Kikuno Kashima, a Tokyo geisha, couldn’t get a bank loan to open a club for her patrons and select guests until a tiny credit union agreed to lend her the money. Now she’s part of a lending model that’s doling out cash to startup companies and yielding surprisingly high profits in the process.
“Nothing would ever have started if they hadn’t lent me the money,” said Kashima, 41, who sometimes plays a shamisen at the establishment she opened in Tokyo’s Asakusa district with a loan of ¥15 million. “People who borrow, myself included, have been turned down all over the place, and finally someone has trusted us enough to lend.”
Dai-Ichi Kangyo Credit Cooperative, which made the loan, is finding a niche by lending to small businesses struggling to obtain credit in Japan even after years of aggressive monetary easing flooded the financial system with cheap cash. The higher rates the bank can charge — three times the national mean of 0.7 percent — have given it an edge over larger banks, where low rates erode profitability as they try to cope with the country’s shrinking population and slow economic growth.
While most banks strictly base credit decisions on metrics and collateral, the community lender evaluates the customer’s personality and community standing, enabling it to give credit to borrowers who would otherwise be shunned. Bankers who reject borrowers, such as women starting independent businesses, on metrics alone are not understanding the entire credit picture, said Nobuyuki Nitta, the bank’s 61-year-old president.
“We look at the person and the business viability and then lend if it’s something necessary for our community,” said Nitta, a former executive at Mizuho Financial Group Inc., Japan’s third-largest lender. “I know who Kashima-san is and where she’s from, and she told me passionately about what she wants to do.”
Not a single new loan has turned bad since Nitta started in 2013, he said. The loan balance has grown by 10 percent to ¥240 billion, while the bad-debt ratio he inherited from a predecessor has halved, to 5 percent.
The bank’s net income has also risen every year of Nitta’s tenure, climbing 11 percent to ¥1.6 billion in the fiscal year that ended in March. By comparison, profit at lenders in Japan’s Topix Banks Index fell 3 percent in the 2016-2017 period. Yet because Dai-Ichi Kangyo Credit is a nonprofit bank, owned by its depositors and borrowers who need a recommendation to join, earnings are plowed back into new loans.
Geisha are among 300 “communities” for which Dai-Ichi Kangyo Credit has developed specialized loans — generally for a maximum of ¥5 million, for 3 percent over three to five years, and without a requirement of collateral. Other borrowers include Ginza bars and restaurants, small shops, local shoemakers and clients of a tax accountant. The bank has granted 250 loans for startups in just over a year.
While the Tokyo-based credit union carries the name of the storied lender that in the 1980s was the biggest bank in the world and ultimately was enmeshed in scandal, it has long been a separate institution. It was formed 96 years ago as a credit union for employees of a predecessor to Dai-Ichi Kangyo Bank Ltd., which is now part of Mizuho. It took on its current form as a local cooperative in 1965.
Under Nitta, the bank has built its loan book by focusing on borrowers willing to pay higher rates, but not as high as those offered by consumer finance firms. Almost a third of small businesses with cash-flow difficulties are not receiving financial support from their banks, a survey this month by the Financial Services Agency showed.
“I think it’s a good decision for a cooperative to lend based on people’s attributes,” said Shinichi Tamura, a Tokyo-based strategist at Matsui Securities Co. “But it may not be something that every cooperative is able to imitate.”
Nitta said he hates the notion that smaller banks have to merge to survive — putting him at odds with the financial regulator’s calls for consolidation among regional lenders and credit unions. According to Nitta, getting too big would make it harder to apply his model of knowing borrowers personally.
“It would be difficult to explain to a merger partner why we should trust Kashima-san,” he said. “The only common language we’d have would be numbers.”
Kashima, who opened her establishment two years ago, fulfilled a goal of owning a bar by the time she turned 40. She’s carrying on a family tradition: Her grandmother and great-grandmother were famous geisha in Asakusa.
Her club was designed by Kengo Kuma, the architect of Tokyo’s 2020 Olympic stadium, and it features a dramatic hanging mural of black bamboo and a small performance stage. Guests are mostly allowed by referral only.
“It’s a place where you can meet a real geisha informally,” said Kashima, a Meiji University political studies graduate who’s fluent in English and Chinese, having grown up in the U.S. and studied in Taiwan. “I was so surprised that geisha are seen to have such poor creditworthiness.”