POINT OF VIEW/ Eiko Mukaida: Exclude NPO banks from new moneylending law

We are a nonprofit organization that extends loans to finance citizen-oriented business projects initiated by women. Based in Kanagawa Prefecture, we have been active for 11 years as an "NPO bank." NPO banks are nonprofit financial institutions run with capital put up by citizen investors who want to use their money to support citizen undertakings that are useful to local communities and people who want financial institutions with a high degree of transparency.

Perhaps one of the best known is "ap bank" established by pop musician Kazutoshi Sakurai and others. We also established our organization in order to meet the needs of many women who had trouble raising funds to start their businesses because few banks were willing to lend them money and because we were unhappy with existing banks which are reluctant to disclose information and fulfill accountability.

Since the objective of NPO banks is mutual help, most of them keep interest rates low at around 3 percent per annum. On the other hand, they do not offer guarantee of principal to investors. Currently, they do not pay dividends, either. Still, there are 12 NPO banks across the nation and preparations to establish six others are under way.

Recipients of loans include operators of low-head hydro power plants, day service centers for the elderly, day-care centers and temporary shelters for people who are hypersensitive to chemical substances. Combined paid-in capital at the 12 NPO banks stands at 630 million yen and the amount of cumulative loans is around 2 billion yen.

But NPO banks are facing a crisis. When the revised moneylending business law fully goes into force by June 2010, NPO banks, which are regarded as moneylenders under the law, would be required to meet a number of new regulations. First, they would be required to join designated organizations that keep credit history, including past borrowing and repaying. When the borrower or guarantors are individuals, the lending information will be registered with the credit reporting organizations. Registered information will not distinguish NPO bank borrowers from those of ordinary moneylenders that extend loans for profit. As a result, NPO bank borrowers may face difficulties in credit worthiness screening when they apply to commercial banks for housing loans, for example. The revised law also does not take into consideration that costs to join the credit reporting system would weigh heavily on NPO banks that rely on investments by citizens.

Furthermore, the law requires NPO banks to hire full-time staff with at least three years experience in the moneylending business. At least one staffer at each branch office will have to obtain qualification as a moneylending specialist. Since most NPO banks are run by volunteers, it is difficult for them to hire experienced full-time staff. To pass tests to qualify as specialists, applicants need to acquire knowledge on measures to deal with gangsters, which are not needed for the kind of work NPO banks do. I cannot help but question why such legal requirements are imposed on NPO banks.

We are calling on the Financial Services Agency, political parties and Diet members to have NPO banks excluded from the obligation to join the designated credit reporting system. To begin with, it is unreasonable to require NPO banks to operate under the same legal regulations as for-profit moneylenders. I have always felt uncomfortable with the application of the law as if we were being forced to wear clothes that do not fit us.

There are moves to establish NPO banks across the nation to create and support citizen-oriented businesses that benefit local communities. The trend shows that a growing number of people in Japan are attaching greater importance to "social interests" than monetary profits as seen in Western countries where social banks keep growing.

However, complete enforcement of the revised moneylending business law would not only make it difficult to establish new NPO banks but also for existing ones to survive. I strongly urge the establishment of new laws and systems to promote the growth of nonprofit financial institutions.

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The author is president of Women's Citizen Community Bank.(IHT/Asahi: December 1,2009)