise Financing Facilitation Law, has also been criticized for allowing some unfit firms to stay afloat while failing to encourage competitiveness among them.

With the provisional law expiring in March, some commercial banks — among the law’s harshest critics — are working on ways to offer alternatives that they hope will be better for businesses than the government measure.

An official at one bank told of how one borrower threatened to report him to the Financial Services Agency if he did not grant the borrower an unconditional extension of the repayment period.

This borrower was actually requesting a second extension, the bank official said, adding he that did not see the borrower — a small-business owner — making any effort to restructure his business, cut salaries or implement other measures to improve operations.

“I even felt a sense of defiance,” he said. But the bank eventually agreed to an extension to avoid being blacklisted by the FSA.

Since the law took effect in December 2009, borrowers have managed to secure repayment extensions, waivers of principal repayments and other eased terms for more than 3.4 million loans as of the end of September.

Thanks to the strong FSA backing, more than 90 percent of the applications for eased terms have resulted in a modification of repayment conditions.

An FSA official stressed that the law has served its purpose, saying, “We have avoided a crisis in which one small businesses after another might have gone under in the face of financing difficulties.”

But some observers have noted what they believe could be a harmful legacy of the law.

“With repayment burdens eased, some businesses don’t even try as much as they should to make improvements and even dare to underbid others in projects offered by local governments,” one official representing a financial institution said.

The repayment reprieve law ended up distorting market competition and, as a result, some unaided businesses were adversely impacted and driven into a corner, the official said.

One such victim is Shouei Unso K.K., an industrial waste disposal firm in the city of Hiroshima. So far, the firm has not had recourse to the law, but it said that in recent months it has had to lower its bids in order to win waste-recycling projects, thus cutting into its profit margins.

As a consequence, it has given up plans to build another incinerator that would have cost several hundred million yen.

President Hideaki Ikeda, 70, said the law “should have been applied only to those businesses with superior technologies and the (reprieve) period should have been limited to one year.”

The law had been scheduled to expire March 31, 2011, but, given the severe situations small businesses faced, the government sought to extend it through the end of March 2013.

Even now, with rising electricity rates and the strong yen, many small businesses remain in dire straits, and some borrowers worry about the financing difficulties they may face after the law expires.

With this in mind, a number of financial institutions in western Japan have set up a regional fund of their own, drawing on lessons learned from successful business revivals they assisted.

Maruni Wood Industry Inc., a furniture builder in Hiroshima, was near bankruptcy after experiencing sluggish earnings but managed to survive with the aid it received in 2006 from local financial institutions.

With that backing, the firm implemented restructuring, including the sale of idle property assets, while teaming up with domestic and overseas designers to produce original chair designs and expand sales globally.

On Dec. 1, those financial institutions, which include regional banks, set up the Setomirai Fund in preparation for when the repayment reprieve law expires.

“Business owners need to have the resolve to survive, no matter what, and make efforts accordingly,” said Maruni Wood’s 42-year-old president, Takeshi Yamanaka. “If you are concerned about passing on technical expertise to others, you can’t just cut jobs, and you should also be reminded that it takes time to revive a business.”

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