Press Conference by Yuji Yamamoto, Minister for Financial Services
November 17, 2006
When you appeared on a news program the other day, you were, on the subject of the moneylending system, presenting a prediction that the number of moneylenders would probably go down to around 2,000 down the road. Please further explain to us how you see the reorganizing and culling effect that the proposed amendments will have on the industry, should there be such a development.
What was in mind when I gave the ballpark figure of 2,000 was a range of 2,000 to 3,000, but something tells me it is rather closer to 2,000 than 3,000. I developed this idea from the structure of the industry, where 30 major companies make up almost 80% to 90% of the market share. Well, once the new Money-Lending Business Control and Regulation Law is established, the level of interest rates that they currently apply to their loan products, which I assume are somewhere between 23% and 25%, will no longer be applicable. Thinking this way, a new business model of charging interest rates of 20% or less would probably lead to a narrow-margin, high-turnover type of strategies where the economy of scale matters more. It is from this perspective that I reached the figure, which I did on the assumption that the number of businesses that are currently operating in the industry is approximately 9,000 because, out of the 14,000 businesses registered, 4,000 are paper only, which makes the effective number of companies in business about 9,000.
What do you think about the prospect of the reorganization of the industry that would result in the fewer number of businesses?
Any interest rate restriction is an exceptional measure in the light of valuing highly a mechanism founded on the principle of economic liberalism with a strong emphasis on the aspect of market-based transactions between sellers and buyers. However, borrowers and lenders as market players should act of their own free will. In this sense, I feel that the moneylending market in its current form is actually distorted and, accordingly, applying an interest rate restriction, or restricting the entry of certain lenders or limiting the amount of loans available to borrowers, serves as a means to get the market mechanism back. Under normal circumstances, we would not consider it necessary to go as far as sending such a potent message and assuming a forceful attitude like this towards the market but, as I repeatedly mentioned at Committee meetings, the priority now should be to address a social policy objective, which is exactly what the proposed amendments are designed to achieve. As a reflexive effect of the reduced number of businesses, I'm hoping to see low-interest micro credit practices resembling those at Grameen Bank emerge and eventually grow as a new industry or a new type of business.
On a related note, a certain group of people, including the Chairman of the Japanese Bankers Association, the Chairman of the Trust Companies Association of Japan and the Chairman of the Life Insurance Association of Japan, will be called to give testimony at today's meeting of the Financial Committee of the House of Representatives. In this connection, it has been pointed out that a somewhat immoderate amount of funds may be provided by financial institutions to moneylenders, an issue which I assume is dealt with in the system of regular supervision by means of interviews etc. Could you please give us your thought on what aspects of the issue of financing by financial institutions to moneylenders you are planning to focus on and supervise.
While this is a matter that is really up to each individual institution to decide on, it is also about an industry that has drawn so much attention from society. In addition, the social policy objective at issue also requires us to contemplate measures to accommodate the needs of, among others, those with multiple debts or who are categorized as the poor. For that reason, if the so-called financial industry, especially major banks in it, is aware that they are lending to moneylenders or subsidiaries of moneylenders, I do think that corporate responsibility considerations, which should be given in the context of the borrower's status in society, should naturally be part of their decision-making. Hence, I'd like to see them make a decision consciously by adequately reflecting on their public responsibilities, especially those concerning intermediation functions with integrity.
In relation to the securities tax regime, some questioned at a meeting of the Government Tax Commission held three days ago that the reduced tax rate may effectively be favoring high income earners and press reports also suggested that it has pretty much been decided to have it discontinued. Would you please make your position clear once more as to the necessity of the reduced tax rate and whether you refuse to believe that it is favoring people in the high income bracket?
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