What Role Can Financial Policies Play in Revitalizing SMEs in Japan?
International Monetary Fund, Dec 11, 2012 - Business & Economics - 24 pages
The paper discusses the role the financial sector can play in supporting growth in Japan. While overall credit conditions have been accommodative, credit growth has remained weak, especially for small and medium-sized enterprises (SMEs). Firm-level SME data and sectoral corporate balance sheets show that many SMEs have faced structural challenges of high leverage and low profitability. Moreover, the global financial crisis has weakened the financial position across SMEs, particularly for those with low credit worthiness. These challenges are closely related to low availability of riskcapital and the pervasiveness of credit support measures. This paper argues that to encourage the supply of risk-based capital, costly government support measures should be phased out and SME restructuring be accelerated. Efforts are also needed to deepen capital markets to enhance risk capital availability and address regulatory barriers to starting businesses. In that regard, addressing SMEweaknesses would improve private investment, enhance firm productivity, and lift growth.
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address regulatory barriers advanced countries aﬂoat asset-based lending Availability of Risk-based average Bank of Japan breakeven rates business transfers capital requirement challenges Contributing to Weak costly government support credit conditions credit demand credit information credit registries Credit Risk Database credit support measures debt deepen capital markets deleveraging equity Figure financial institutions financial sector policies Financial System firms GFIs global financial crisis high leverage incentive to restructure interest coverage International Monetary Fund investment Japanese Keio University lift growth Limited Availability loan ratios loanable low credit worthiness low profitability medium-sized enterprises SMEs Narita Net profit margin Nomura Research Institute nonviable SMEs OECD percent of GDP personal guarantees profit margin adjusted public credit support reﬂecting regional banks Repayment capacity restructured loans risk capital risk groups risk-based capital securitized shinkin banks small and medium-sized SME structural weaknesses Source startups Tankan Uesugi voluntary workouts Watanabe weak credit growth Weakening credit risk