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Tradable securities may provide the answer to Japan’s SME’s

Small and medium sized enterprises (SME) provide employment for three-quarters of Japan's workforce - but they have serious debt management issues.

The island nation has been hit by hard-times. A weakened economy coupled with a worsening banking crisis has hit the SME hard - financing is becoming increasingly more difficult.

Most SME rely heavily on bank and credit union loans, but they no longer provide adequate capital risk for these traditional lenders.

As a result, the government and the Bank of Japan (BOJ) have introduced a public policy initiative designed to provide support and more importantly capital to the troubled SME community. Through a securitization package, these small-medium sized companies will be able to have a far greater access to funding

SME have already become non cost-efficient, unable to compete with larger corporations and as a consequence, many have undergone a period of diversification - a task nearly impossible without adequate funding.

The government has supported SME funding through direct lending via government related financial entities such as the Government SME loan corporation or by providing guarantees to SME-related entities. One important action has been the BOJ's announcement that it will purchase ABCP and other securitisations backed by SME loans or receivables beginning in late 2003.

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