FIESS 2011

Relevance and Challenges of Legal Foundations

for NPO-Banks in Japan

Auditor of Japan NPO-BANK NetworkYuko Uehara

17-22 October 2011

About the Japan NPO-Bank network （ as of 05th January 2010 ）

Formulated by Japan NPO-BANK Network ：全国の NPO バンクの現況【解説 】 (Last revision: 05th January 2010)

Founded spontaneously by the civil society

Provides loans to socially-requested needs (without differentiating

between social benefit and reciprocity)

Non-profit (although dividend is allowed according to the law)

The fund provided by the civil society is used for loans

Main goal: to give loans to civil society projects (not necessarily by

NPOs, but with priority to the solution of social tasks)

Currently 12 NPO Banks (strictly defined)

(21 banks in a broader sense)

List of NPO Banks in Japan （ as of March 2011 ）

In reference to Japan NPO-BANK Network ：全国の NPO バンクの現況 (http://www.NPObank.net/docs/201103_NPObank_Genkyo.pdf）

NameFoun-dation

Gives loans for Capital Total loansTotal

pending loans

Obs.

Financing systemLoan fund other than

capital

Mirai Bank 1994 Purchase of eco-friendly goods, NPO, eco-friendly housing, etc.

162,885 967,294 62,573 Interest rate 3 ％ (1% with collaterals)Up to JPY 9 million and 10 years

－

WCA 1998 NPOs, Workers’ collectives etc. working at Kanagawa Prefecture

127,440 477,765 82,656 Interest rate 1.8 to 5％Up to JPY 10 million and 5 years

－

Hokkaido NPO Bank 2002 NPO, Workers’ collective 44,709 270,270 11,314 Interest rate: 2% for ordinary loans, 5% for 3-months loans. Up to JPY 2 million and 2 years

Donation: 7,030

NPO Yume Bank(Nagano)

2003 NPO 13,600 158,790 26,204 Interest rate: 2 to 3％Up to JPY 3 million and 3 years

Donation: 35,064Debt: 20,000

Tokyo Community Power Bank

2003 NPO, Workers’ Collective, civil society entrepreneurs etc.

87,150 145,700 61,833 Interest rate 1.5 to 2.5％Up to JPY 10 million and 5 years

－

AP Bank 2003 Eco-friendly projects such as renewable energy

N/A N/A N/A Interest rate: 1％Up to JPY 5 million and 10 years

－

Community Youth Bank momo

2005 Projects to build communities where affluent future can be expected

45,490 52,460 19,407 Interest rate: 2.5 ％ (2.0 % for bridge loans)Up to JPY 5 million and 3 years (w/ exceptions)

－

Kumamoto Social Bank

2008 Social businesses in Kumamoto Prefecture 3,480 0 0 Interest rate: 0 to 3.0％Up to JPY 3 million and 5 years

－

Tennen-Jutaku Bank 2008 Fund for reforms, bridge loans on buying houses

39,315 8,504 1,623 Interest rate: 2.0％Up to JPY 5 million and 10 years

－

Moyai Bank Fukuoka 2009 NPOs, social entrepreneurs etc. in Fukuoka prefecture or nearby regions

11,310 8,700 5,343 Interest rate: 1.5 to 3.0％Up to JPY 3 million and 3 years

－

Shinrai Capital Foundation

2009 Projects to help increase “trust”, such as agriculture, environment, welfare, medical service, education and human rights

0 15,500 13,335 Interest rate: 0％Up to JPY 3 million and 2 years

Donation 24,750

Peace Bank Ishikawa 2010 NPO activities, highly social projects and community-building projects in Ishikawa

6,571 1,150 1,090 Interest rate: 3.0% (1.0% for bridge loans)Up to JPY 3 million and 5 years

－

Total 541,950 2,106,133 285,378

（ In: thousand of yens ）

Example: Hokkaido NPO Bank (HNB)

Elaborated on the basis of Hokkaido NPO Bank ： NPO バンクについて（ http://NPObank.blogspot.com/）

NPO Juridical Person HNB / NPO Bank Business Partnership

Address Hokkaido NPO Support CentreKuwagata Building, 2nd Floor, South 2 West 10,Chuo-ku Sapporo-shi 060-0062 JAPAN

Organisation form NPO Bank Business Partnership ＝ Voluntary Partnership (Civil Code Art. 667)NPO HNB ＝ NPO juridical person（ registered as money lender no. 02730 at Ishikari, Hokkaido (T3))

Business size Total capital; 　 　 Appr. JPY 44.71 million Total loans: 　　　 Appr. JPY 270.27 million Pending loans: 　　 Appr. JPY 11.31 million 　JPY 7.03 million donation on top of capital 　

（ as of end of March 2011)

HNB’s mechanism

NPO Bank Business

Partnership

HNB

PeopleBusinesses

Public sectorNPOs

Capital injection

Repay

NPOs

Loans

Repay

DonationsLoans

Supporters

Supporter requirement – Individuals over 20, corporations and organisations

etc. Need to submit the application form, to get the approval at the Board of

Directors and to transfer money at the designated bank account. The minimum fund is JPY 10,000 The funds are redeemable only during a certain period after the annual closing

of booking No guarantee for principle nor dividend to funds The whole capital is financed to HNB. HNB finances this money into NPOS and workers’ collectives.

Laws affecting NPO Banks

Capital Subscription Law (CSL)

Financial Instruments and Exchange Act

(FIEA)

Money Lending Business Act (MLBA)

In relation to the Capital Subscription Law (CSL)

About CSL

Formal names is “Act on Regulation of Receiving of Capital Subscription, Deposits, and Interest Rates, etc.”, stipulated in 1954. It restricts the acceptance of funds from general public promising to repay more than the paid amount, forbids non-banks to accept deposits unless otherwise stipulated at other laws, forbids illegal loans by financial institution‘s employees, restricts the commission fee on borrowing money and stipulates punishments on usury in order to prevent unforeseen damages to investors and economic chaos. It was revised in 1983 to lower the maximum interest rate and is considered as regulating law of consumer finance together with “Money Lending Business Act” which was formulated at the same time.

CSL forbids non-banks to guarantee principles and to plan to distribute dividend

- Risks of no-guarantee is clarified at NPO Banks’ pamphlets

- NPO Banks have decided not to distribute any dividend at all because of FIEA

Challenges and replies

In relation to the Financial Instruments and Exchange Act (FIEA)

About FIEA

The Securities and Exchange Act, stipulated in 1948, was changed into FIEA in 2006. It aims to realise the issue of securities and financial goods in a fair manner, to circulate securities smoothly, to form fair prices of financial products by fully realising the functions of the capital market, to develop the national economy decently and to protect investors. It arranges the disclosure system on corporations and stipulates requirements on Financial Instrument Businesses in order to ensure the appropriate management of financial instruments exchanges.

The elaboration of prospectus and registration for the 2nd Financial Instruments Business is required, which is a huge burden for NPO Banks which have been supporting the civil society almost entirely by volunteers and the application of this rule would raise the interest rate too much, jeopardizing the raison-d’être of NPO Banks themselves

- Won the exemption on the condition of not allowing the distribution of dividends as “investments without distribution of monetary profit such as interest and dividend are not to be regarded as financial products”

Challenges and replies

In relation to the Money Lending Business Act (MLBA)

About MLBA

MLBA was stipulated in 1983 changing the money lending business from notification to registration with the aim to change to run this business appropriately and to protect the interest of money borrowers and was revised in 2007. Over its revisions, the Gray Zone for interest rates was abolished, more punishment is given for non-registered money lenders, more restriction on day-time repayment collection on top of nighttime one was strengthened, a measure is taken to avoid excessive lending and borrowing (borrowing more than a third of your annual income is forbidden) and the need to confirm the borrowers’ whole debt amount at Designated Credit Information Institution is stimulated. It is considered as a regulating law on consumer finance.

Increase of money lender‘s minimum net asset to JPY 50 millionCompulsory enrollment into the Designated Credit Information InstitutionIntroduction of Total Volume ControlObligation to have one full-time counselor who has worked for providing loans for at least three years

- A special rule of JPY 5 million is added for net asset requirement- Other requirements are exempted on the condition of maximum 7.5% annual interest rate

for the indigent or for socially beneficial non-profit lending (17 fields at NPO Act)

Challenges and replies

Towards NPO Banks’ future

“No dividend for investors” restricts the potential of civil society activitiesNPO Banks are obliged to pay money lending agency registration fee and financial ADR (Alternative Dispute Resolution) yearly contribution because of its character as money lendersNPO Banks, performing on the non-profit basis, will be affected by regulations aimed at commercial organisations every time a new law revision is done

Future challenges

The Democratic Party, taking power in 2009, aims at “promoting a new public sphere,” positioning NPO Banks as a financial scheme for “a new public sphere”Lobbying for the stipulation of NPO Bank act to enable the setup of non-profit bank juridical person and discussing specific requirements, governance and interest ratesA permanent counselor at JNBN joins “A new public sphere” promotion congress, proposing how NPO Banks will beCivil Society Policy Investigation started a research project on “legal systems on new non-profit financial projects beneficial to local communities,” trying to propose policies to build such systems

Towards the future

More expectation on non-profit and socially-beneficial finance, so appropriate law is now needed for such needs

Fin