Lending a Hand to Japan’s Next Big Thing

Your financing is based on the Japanese government’s policy-based finance. Could you explain what that means, and perhaps share an example, such as how you support women entrepreneurs?

That’s right. Japan Finance Corporation is a policy-based financial institution that provides financing within a scope determined by applicable laws and budgets, which are based on government policy for SMEs and micro/small businesses, agriculture, forestry, and fisheries policy, etc., with the aim to complement financing carried out by private financial institutions. JFC’s primary role is to meet the capital needs, including small sums, of those starting new businesses, those affected by natural disasters or a change in business environment, and to serve the capital procurement needs of Japan’s SMEs and micro/small businesses and those engaged in agriculture, forestry, or fisheries.

One example is our program for women-led startups. We have established a special scheme dedicated to supporting female entrepreneurs, which offers financing at preferential interest rates.　As the economic society diversifies and the fields of business start-ups has been expanding, we support a wide range of business start-ups, including women, youth, and senior entrepreneurs.

But perhaps the most important element is our nationwide reach. JFC operates 152 branches across Japan—the largest branch network among government-related financial institutions. This enables us to deliver our programs uniformly throughout the country and work closely with governors, prefectural governments, municipal support agencies, and other local partners. It’s a vital structure that ensures we can connect national policy to regional economic activity.

I’d like to understand more about how your interest rate system functions. Could you walk us through how the funding structure works?

Of course. JFC obtains funds through various sources such as borrowings from the Fiscal Investment and Loan Program (FILP)Bonds, Government-guaranteed Bonds, FILP Agency Bonds, and capital contributions from the government. Together, these form the financial foundation of our operations. During emergencies—such as the COVID-19 pandemic—these government-backed mechanisms serve as our safety net, enabling us to channel crisis-response financing quickly to affected businesses. Our financial resources also include funds from the Treasury.

Japan’s interest rate environment has been shifting gradually, though still modestly compared to other economies. How is this changing environment affecting your loan programs?

Indeed, interest rates in Japan have been inching upward, but at a slower pace than in other major economies. As our financing is tied to government policy rates, we adjust accordingly rather than following market volatility. We rely mainly on long-term funding through government bonds—typically ten-year maturities, sometimes up to twenty years for major projects. However, we also provide short-term loans funded by agency bonds, which are less directly tied to the government.

For working capital, repayment periods often range from five to seven years. Therefore, as a whole, our portfolio combines long-term and short-term instruments to meet diverse business needs. We continue to adhere to the guiding principle consistently: base the rate on government policy interest and aim for zero profit. This framework ensures stability while allowing us to support priority areas such as women’s entrepreneurship, SMEs, regional revitalization, and environmental initiatives.

You mentioned that the government sometimes adjusts policy rates. How do such changes influence your programs?

The interest rates of the JFC are determined by the funding costs from the FILP and government-guaranteed bonds. In other words, they are linked to the interest rates of government bonds. Therefore, if the government adjusts the policy interest rate, our rates will also be adjusted to reflect that change.

I’d like to focus on SMEs. Japan’s population is shrinking by more than 600,000 people annually, creating labor shortages and succession challenges, especially among older business owners in manufacturing. How is JFC addressing this succession crisis and supporting industry consolidation?

This is one of Japan’s most pressing economic issues. Business succession has become a national concern, and JFC plays a major role in addressing it. Our primary objective is to ensure business continuity—to prevent companies from disappearing simply because there is no successor. We therefore provide practical tools that help owners prepare for transition, such as self-assessment workbooks and succession-planning guides that help them document key information and identify potential successors.

Traditionally, succession was handled within families, but increasingly, children are not taking over. In such cases, we facilitate third-party successions. We hold business-matching events and manage an online platform that connects entrepreneurs who wish to sell or transfer their business with those who want to acquire or continue them. So far, we have facilitated more than 2,000 matches, with about 300 successful completions. Transparency is critical, so we encourage participating companies to disclose their real names and details to build trust and speed up the process. Ultimately, we’re creating a bridge between experienced owners and a new generation of entrepreneurs—ensuring that valuable businesses continue to thrive.

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That’s fascinating. At these matching events, what exactly is your role? Do you simply host, or do you also advise the participants—especially startups—on how to communicate and negotiate?

Our role extends beyond event organization. We actively support both parties throughout the process. Through our nationwide network, we identify potential successors and match them with owners seeking to transfer their businesses. We also provide general guidance on how to approach negotiations and, when necessary, introduce professional advisors—such as business succession support centers ,lawyers or accountants—to handle specific details.

While we don’t offer legal counsel ourselves, we serve as the intermediary ensuring that each match proceeds smoothly and with mutual understanding. Our ultimate aim is to see these transactions reach successful completion and to preserve valuable local enterprises.

Turning to globalization: Japan’s SMEs are increasingly active overseas, and foreign direct investment in Japan is also reaching record highs. How is JFC helping SMEs globalize and build partnerships with international corporations?

We play a major role in supporting international expansion. JFC provides both financing and advisory services to SMEs that export,  outsource production or invest abroad. In FY2024, we supported about 120.8 billion yen worth of overseas-related financing. Around half of these initiatives were linked to expansion in China and ASEAN nations. We operate three overseas representative offices—in Shanghai, Bangkok, and Ho Chi Minh City—which serve as regional hubs for Japanese companies seeking information and local connections. These offices complement our 152 domestic branches to provide seamless support.

We also collaborate with JETRO (the Japan External Trade Organization) and various SME support bodies, as well as local governments and private banks. Together, we provide comprehensive assistance—not just loans, but also management advice, market entry support, and partnerships for business succession and overseas growth.

You mentioned Asia. Are you planning to expand cooperation to other regions, such as Africa or South America, in the future?

At present, our main focus remains on Asia, where we see significant demand for SMEs’ international expansion. However, we’re increasingly aware of opportunities in regions like Africa, South America, along with economic growth —and we will do all support for SMEs that plan to expand to these regions.

Let’s talk about transformation—both digital (DX) and green (GX). These are crucial for competitiveness and sustainability. How do you support SMEs pursuing these goals?

We’ve established the “Environment and Energy Support Fund,” which provides preferential-rate financing to companies advancing Japan’s green transformation strategy toward carbon neutrality by 2050. We also finance companies engaged in digital transformation, helping them modernize operations, adopt new technologies, and improve efficiency. Beyond that, we support what we call “social businesses”—enterprises addressing societal challenges such as elder care, childcare, or inclusion of disadvantaged populations. To date, we have extended roughly 17,000 loans annually in this category, with the largest share going to elder-care and welfare services. Importantly, our funding also reaches NPOs. While we don’t mandate sustainability as a condition, companies and organizations contributing to environmental or social goals are eligible for preferential interest rates.

Overseas Expansion Zero to One

Loans to start-ups prior to or within 1 year of start-up

JFC also serves as Japan’s financial safety net during crises—from COVID-19 to earthquakes like the Noto Peninsula event. How do you operate in such emergency situations?

Our safety-net function is one of our most vital roles. It applies not only to natural disasters but also to major financial or economic shocks—such as the Lehman Brothers collapse of Lehman Brothers. When a crisis occurs, we launch special loan programs that can be executed swiftly, often without collateral, and with flexible credit limits. During the COVID-19 pandemic and after the 2011 earthquake, for example, we implemented large-scale emergency loan programs with reduced interest rates based on government policy.

During COVID-19  pandemic alone, we implemented approximately 21 trillion yen in COVID-19 loans. This ability to act quickly and at scale is a cornerstone of Japan’s resilience model—and one that could inspire other disaster-prone nations in Asia. Another strength is our diversification. We work with about 1.25 million businesses and organizations across all sectors. This broad portfolio allows us to manage risk effectively and maintain stability even during nationwide crises.

Few countries have institutions that work with such a large and diversified group of businesses. Why do you think Japan’s model is so unique?

Japan’s economy is built on a vast network of small and medium-sized enterprises, far more fragmented than in many other nations. The collaboration between public and private sectors has been deeply rooted in Japan’s postwar economic system. This partnership enables the government to support a wide range of industries—from manufacturing and tourism to traditional crafts—through institutions like ours. However, we must also acknowledge that the business succession issue remains an urgent challenge. Ensuring continuity of these SMEs is essential to preserving Japan’s industrial base.

Finally, I’d like to return to startups. Japan is seeing renewed focus on innovation, with banks, venture capital firms, and government agencies all fostering the ecosystem. What role does JFC play in supporting startups?

Supporting startups has been part of our mission since our founding. After World War II, when Japan’s economy was devastated and major conglomerates (the zaibatsu) were dismantled, the government created our predecessor to finance new ventures.

Many of today’s global Japanese corporations—Sony, Kyocera, etc.—received early financing from us. That legacy continues today. Currently, we provide funding to more than 28,000 companies that are less than a year old, including 1,000–2,000 startups annually. Startups are increasingly interested in debt financing rather than relying solely on equity, as it allows founders to retain greater control.

A study by the data firm Speeda showed that out of 5,000 startups in Japan that received investment or loans in the past five years, roughly 4,000—around 80%—have utilized JFC funding. We offer both short-term and long-term financing, including subordinated loans with maturities up to 20 years. These subordinated loans are particularly beneficial because banks can classify them as quasi-capital, strengthening the company’s balance sheet and credit rating.

Looking ahead, what new initiatives or priorities are you planning for the future?

Our immediate focus is to continue working steadily within our current policy framework. JFC lends only to SMEs registered under Japanese law and headquartered in Japan, although foreign companies with Japanese headquarters are also eligible.

In light of demographic trends, we’re placing greater emphasis on supporting non-Japanese entrepreneurs and workers in Japan’s SMEs. Many small businesses are already employing foreign talent, and we see tremendous potential for collaboration. We aim to gather case studies, share best practices, and help SMEs integrate these diverse human resources effectively. The issue of how Japan embraces non-Japanese workers has become a major policy discussion, and we want to play a constructive role in advancing it.

And finally, how would you like JFC to be perceived internationally by investors, business leaders, and policymakers?

I would summarize it with our mission statement: “As an expert in policy-based financing, creating futures together by providing support for reassurance and challenges. ” This encapsulates who we are—a financial institution that supports Japan’s growth, stability, and innovation by standing alongside entrepreneurs, communities, and businesses nationwide.

For more information, visit their website at: https://www.jfc.go.jp/n/english/