October 24, 2003 Yasuo Izumi The World Bank Factoring in Japan October 24, 2003 Yasuo Izumi The World Bank

Factoring - Development First Factoring Companies were Created in mid-1970s Rapid Growth in 1990s during the Full Deregulation Introduced in 1993 for Financial Sector New Entrants from Non-Banking Sector (NBFIs, Insurance, Mfg Companies, etc)

Factoring - Recent Trend Source FCI Annual Report 2002

Factoring - Key Players Banking Groups – 4 Major Groups (as FCI Members) Insurance Company Groups NBFIs – Leasing Companies etc. Large Manufacturing / Distribution Groups Independent Financial Boutiques

Factoring - Infrastructure Credit Information System – Yes Functioning Payment System – Yes Efficient IT System – Yes, but more… Legal Framework – Yes Conducive Taxation – Yes !! FX Licensing – No need Credit Insurance – Yes

Key Feature – Fin Sec 1 Downsizing / NPL Issues (1990s -) - Strong Need for Asset Mobilization Deregulated Financial Sector - Active to New Financial Instruments Finance Resource is Abundant - New “Intermediaries”

Key Feature – Fin Sec 2 “Bills Discounted” - Popular Working Capital Funding Collateral Arrangement - Always “The Issue” for SMEs, Start-ups

Key Feature – Enterprises Unattractive “Bills Discounted” Loan - Promissory Note Stamp Duty - Administration of Prom. Notes - With Recourse Funding Seeking a Better SCM on IT - from Procurement, Manufacturing to Distribution & Sales AND Financial Mgt

Key Feature – LEs/SMEs Double Layer: LEs Dominant Position - Large Enterprises (0.3%) vs. SMEs (99.7%) of over 3 million Companies Strong Drive for LEs to Use Factoring with SME Suppliers and Distributors - Outsource Procurement & Sales Mgt (time saving / credit mgt / fin cost …)

Key Feature – SMEs Many Financial Schemes offered to SMEs - Factoring is an Option but Attractive Traditional Working Capital Funding Account Receivables Securitization Credit Insurance for SMEs

Factoring – New Waves As a Part of SCM System - Procurement to Sales Management AND Financial Management Insurance Scheme with “Factoring” - Insurance Companies & Factoring Companies E-Factoring - with Strong IT Infrastructure

Yasuo Izumi Sector Manager Private and Financial Sector Development Europe and Central Asia The World Bank e-mail: YIzumi@worldbank.org tel: 202-458-7615 Personal Website: www.YasuoIzumi.com