Japan offers alternative funding model for innovators

At a recent seminar on empowering small and medium-sized enterprises for better financial access, Yoshino said the HTITF model has been used in Japan for more than a decade with the objective of helping Japanese innovators to start their businesses.
According to the ADBI dean, HTITF could be regarded as a predecessor of the Western-styled crowd-funding model in which good ideas are supported a large number of individual investors, allowing the ideas to materialise into new products and services.
 Yoshino said Music Securities, a Japanese start-up, is a good example of how the founders, who were musicians, turned to the Internet, e-commerce, and social media to promote the sales of innovative farm and fisheries products as well as other items such as watches and ballpoint pens.
All these HTITF units are registered with Japan’s Financial Services Agency, which regulates banks and other financial services.
Yoshino said banks that rely on deposits as the source of funds for loans should not be expected to finance small business start-ups because the credit risks are high. According to statistics, nine out of 10 start-ups fail, so funding needs to come from other financial models such as HTITF.
In Japan, if you have a good idea for creating a new wristwatch, for example, you may try to tap the HTITF system and pitch the project on the Internet. Or, if you have farm produce such as tomatoes, bananas or rice you may also tap the system for start-up financing.
According to Yoshino, Japanese farmers have turned to the Internet to promote their produce and sell their items via e-commerce platforms. If the businesses are successful for an extended period, banks will then step in to provide more financing. In the case of Thailand, he said, the HTITF model could be modified to benefit small farmers and food producers in provincial and rural areas where financial access is limited.
Besides the HTITF model, ADBI also has worked with Thailand’s National Credit Bureau (NCB) to develop a credit scoring system for SMEs based on their sales, assets, liquidity and liabilities to make it easier for banks to lend money to them.
Based on the NCB database of 400,000 SMEs, about 20 per cent of the total are regarded as “good” SMEs in terms of creditworthiness, while another 40 per cent are regarded as “medium risk” and the remainder are regarded as “risky”.
The credit scoring system will help banks make better lending decisions based on the SMEs’ credit risks.
Yoshino said the Japanese credit scoring system for SMEs is more specific than the Thai system since Japanese SMEs are graded on a scale of 1 to 10 on creditworthiness compared to Thailand’s scale of 1 to 3 at this stage.