ARUN - Social Investment Platform | ARUN’s Outrageous Business Model Seen From the Panel Discussions and history of Finance 

ARUN’s Outrageous Business Model Seen From the Panel Discussions and history of Finance

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Mr. Shunichi Kozasa, an ARUN Partner served as a coordinator for the International Symposium panel discussion “New Ecosystem Which Supports Social Entrepreneurs” on October 12th, and shared this essay. Please also read another partner, Ms. Chie Suzuki’s essay on the symposium as well.  Report

There is a story of microfinance in India that had been bothering me.  There was a microfinance news story from three years ago that revealed that there are people who commit suicide because they cannot repay the money they borrowed from microfinance.

According to the panelists from India, at the end, the state government intervened and tightened the regulation to solve the problem, and the listed microfinance institution, SKS Microfinance in India can be kept listed.

        I want to compare this story with the past cases in Japan, once advanced in microfinance, they quickly declined because of the system that allows reimbursement of past overpay.

The only major finance company that remains now is Aiful, but until around year 2000, Japan had many listed microfinance institutions. Judging from the fact that the foreign investors loved the stock brands and their owners lived in mansions, they had their problems such as profit sharing which was way favorable to the shareholders.

As financial institutions that can predict the percentage of credit losses accurately, they showed their strength. Acom and Promise, which were model students of small-scale personal loans, were bought by Mitsubishi UFJ and Mitsui Sumitomo, because the banks did not have the know-how of scoring models.

Nichiei, the business loan company and SFCG (Shoko Fund) have a bad reputation due to their infamous claim; “if you can’t repay, sell your organs”, it is also true that they acted as a bridge loan provider for the businesses for which the banks refuse loans. Since the ancient time when people laundered cereal seeds, which is said to be the origin of lending, there is not much of a difference in the strictness to those who cannot repay.

The story of Merchant of Venice is also among such tales. The worthiness of existence is judged by the trend of the time, or furthermore, whether the country has economical momentum. During the rapid economic growth, more people benefited than those who suffered harsh exaction, therefore the money lending institutions were allowed their existence. In 21st century Japan, where there is not much opportunity for growth, the practice of harsh collections of such institutions attracted more attention than the beneficiaries of the loans, therefore they were rejected from the society.

India and other developing countries still have many people who do not have bank accounts. The existence of microfinance institutions proves that India still has much more room for growth.

For the panelists from Myanmar, Chinese investments in the past appeared to be too exploitive, and wanted investment that emphasizes distribution more to the workers.

How in Japan, where there is a solid microfinance system yet lacks in the know-how of profit distribution, does ARUN, an organization that has the vision for profit distribution, but is still in the process of creating a sustainable business model,  respond to such demands?

Japanese people are experiencing the “flattening world” by decreasing income. No matter how hard Abenomics tries, it is difficult to solve the problem of “flattening”, and few can say, ‘I will donate’. These days, it is difficult even for Japanese to answer the demands of the companies in emerging countries unless they can at least expect return above the inflation-linked bonds. Questions from the floor were not looking for charitable donation. “How much return is expected?” or “Without rating, financial advisors cannot sell its bond.” were some of the reactions. Come to think of it, subprime loan failed big despite the AAA rating. Such is the world of finance where securities’ products with good ranking could fail. Hence, equity investment seems to be a better choice. Venture capital investment, however, is considered successful if three out of 100 companies achieve listing, and ARUN cannot take the risk under the current size of investment. In that case, for the time being, could it be possible to make it a scheme to keep buying listed stock of SKS Microfinance?

Fortunately, the stock price of the company fell to one tenth of its peak when it was listed in 2010. In Cambodia and in Myanmar, this system does not work because of their lack of stock market. In India, though, where microfinance organizations can be listed, it may be possible to create a double-featured ARUN business model of investing in the listed companies and financing medium-to-small businesses.

The base of this model, as matter of fact, is Japanese microfinance. After the bashing of business money-laundering, SFCG was trying to switch to a business model that  also uses equity investment, but failed. If ARUN succeeds in this endeavor, wouldn’t it be an amazing feat? The panel discussion left me such a hint.


June 2017
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