3WAVES BLOG

Friday January 1st, 2010 | Posted in Financial Services, Market Watch | 3 Comments

Japan is obviously one of the world’s leading postindustrial economies, where people enjoy a high standard of living and exceptional personal savings rates.  Under these circumstances you’d think it would be fairly plausible for credit-worthy individuals to obtain loans for essential purchases like housing, automobiles and university expenses.  Guess again.  Japan’s major commercial and retail banks are notorious for their stinginess towards the average customer, even in cases where income, savings and credit history are more than adequate.  This outdated postwar consumer banking model is a product of a Japan that for decades has sacrificed the needs of retail customers to take care of the needs of heavily export-oriented corporations.  As Japan’s global corporations like Sony and Toyota received favorable loan guarantees, the domestic sector languished.

Enter the sarakin, or consumer finance company (referred to by many as loan sharks); Japan’s private sector ‘lender of last resort’.  These are large national chains with small outlets on nearly every major street corner in Japan.  Noted for their exceptionally high interest rates (charges up to 40-50% throughout the ‘90s) these consumer loan companies have filled the void left by the retail banks.  How does it work?  In an example scenario, a college student needs to pay entry fees for their school but they simply don’t have the money.  They walk out of their apartment and down the street to the local ‘loan shark’ chain (some of the bigger names are Promise, Lake and Acomu as seen in the above photo).  They enter an ATM booth and enter their details and desired loan amount to receive an offer on interest rate repayment (usually not very generous but rates have decreased recently after government regulation of predatory lending practices).  The college student must repay the loan on the specified dates and these companies are generally very intolerant of tardy repayees. Read the rest of this entry