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Masumi Kishi

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The Financial System of a Society of Mutual Assistance that the Great East Japan Earthquake Suggests

Masumi Kishi
Professor, Faculty of Commerce, Chuo University
Areas of Specialization: Monetary Economics, Development Finance Policy

Bearing the Burden of Reconstruction

The Great East Japan Earthquake shed light on the need to stimulate local economies, which should take the role of a society of mutual assistance quite seriously. A society of mutual assistance is a society where the citizens as leading players work together with investment partnerships, NPOs, NGOs, regional financial institutions, local governments, and governmental financial institutions to solve issues and challenges that would otherwise be difficult to manage with only the self-help efforts of individuals, without excessive reliance on the governments. A society of mutual assistance as based on local communities seeks to efficiently combine the production and investment activities of companies with the daily activities of households and citizens, and pursue the dual goals of both economic results and mutual assistance. Regional issues are increasingly being viewed from the perspective of mutual assistance recently, and we anticipate that small and medium-sized enterprises, particularly community businesses whose activities are very close to the respective local areas, should play a role in reconstruction of the Tohoku Region.

The Mission and Hardships of Community-Based Companies and Financial Institutions

Community businesses consist of two types. One, which emphasize the continuity of the organization over profit-making, such as social businesses, and two, whose primary goals are to make profits, including venture and micro businesses.

In the latter type, especially, we note a particular strength in that innovation is more likely, in addition to the ease of starting up given the advantages in fixed and other costs. On the other hand, they face difficulty in fundraising more often as compared to larger companies. In the backdrop, we notice that such businesses suffer from relatively lower credit worthiness and the existence of weaker funding channels. In addition, the governments often provide supportive that are too and /or difficult to implement. Combined, these make it all the more necessary to establish financial systems that can precisely meet the funding needs of local economies.

Cooperative financial institutions such as shinkin banks, credit unions, agricultural cooperatives, and fisheries cooperatives that conduct community-based business operations might carry the burden of such expectations. These financial institutions, which are also referred to as community banks, conduct both nonprofit and for-profit activities. But their management is often very challenging, as they are expected to remain profitable while living up to the ideals of cooperative organizations.

A Financial System Founded on the Trust of Local Communities

In order to meet the challenge of striking a balance between profitability and mutuality, cooperative financial institutions are expected to make a clear distinction between for-profit and nonprofit motives, while collaborating with local communities. First, they can become more competitive by lending to niche manufactures that take advantage of regional characteristics. There must be possibilities for manufactures to make products not only for local consumption, but also for the global markets, just as the example of Advantest Corporation being successful with its DRAM memory testing devices in the niche market demonstrates. Being able to meet the growing needs of the customers was what was behind the success, but these cases are likely to encourage regional financial institutions to prioritize regional companies in making loans.

In fact, there are loans provided with the trustworthiness or credit worthiness of local communities as collaterals, which is an appropriate system of regional financing for a society of mutual assistance. The "Kobe City Community Credit" loans provided by the Development Bank of Japan in 2001 was aimed at enhancing the trustworthiness or credit worthiness with local business collaborating in fund contributions, in order to facilitate procurement of loans from financial institutions, as well as recirculation of local funds within local areas. This project, which was modeled after "Tanomoshi-ko," or traditional mutual financing arrangements for people in villages or neighborhoods, suggests possibilities in collaborative activities with cooperative financial institutions.

Secondly, cooperatives financial institutions alone cannot be held responsible for loans to nonprofit businesses. Highly-advanced medical services or environmental projects are examples of social investments with high social returns or contributions, and such projects can be funded with public money, similar to investments by social investment funds. However, infusion of public money means that such funding has limited timeframe, as they are styled for projects with possible social returns in the future. In an effort to apply the idea of mutual assistance, mini-regional bonds for public auction are being offered, as intiated by the 2002 "Aikensai" prefectural bond issue, and we have growing expectations for their future. Furthermore, we should consider taking more advantages of community funds that are based on collaboration among citizens, cooperative financial institutions, and local governments.

What Support Funds for Disaster Areas Signify

As the world looks on at the actions of Japanese society and citizens, a new fund was established in May of this year, in which citizens participate. This fund was aimed at supporting processors of fishery products, who were afflicted by damage from the Great East Japan Earthquake, as each unit of ten thousand Japanese yen consists of five thousand yen as donations, and the other five thousand yen as equity capital. We might say that this fund is a symbolic financial product for the society of mutual assistance.

This fund is expected to draw contrasting results as compared to subprime loan related financial products. In the subprime loan problem, debt financing kept pumping money into the markets despite the conditions of poor returns on continued investments, culminating in the bursting of the bubble, as one recalls. Shifting funds into the areas of production with growth potential, and away from the areas of speculation with lackluster returns, should contribute to the economic revitalization.

Masumi Kishi
Professor, Faculty of Commerce, Chuo University
Areas of Specialization: Monetary Economics, Development Finance Policy.
He was born in Aichi prefecture in 1944, and has a Ph.D. in Economics from Keio University. He was assigned to his current post in 1994, after graduating from the Faculty of Economics, Keio University in 1967, completing the Doctoral Course at the Graduate School of Economics, Keio University in 1972 without dissertation, and serving as a Full-Time Lecturer, Assistant Professor, and Professor at Tokai University. He is an administration officer of the Japan Forum for Research in Public Policy and a member of editorial board of the Journal of Asian Economics. His publications include Economic Development and Monetary Policy [Keizai Hatten To Kinyuu Seisaku](Toyo Keizai), Financial Sector Development in Asia (coauthor, Oxford University Press), Economics of Civil Society (coeditor and coauthor, CHUOKEIZAI-SHA), NGOs, NPOs, and Social Development [NGO/NPO To Shakai Kaihatsu] (coauthor, DOBUNKAN), Economic Policies of Civil Society [Shimin Shakai No Keizai Seisaku] (coauther, Zeimukeiri Kyokai), and Economic Policies of Self Help, Mutual Help, and Public Help [Jijo, Kyoujo, Koujo No Keizai Seisaku] (coauthor, Tokai University Press).