The Noko Ginko (Agriculture and Industry Bank) in the Late Meiji Era

Abstract

This article is an analysis of the operations of the Noko Ginko in the late Meiji period, with emphasis on the economic role of this banking system in regard to agriculture. The Noko Ginko was established during the period 1898-1900 in each prefecture primarily for the purpose of assiting the development of Japanese agriculture and industry by furnishing the peasantry and small manufacturers with long-term, low-interest, mortgage funds. The present paper analyses certain aspects of the Ndko Ginko of Gunma-ken as one example of the characteristics and problems of the whole Noko banking system which are summarized below. First, the Noko banking system was afflicted with a shortage of funds from the very beginning, mainly because the issuing of debentures was beset by many problems. Consequently, loanable funds or working capital consisted largely of "own capital" --sometimes as much as 80 per cent. Cheap funds from the government coffers were at times supplied to overcome the chronic shortages of the Noko banking system, but in these cases the Noko Banks were nothing more than intermediaries, distributing governments funds for well-defined government purposes. Secondly, partly because farmers had a poor record of repaying loans, the proportion of loans which went to agriculture for land improvement, irrigation and rearrangement of arable land decreased over time relative to the proportion for industries such as sericulture and silk spinning. This was especially true after the Russo-Japanese war. Thirdly, assets, especially land, were increasingly required by the Noko Banks as security for not only long-term, but also short-term loans. However, this requirement tended to contradict the Noko Banks original mission of assisting the development of small-scale enterprises, such as agricultural cooperatives and special liability associations. Thus, the "raison d'etre" of the Noko Banks gradually began to disappear. Fourthly, since the Noko Banks were closely connected to .the local financial and administrative circles, they often became involved in local political problems. On one hand, these political connections gave the Banks greater access to local "owner's capital" or loanable funds, but on the other hand, the political connections of the Banks also meant that loans were made with due consideration of political friendships. Consequently, Article I of the Noko Ginko Act, which confined lending to development purposes, came to be at odds with the actual lending criteria of the Banks, and Article I was abolished in 1911. Subsequently, the Banks became more concerned with profitability and this led to the results mentioned above--decreasing loans to less reliable farm groups and increasing credit or security requirements. With the amendment of the Noko Ginkd Act, the Noko Banks gradually changed from agricultural credit banks into common mortgage banks. More generally, there was a change in emphasis in Noko Bank policy from promoting the development of small-scale enterprises to seeking profitable loans and supporting enterprises, especially farmers, in times of distress with the assistance of government funds.