One aspect of Japanese modernization in the early 20th century was rural economic development. Farmers played a large role in the development process because of the importance of agriculture, especially sericulture, to Japanese exports.
Micro-finance was one of the factors in the rural development process (as we have seen with Grameen Bank in the present day). This paper analyzes the birth and growth in modern Japan of a local micro-finance system. It does so through a case study of Kano village, which is in the Chiisagata area of Nagano Prefecture. This was the center of Japanese sericulture production.
In 1900, the Japanese government adopted the Industrial Cooperatives Act. It was a mixture of ideas taken from overseas. The intent was to provide credit for cooperative members. This kind of cooperative credit union spread throughout Japan over the next two decades or so.
Earlier, the construction of a national railway network had not only integrated the Japanese internal market but also connected it with markets outside Japan. By the 1880s, over 50% of American raw silk was produced in Japan. As the industry expanded, it needed capital for seasonal purchases of fertilizer. However, because the scale of production was small, Japanese farmers had difficulty in obtaining credit. The credit unions created in the wake of the Industrial Cooperative Act helped to satisfy the demand for capital and allow the industry to grow.
Silk was the main cash crop in Kano village. The Kano Credit Union was organized in 1903 by a young graduate of one of Japanese new universities. Other executives of the cooperative included wealthy farmers and the village's former officials. The cooperative itself was a modern institution but it drew on pre-existing traditions of local credit networks.
This paper focuses on the Kano Credit Union through the end of World War I. Its growth supported, and was supported by, a boom in the local sericulture industry. Hence micro-finance provided crucial support for the development of the local economy.