Role of National Development Banks in SME Financing

Transcription

1 Role of National Development Banks in SME Financing Naoyuki YOSHINO, Ph.D. Dean, Asian Development Bank Institute (ADBI) Professor Emeritus, Keio University, Japan Farhad TAGHIZADEH-HESARY, Ph.D. Faculty member, Keio University, Tokyo, Japan Sep 28, 2017 Bangkok UN-ESCAP

2 1. Introduction National Development Banks (NDBs) can contribute to solving a number of market failures. NDBs can promote financial sector development by offering long-term loans with lower interest rate to SMEs and helping to create inclusive financial sectors. SMEs have information asymmetry and many private FIs are not interested to lend them. NDBs also enhance the climate for business and attract private sources of capital in the domestic economy. NDBs can act as a catalyst and promoting and supporting SMEs how ever there are some considerations with this regard that will be highlighted in this presentation. 2

3 Share of Public Bank in Japan 3

4 Case 3 Case 2 Case 1 2- Three difference ways of funding development banks Postal Saving or Postal Deposits Ministry of Finance Development Banks Depositors Development Banks SME, Startup businesses Issuance of Government Bond Ministry of Finance Development Banks 4

5 Funding of JFC 5

6 6

7 3- Case 1: Japan Finance Corporation (JFC) Role of JFC in Credit Guarantee to finance SMEs in Japan Small business finance corporation and People's bank Finance Corporation, merged and created JFC Source: Japan Federation of Credit Guarantee Corporations (JFG) 7

8 Policy-based financing of SME and Start-ups A)Support for Start-up and new businesses Source: JFC (2016) 8

9 B) Support for SME revitalization Source: JFC (2016) 9

10 C) Capital support Capital subordinated loan Source: JFC (2016) 10

11 D) Support for Social Businesses effete Source: JFC (2016) 11

12 E) Supporting SMEs in less productive sectors (Agriculture, ) Source: JFC (2016) 12

13 F) Support for Overseas expansion of SMEs kejdklejfekl Source: JFC (2016) 13

14 4- Important characteristics of NDBs 1- Long-term financing (long-term loans) comparing to commercial private banks - Private banks resources (deposits) are short-term, 1year, 2 years, 3 years. Private banks are not able to provide long-term loans. So maturity of NDBs loans has to be long-term comparing to private banks. 2- Setting up the interest rate lower than private banks stable and fixed. Private banks often change their interest rates. However for stable growth, SMEs need stable and fixed interest rate. Private banks has to pay Tax and they have to set up their own branch offices so require more costs comparing to government. Therefor private banks interest rate are higher than NDBs. 14

15 5- Case 2: Use of Postal Savings (Post Bank) Postal Savings Pension Funds (Japan, Germany,..) Postal Savings Postal Insurance Easy Access Sell Private products Postal Bank Ministry of Finance Private Financial products Government Bond Government Banks Loan to SME Infrastructure Private Loans Private Investment Government Expenditures SME Loans Housing

16 Cost Efficiency and advantages of Postal Savings 1. Scale Economy: Nationwide Post Offices, 24,700 branches (easy access to post offices) 2. Economies of Scope (German Post Bank) I. Mail Services II. Postal Savings III. Post Life Insurance (prepare retirement) IV. Payment of Social securities 3. Financial inclusion of rural region 4. Reliability of Post Office Master I. (Post office master in Japan is respected 5. Affordable transaction costs 6. Deposit Insurance (same with private deposits) 7. Inspection and Supervision (FSA, BOJ, DICJ) 16

17 Crowding In Effects Interest Rate Private Bank Loan Supply 2 1 Bank Loans Government Loan Supply 17

18 Interest Rate Crowding-out by Government Private Bank Loan Supply 1 2 Government Loan Supply 18

19 How to avoid crowding out: Case of Germany, KfW (established 1948) Formed after World War II as part of the Marshal Plan Frankfurt Private Banks SMES Depositors In Japan, (DBJ, JFC, and many other development banks) are always criticizing of crowding out, because they have branches all over Japan, and competing with private banks. The KfW is only located in Frankfurt, no braches, only lending to private banks for different purposes such as (SME, green energy, housing) not directly to SMEs, hence not competing with private banks. 19

20 6. Conclusion 1. Lower interest rate, stable, and long-term loans by NDBs 2. Avoid Bad Effects of government lending through NDBs: Increase of government role Crowd out private deposits and loans 3. German KfW: successful case Government money goes through private banks to SMEs, housing, green energy and etc. 4. Make loans by NDBs where: private banks cannot make loans 20

21 Reference: 1. UN (2006). Rethinking the Role of National Development Bank. United Nations Department of Economic and Social Affairs. 2. Yoshino, N. (2012). Global Imbalances and the Development of Capital Flows among Asian Countries. OECD Journal: Financial Market Trends. Vol. 2012/1. 3. Yoshino, N. (2013). The Background of Hometown Investment Trust Funds. In N. Yoshino and S. Kaji, eds. Hometown Investment Trust Funds: A Stable Way to Supply Risk Capital. Tokyo: Springer. 4. Yoshino, N. and F. Taghizadeh-Hesary (2014). An Analysis of Challenges Faced by Japan s Economy and Abenomics. The Japanese Political Economy 40: DOI: / X Yoshino, N. and F. Taghizadeh-Hesary (2014). Analytical Framework on Credit Risks for Financing SMEs in Asia. Asia-Pacific Development Journal. United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP). 21(2): Yoshino, N., Taghizadeh-Hesary, F., Nili, F. (2015), Estimating Dual Deposit Insurance Premium Rates and Forecasting Non-performing Loans: Two New Models. ADBI Working Paper 510. Asian Development Bank Institute: Tokyo 7. Kuwahara, S., N. Yoshino, M. Sagara, and F. Taghizadeh-Hesary. (2015). Role of the Credit Risk Database in Developing SMEs in Japan: Lessons for the Rest of Asia. ADBI Working Paper 547. Tokyo: Asian Development Bank Institute. 8. Yoshino, N. and F. Taghizadeh-Hesary. (2015). Analysis of Credit Risk for Small and Medium- Sized Enterprises: Evidence from Asia. Asian Development Review (ADR). Vol. 32 No. 2.: 18-37, MIT Press. 21

22 Thank you for your attention! 22