06 Dec 2002, Nick Sawyer, Risk magazine
"The funds available from the Bank of Japan's ultra-easy monetary policy are not channelling through to the SMEs," he said. "The funding difficulties of SMEs are now comparable to the financial crisis of 1997/98."
However, the Bank of Japan is working with the financial industry to develop alternative funding sources. One option is to develop an asset-backed commercial paper (ABCP) market, where SMEs securitise the receivables on their balance sheets and sell them on to investors in the form of rated notes, Nakaso said.
"Around 95% of receivables on the balance sheets of SMEs remain unexploited and many of the debtors are good quality corporates or government agencies," he explained. "The weakness of individual SMEs would also be mitigated by pooling the receivables from a number of SMEs together in each ABCP issue."
The central bank is currently working on a prototype ABCP issue with the financial industry, which should be launched "in the not too distant future", Nakaso said.
However, a number of obstacles remain before the ABCP market will fully take off in Japan. The shortage of SME default data makes any transaction difficult to price, while receivables on the balance sheets of corporates cannot be transferred to third parties - an impediment which will require parliamentary approval to change, Nakaso said.
"There are a number of obstacles. But where there is a will, there is a way," he said.