Demonstrating a Credit Supplementation Function
Facilitating the Smooth Flow of Funds to SMEs and Micro Businesses by Working Together with the Credit Guarantee System
Role of Credit Insurance System
The SME Unit insures guaranteed liabilities (i.e., credit guarantees) provided by CGCs to SMEs and micro businesses that fall short in terms of collateral or creditworthiness when raising funds from financial institutions or issuing corporate bonds. Instituted under the Small and Medium-sized Enterprise Credit Insurance Act (Act No. 264 of 1950), the purpose of the Credit Insurance System is to promote the development of SMEs and micro businesses by insuring guarantees for SME loans and similar liabilities. It is designed so that the Credit Insurance System and the Credit Guarantee System together facilitate the smooth supply of business funds for SMEs and micro businesses. This mechanism is known as the Credit Supplementation System and plays a vital role in the Japanese government's SME finance policy.
Note: Credit Guarantee Corporations (CGCs)
Special public corporations established under the CGC Law. Numbering 51 across Japan, these corporations guarantee loans from nancial institutions to SMEs, make subrogated payments against defaults by SMEs, and subsequently recover funds from the SMEs in question. They are supervised by central and local governments, and receive contributions/loans from local governments and nancial assistance from nancial institutions in the form of contributions.
Approximately 38% of SMEs Utilize the Credit Supplementation System
As of the end of March 2014, the portion of outstanding loans to SMEs guaranteed by CGCs (i.e., outstanding guaranteed liabilities) amounted to some 29 trillion yen, accounting for approximately 12% of all loans to SMEs.
Moreover, some 1.45 million SMEs, or approximately 38% of all SMEs in Japan, were raising funds with the support of the Credit Guarantee System.
By providing insurance on such guarantees, the Credit Insurance System is contributing to the management stability of SMEs and micro businesses, and to their growth and prosperity by facilitating the smooth flow of funds.
A Powerful Tool for Promoting the Government's Economic Policy
Functioning as a Safety Net that Copes with Rapid Changes in the Environment
Credit Guarantee Corporations throughout Japan have implemented safety net guarantees in light of recent economic and financial conditions. They have also implemented the Great East Japan Earthquake Recovery Emergency Guarantee Program based on the Special Financial Support Act for the Great East Japan Earthquake (Act No. 40 of 2011). By underwriting the insurance for these guarantees, the SME Unit helped in raising funds for SMEs and micro businesses that were facing difficulties in financing due to the negative impacts of the Great East Japan Earthquake, global financial market instability, and economic contraction.
Strengthening Partnerships with CGCs for a Sustainable Operational Basis of the Credit Supplementation System
The SME Unit promotes the sound operation of the system while building close relationships with other institutions such as CGCs and Bureaus of Economy, Trade and Industry, through measures such as the provision of information and the exchange of opinions.
Given the heightened risks of insurance underwriting, the SME Unit will continue to promote partnerships in support of efforts aimed at the operation of sustainable systems.