Author: Iichiro Uesugi, Hitotsubashi University

A bill to reform Japan’s credit guarantee program for small and medium-sized enterprises (SMEs) came into law on June 7, 2017, bringing into force a set of drastic reform measures proposed by the government. In this article, I would like to outline the reform measures and discuss the challenges going forward.

The credit guarantee program is a mechanism designed to smooth the way for SMEs to access private-sector loans by providing government guarantees. More specifically, prefectural and other local credit guarantee corporations (CGCs) serve as guarantors of private-sector bank loans taken out by SMEs (i.e., CGCs promise to repay loans on behalf of SMEs in the event of their default), and the government provides a financial backup, for instance, in the form of reinsurance. For many SMEs, the availability of such guarantee has been a crucial factor, without which they would not have been able to take out loans.

Read the entire article on the RIETI website.