Reforms of Policy−based Financial Institutions Directed at Small and Medium Sized Enterprises in Japan

In Japan today, public financial system or policy−based financial institutions are under drastic reforms. For a better implementation of the reforms, this paper proposes new rules in which state owned institutions can　complement the roles of private financial institutions for small and medium sized enterprises.　In the rules, and in view of the actual situation in Japanese financial system, direct　loans of policy−based　financial institutions ought not to be abolished. Instead, they should be limited to such　cases as private　institutions can’t judge future result of their lending due to their screening ability which is lower than that of　policy−based financial institutions. Concerning credit insurance activities, easy promotion of policy−based　financial institutions’ securitization　support or guarantee activities should be avoided. This is becanse it would　bring about much danger of losses than the case of housing loan because of its more complicated screening　process.