Abstract
The Japanese government revised the Money Lending Business Law (hereinafter "MLBL") in December 2006, and imposed on the non-bank market excessive regulations which cannot be seen in other advanced countries. By this law revision, the cap rate was reduced from 29.2% to 15-20% per annum (cap rate reduction). In addition, the Law obliged submission of a withholding tax record, etc. upon screening, and banned in principle lending exceeding one third of an individual annual income (cap amount regulation). The user base with lower creditworthiness, especially owners of micro-entities, faced a severe credit squeeze. While their demands for short-term unsecured loans have been historically strong, due to such a series of regulation enhancements, moneylenders have increasingly tightened their screening and shut out owners of micro-entities with relatively high risk. Generally, owners of micro-entities had borrowed money on security from financial institutions for their mid-and long-term fund needs such as capital investment. Meanwhile, for their emergent short-term fund needs, they used to get unsecured/unguaranteed loans as bridging loans from moneylenders. In other words, it can be said that lending functions of moneylenders have supplemented banks for such urgent demands of funds that banks couldn't handle. However, after the revision of the MLBL, the annual cap rate for a loan of 1 million yen and above was defined as 15%, which resulted in forcing owners of micro-entities, whose financing opportunities were narrowed down, to cover opportunity cost or go out of business after failing to get bridging loans.
