The regional CGCs then reinsure guaranteed loans with JASMEC. The National Federation of Credit Guarantee Corporations (NFCGC) oversees the system.
As noted, the Japanese Credit Supplementation System consists of two interrelated subsystems: the Credit Guarantee System (CGS) in which the 52 regional CGCs guarantee loans advanced to SMEs; and the Credit Insurance System (CIS) in which the JASMEC reinsures a portion of default losses incurred by CGCs.
Since the major part of default losses (70-80%) is re-guaranteed by the JASMEC, high default rates resulting from CGCs' assessments of applicant firms would not harm the CGCs.
It is also worth noting that default and loss rates under the Japanese scheme's are relatively low compared to those for other countries, 2.2% according to data extracted from Shinyo Hoken Tokei Nenpo (JASMEC, 2001).
10 working capital) Guarantee (%) 75-80 (depends 85 on loan size) Default Rate (%) 2.80 Average 6 Value of Average $220,450 $46,590 Loan Share of Loans to N/A 60 Start-ups (%) NeNew Commitments 45,000 30,000 (1998) Japan Overall Financial Bank-centered Structure Established 1937 Participating Organizations 52000s, NFCGC, JASMEC Lenders' Discretion No discretion Specific Eligibility No specific of Borrowers criterion Use of Proceeds Allow for working capital, not for refinancing Size of Loan Usually $1.7m (max.
JASMEC makes insurance payments as part of a loan facility the government introduced in October 1998 to help small businesses cope with a credit crunch at the time.
JASMEC started its insurance service with 1.12 trillion yen in reserves provided by the government.
From the launch of the loan program through July this year, however, JASMEC already paid 556.6 billion yen to credit-guarantee associations.
The plunge in JASMEC's financial reserves is expected to strengthen calls for credit-guarantee associations to toughen screening of applications for debt guarantees and creditor financial institutions to shoulder part of the losses resulting from debtors' failure to meet obligations.