Micro-Credit in Modern Japan

This chapter elucidates the macroeconomic position of funds accumulated from personal small-amount savings, and seeks to ascertain the relationship of these funds with economic growth. Before conducting a historical analysis of this topic utilizing specific examples, this chapter outlines the aforementioned popular funds and through relevant statistics confirms their position in the Japanese economy. First of all, the chapter charts Japan’s modernization and economic development. In doing so, particular attention is given to the development of light industry, as it is often referred to, and the growth of regional economies (including the agricultural sector) from a macroeconomic viewpoint, in an effort to determine the extent to which they have contributed to the Japanese economy. It also seeks to determine how savings and the financial system have supported their modernization and development. Throughout, a focus is maintained on the accumulation of personal savings and the resulting formation of massive funds that have often been overlooked in analyses of the above process.

This chapter shows how Postal savings prevailed in modern Japan. Postal savings were established before the spread of the modern banking system and emerged as the de facto first modern deposit-taking institution for personal savings in the Japanese economy, ahead of all other financial institutions. However, postal savings did not fare well immediately after their establishment. Though the habit of making personal petty savings at modern financial institutions had yet to take firm root among Japanese people, the government went ahead and expanded the economic functions of individual savings. Following the broadening of the government’s policy for individual savings, the central government’s savings promotion policy launched at the end of the 19th century continued as part of local community improvement movement. Postal savings, as previous research has indicated, were heavily influenced by government policy, especially its efforts to promote savings. However, the popularization of postal savings in the early 20th century was also impacted greatly by the formation of various local organizations by local people themselves and their active participation in the communities.

Japanese government enacted the Industrial Cooperative Act in 1900. Cooperative institutions in Japan were modeled on the cooperative movement that had arisen in Europe. In modern Japan, cooperatives’ financial function was most selected and the ability of cooperatives to provide residents in the country’s regions with opportunities to access small-amount financing is believed to have contributed to the development of regional economies and the agricultural sector. However, that in contemporary developing countries, there is not necessarily a sufficient supply of small credit in rural areas. For ordinary urban companies, such as banks, it is difficult to develop and maintain a credit market in rural regions due to an asymmetry of information, higher transaction costs and greater default risk. In prewar Japan, a developing country at the time, how then were the small-scale yet essential funding needs of small business entities in regional economies satisfied? How then were industrial cooperatives established in regional societies? How were they managed in order to achieve growth? How did they satisfy the demand for funds in regional economies? This chapter examines these questions by checking a case of a local industrial cooperative, in Kanō village, which was established in 1903 and succeed to develop their financial power.

This chapter tries to clarify how the system of returning Deposit Bureau funds of the Ministry of Finance to the regions came into being in Japan in the prewar period. In order to achieve this aim it examined the background to and role of the supply of special funds by the Deposit Bureau in 1914 in the specific case of Nagano Prefecture. Before the Deposit Bureau reform of 1925, the system was characterized by a lack of written investment rules, and the investment of Deposit Bureau funds was left to the discretion of the Ministry of Finance. However, even before the reform of 1925, the system for returning Deposit Bureau funds to the regions was an important part of Japan’s financial system and supported local economy. The return of the Deposit Bureau’s special funds to the regions in 1914 was the first case of large-scale relief lending provided for an economic crisis unrelated to a natural disaster. In the process of providing relief lending on a constant basis and in emergencies, the return to the regions of Deposit Bureau funds formed the route for suppling funds to small businesses and farmers organized in industrial cooperatives which acted as intermediaries between Nihon Kangyō Bank, prefectural agricultural and industrial banks, and prefectural and other local governments. This shows the formation of a funding route that differed from the flow of funds in the multi-layered financial structure headed by the BOJ.

As the popular funds, the aggregation of small-amount savings by individuals developed in Japanese economy since the beginning of 20th century, Deposit Bureau funds also grew tremendously together with the expansion of postal savings, which was the typical small-amount individual savings. Considering the fact that postal savings were primarily composed of the small-amount savings of ordinary people, the management of Deposit Bureau funds sought first to maintain them and to secure the interest to be paid on them. However, the design of the system and specific management plans were not predetermined. As such, the management of the Deposit Bureau funds of the Ministry of Finance and the design of that system were highly path dependent. As postal savings saw a huge increase in a relatively short period thanks to the economic boom during World War I, there emerged a number of large funds with no obvious outlet. The bulk of these funds were poured into the notorious loans. These bad managements induced public criticism after the war-time boom and political actions took place to reform the management system. In 1925, a package of legislation related to the Deposit Bureau were enacted, known simply as the reform of the Deposit Bureau of the Ministry of Finance. The reform led to the establishment of the Steering Committee of the Deposit Bureau Funds of the Ministry of Finance, an advisory committee that met semi-regularly. This addendum intends to shed light on the reform that led to the design of a new system for the Deposit Bureau in 1925, and examines the actions and role of the newly established advisory committee.

The interwar period saw a significant change in the economic situation with a slowdown in the growth of Japan’s regional economies. This downturn formed the background to the development of an institutionalized system by which the Deposit Bureau Fund returned funds to rural areas. This chapter examines how popular funds-based financial networks were established in the interwar period and contributed to regional economies, especially in terms of their role of providing a safety net during social and economic crises. The Deposit Bureau Fund of the Ministry of Finance became the center of this new financial network. Following on from the establishment of the Central Bank for Industrial Cooperatives in 1923 and the national spread of industrial cooperatives by the interwar period, the links between the financial networks of industrial cooperatives and the Deposit Bureau strengthened further through the relief loans of 1927. Through an analysis of the actual conditions of relief lending in response to widespread frost damage in Nagano Prefecture in the financial crisis year of 1927, which triggered the building of closer ties and cooperation between the Deposit Bureau system and the industrial cooperative networks, this chapter probes into the development and function of the system for the investment of popular funds in regional economies in the interwar period.

In the 1920s and 1930s Japan experienced a protracted slump. By the latter half of the 1930s, urban areas began to show signs of an economic recovery, but regional economies, in particular rural areas, remained exposed to crises. In the interwar period, those regions that had experienced expanding income growth led by cash crops such as rice and sericulture, eventually faced declining prices for those goods. Industrial cooperatives and their networks which had strong roots in rural area, tried to cope with the severe situation. This chapter verifies the roles of these financial networks and industrial cooperatives with a micro-study of Kanō Village, Chiisagata County, Nagano Prefecture. The cooperative took advantage of low-interest funds provided by the Deposit Bureau and the cooperative financing network of industrial cooperatives in order to supply funds to cooperative members at relatively low-interest. The case of the Kanō Industrial Cooperative demonstrates the profound impact that a cooperative organization that maintains strong external links and functions for the betterment of the regional economy and society can have in a region. Its varied efforts helped the community to survive a prolonged economic crisis and acted as a kind of safety net.

The economic turmoil in the interwar period triggered social turmoil in Japan. This manifested itself in an attempted coup d’état and a number of political assassinations in Japan, leading to the Manchurian Incident in 1931, and eventually to the Pacific War. In the midst of this process, Japanese government established a national policy of emigration to Manchuria which saw some 270,000 people migrate to Manchuria, only to meet a tragic end. Many studies about Japanese emigration to Manchuria have been written acknowledging that rural impoverishment was an important background to and consideration of the central government in its policy planning. Emigration is not something that can be explained by policy measures or the political environment alone. The conditions that confronted those who actually became emigrants should also be considered. However, this chapter, like preceding studies, questions the assumption that poverty automatically leads to emigration. Considering poverty as the push and various policies as the pull factors behind emigration, it would follow that all areas across Nagano Prefecture would send out emigrants to Manchuria. This chapter examines the effects of new economic organizations, such as cooperatives and their financial networks on emigration policy with the case of Seinaiji village in Nagano prefecture, which didn’t have it until the late 1930s and sent huge numbers of emigrants to Manchuria.

The chapter overviews the transition and development of the financial system financed with popular funds after World War II. The financial system with popular funds still exists up to the present, and an outline of how it developed through the postwar period and into the 21st century is necessary in order to further understand. In the course of Japan’s postwar economic recovery and the subsequent period of high economic growth, the postal savings and industrial cooperatives continued to expand financially. The alternative financial system undoubtedly grew in step with this. What developments did this financial system, initially built up in the early modern period to counter the instability of the commercial or capitalist market economy, witness after World War II? To what extent were its functions in the postwar inherited from the prewar period, or were they altered- or abandoned entirely? This chapter presents an institutional overview of the postwar development of Japan’s alternative financial system covered in this book. In addition, this chapter seeks to reposition the functions and roles of postal savings and cooperative unions in the postwar Japanese economy from a medium- and long-term perspective by re-examining contemporary studies on the FILP, as well as agricultural cooperatives, accumulated after the war by viewing them as studies related to the network of popular funds.

This chapter appeals the summary and conclusion of this book. The networks of popular funds, so called the alternative financial network in Japan have long been involved in sustaining the household economy in rural communities, with providing low-cost micro-finance opportunities. Though it was a financial system, it has been deeply involved in the stability and reproduction of the society that was the source of its funds, instead of being geared towards economic efficiency or financial profit as ends in themselves.